Download Word - corporate

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 10, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-16247
FLOWERS FOODS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA
58-2582379
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1919 FLOWERS CIRCLE, THOMASVILLE, GEORGIA
(Address of principal executive offices)
31757
(Zip Code)
229/226-9110
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer

Accelerated filer

Non-accelerated filer
 (Do not check if a smaller reporting company)
Smaller reporting company

Act).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Yes  No 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
TITLE OF EACH CLASS
OUTSTANDING AT NOVEMBER 5, 2015
Common Stock, $.01 par value
212,161,247
FLOWERS FOODS, INC.
INDEX
PAGE
NUMBER
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of October 10, 2015 and January 3, 2015
Condensed Consolidated Statements of Income for the Twelve and Forty Weeks Ended October 10,
2015 and October 4, 2014
Condensed Consolidated Statements of Comprehensive Income for the Twelve and Forty Weeks Ended
October 10, 2015 and October 4, 2014
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Forty Weeks Ended
October 10, 2015
Condensed Consolidated Statements of Cash Flows for the Forty Weeks Ended October 10, 2015 and
October 4, 2014
Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
Signatures
Exhibit index
3
3
4
5
6
7
8
31
52
52
53
53
53
54
55
Forward-Looking Statements
Statements contained in this filing and certain other written or oral statements made from time to time by the company and its
representatives that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of
1995. Forward-looking statements relate to current expectations regarding our future financial condition and results of operations and
are often identified by the use of words and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “would,” “is likely to,” “is expected to” or “will continue,” or the
negative of these terms or other comparable terminology. These forward-looking statements are based upon assumptions we believe
are reasonable.
Forward-looking statements are based on current information and are subject to risks and uncertainties that could cause our
actual results to differ materially from those projected. Certain factors that may cause actual results, performance, liquidity, and
achievements to differ materially from those projected are discussed in this report and may include, but are not limited to:

unexpected changes in any of the following: (i) general economic and business conditions; (ii) the competitive setting in
which we operate, including advertising or promotional strategies by us or our competitors, as well as changes in consumer
demand; (iii) interest rates and other terms available to us on our borrowings; (iv) energy and raw materials costs and
availability and hedging counter-party risks; (v) relationships with or increased costs related to our employees and third
party service providers; and (vi) laws and regulations (including environmental and health-related issues), accounting
standards or tax rates in the markets in which we operate;

the loss or financial instability of any significant customer(s);

changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward
more inexpensive store-branded products;

the level of success we achieve in developing and introducing new products and entering new markets;

our ability to implement new technology and customer requirements as required;

our ability to operate existing, and any new, manufacturing lines according to schedule;

our ability to execute our business strategy, which may involve integration of recent acquisitions or the acquisition or
disposition of assets at presently targeted values;

consolidation within the baking industry and related industries;

changes in pricing, customer and consumer reaction to pricing actions, and the pricing environment among competitors
within the industry;

disruptions in our direct-store-delivery distribution system, including litigation or an adverse ruling by a court or regulatory
or governmental body that could affect the independent contractor classifications of our independent distributors;

increases in employee and employee-related costs, including funding of pension plans;

the credit and business risks associated with independent distributors and our customers, which operate in the highly
competitive retail food and foodservice industries;

any business disruptions due to political instability, armed hostilities, incidents of terrorism, natural disasters, technological
breakdowns, product contamination or the responses to or repercussions from any of these or similar events or conditions
and our ability to insure against such events;

the failure of our information technology systems to perform adequately, including any interruptions, intrusions or security
breaches of such systems; and

regulation and legislation related to climate change that could affect our ability to procure our commodity needs
or that necessitate additional unplanned capital expenditures.
The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In
addition, you should consult other disclosures made by the company (such as in our other filings with the Securities and Exchange
Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those
projected by the company. Refer to Part I, Item 1A., Risk Factors , of our Annual Report on Form 10-K for the year ended January 3,
2015 (the “Form 10-K”) and Part II, Item 1A., Risk Factors , of our Quarterly Report on Form 10-Q for the quarter ended April 25,
2015 for additional information regarding factors that could affect the company’s results of operations, financial condition and
liquidity.
1
We caution you not to place undue reliance on forward-looking statements, as they speak only as of the date made and are
inherently uncertain. The company undertakes no obligation to publicly revise or update such statements, except as required by
law. You are advised, however, to consult any further public disclosures by the company (such as in our filings with the SEC or
in company press releases) on related subjects.
We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our
corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary
rights that protect the content of our products and the formulations for such products. Solely for convenience, some of the trademarks,
trade names and copyrights referred to in this Form 10-Q are listed without the © , ® and ™ symbols, but we will assert, to the
fullest extent under applicable law, our rights to our trademarks, trade names and copyrights.
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
October 10, 2015
ASSETS
Current assets:
Cash and cash equivalents
January 3, 2015
$
8,780
Accounts and notes receivable, net of allowances of $2,892 and $2,723, respectively
Inventories, net:
Raw materials
Packaging materials
Finished goods
Inventories, net
Spare parts and supplies
Deferred taxes
Other
Total current assets
Property, plant and equipment, net:
Property, plant and equipment, gross
Less: accumulated depreciation
Property, plant and equipment, net
Notes receivable
Assets held for sale
Other assets
Goodwill
Other intangible assets, net
Total assets
$
267,762
235,911
41,280
21,263
47,364
109,907
56,481
31,904
38,443
513,277
33,579
19,591
39,930
93,100
54,058
26,823
43,148
460,563
1,848,927
(1,064,315)
784,612
162,385
34,277
11,851
425,216
820,625
2,752,243 $
1,792,626
(985,168)
807,458
161,905
39,108
12,011
282,960
644,969
2,408,974
53,465
183,908
144,549
381,922
34,496
142,643
138,414
315,553
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations
Accounts payable
Other accrued liabilities
Total current liabilities
Long-term debt:
Total long-term debt and capital lease obligations
Other liabilities:
Post-retirement/post-employment obligations
Deferred taxes
Other long-term liabilities
Total other long-term liabilities
Stockholders’ equity:
$
$
$
7,523
843,643
728,940
75,004
174,780
48,478
298,262
93,589
94,153
53,695
241,437
Preferred stock — $100 stated par value, 200,000 authorized and none issued
—
—
Preferred stock — $.01 stated par value, 800,000 authorized and none issued
—
—
Common stock — $.01 stated par value and $.001 current par value,
500,000,000 authorized shares, 228,729,585 shares and 228,729,585
shares issued, respectively
Treasury stock — 17,059,103 shares and 19,382,272 shares, respectively
Capital in excess of par value
Retained earnings
199
(180,958)
626,325
876,341
199
(202,062)
613,859
809,068
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
(93,491)
1,228,416
2,752,243 $
(See Accompanying Notes to Condensed Consolidated Financial Statements)
3
(98,020)
1,123,044
2,408,974
FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
For the Twelve Weeks Ended
October 10, 2015
Sales
$
Materials, supplies, labor and other production costs
(exclusive of depreciation and amortization
shown separately below)
Selling, distribution and administrative expenses
Impairment of assets
Depreciation and amortization
Income from operations
Interest expense
Interest income
Income before income taxes
Income tax expense
Net income
$
Net income per common share:
Basic:
Net income per common share
$
Weighted average shares outstanding
Diluted:
Net income per common share
$
$
$
442,978
302,086
—
29,487
70,381
6,285
(4,875)
68,971
24,372
44,599 $
0.21
0.21
$
0.21
$
0.1450
0.21
0.1200
1,507,214
1,064,619
2,275
99,704
246,330
20,349
(17,029)
243,010
86,065
156,945 $
0.75
$
0.74
$
$
0.4225
2,871,640
1,496,874
1,037,628
4,489
98,686
233,963
21,902
(15,586)
227,647
79,918
147,729
0.70
209,573
$
212,921
(See Accompanying Notes to Condensed Consolidated Financial Statements)
4
October 4, 2014
$
210,318
213,154
$
2,920,142
$
210,084
213,310
$
844,932
October 10, 2015
464,045
322,087
—
29,419
69,751
5,992
(5,114)
68,873
25,077
43,796 $
210,842
Weighted average shares outstanding
Cash dividends paid per common share
885,302
For the Forty Weeks Ended
October 4, 2014
0.69
213,005
$
0.3525
FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
For the Twelve Weeks Ended
October 10,
2015
Net income
Other comprehensive income, net of tax:
Pension and postretirement plans:
Amortization of prior service credit included in net income
Amortization of actuarial loss included in net income
Pension and postretirement plans, net of tax
Derivative instruments:
Net change in fair value of derivatives
Loss reclassified to net income
Derivative instruments, net of tax
Other comprehensive income (loss), net of tax
$
Comprehensive income
$
43,796
For the Forty Weeks Ended
October 10,
2015
October 4, 2014
$
44,599
$
$
147,729
(67)
624
557
(66)
191
125
(223)
2,080
1,857
(222)
637
415
(2,652)
1,096
(1,556)
(999)
(9,128)
(1,145)
(10,273)
(10,148)
(1,262)
3,934
2,672
4,529
(10,028)
2,369
(7,659)
(7,244)
42,797
$
34,451
$
(See Accompanying Notes to Condensed Consolidated Financial Statements)
5
156,945
October 4, 2014
161,474
$
140,485
FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)
(Unaudited)
Common Stock
Capital in
Number of
shares
issued
Balances at January 3,
2015
Net income
Derivative instruments,
net of tax
228,729,585
Accumulated
Excess
Par
Value
$ 199 $
Other
of Par
Value
Retained
Earnings
613,859 $
809,068 $
156,945
Pension and
postretirement plans, net
of tax
Exercise of stock options
(98,020)
Number of
Shares
Cost
Total
(19,382,272) $ (202,062) $
2,672
1,857
1,857
1,741,300
18,453
13,115
8,992
206
8,742
Performance-contingent
restricted stock awards
issued (Note 13)
Issuance of deferred stock
awards
Stock repurchases
(404)
Dividends paid on vested
share-based payment
awards
228,729,585
$ 199 $
626,325 $
—
8,742
(8,899)
Dividends paid —
$0.4225 per common
share
18,571
13,115
(206)
Income tax benefits
related to share-based
payment awards
1,123,044
156,945
2,672
118
Amortization of
share-based compensation
awards
Issuance of deferred
compensation
Balances at October 10,
2015
Treasury Stock
Comprehensive
Income (Loss)
853,206
8,899
38,070
(318,399)
404
(6,858)
—
—
(6,858)
(879)
(879)
(88,793)
(88,793)
876,341 $
(93,491)
(17,059,103) $ (180,958) $
(See Accompanying Notes to Condensed Consolidated Financial Statements)
6
1,228,416
FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Forty Weeks Ended
October 10, 2015
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of assets
Stock-based compensation
Loss reclassified from accumulated other comprehensive income to net income
Depreciation and amortization
Deferred income taxes
Provision for inventory obsolescence
Allowances for accounts receivable
Pension and postretirement plans income
Other
Qualified pension plan contributions
Changes in operating assets and liabilities, net of acquisitions and disposals:
Accounts and notes receivable, net
Inventories, net
Hedging activities, net
Other assets
Accounts payable
Other accrued liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES:
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Repurchase of independent distributor territories
Principal payments from notes receivable
Contingently refundable consideration
Acquisition of business, net of cash acquired
Acquisition of intangible assets
NET CASH DISBURSED FOR INVESTING ACTIVITIES
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES:
Dividends paid, including dividends on share-based payment awards
Exercise of stock options
Excess windfall tax benefit related to share-based payment awards
Payments for financing fees
Stock repurchases
Change in bank overdrafts
Proceeds from debt borrowings
Debt and capital lease obligation payments
NET CASH PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
156,945
$
147,729
2,275
13,291
6,205
99,704
11,029
839
2,340
(4,677)
(1,913)
(10,000)
4,489
14,186
3,658
98,686
8,244
1,026
3,206
(7,730)
(4,122)
(12,999)
(19,710)
(10,461)
(8,387)
(2,377)
31,214
14,225
280,542
(6,873)
1,971
(16,286)
(12,088)
(3,798)
943
220,242
(61,258)
10,347
(16,255)
19,916
—
(280,848)
(5,000)
(333,098)
(58,564)
18,164
(14,845)
17,436
7,500
—
—
(30,309)
(89,672)
18,571
8,742
(602)
(6,858)
(10,868)
710,500
(576,000)
53,813
1,257
7,523
8,780 $
(See Accompanying Notes to Condensed Consolidated Financial Statements)
7
October 4, 2014
(74,493)
17,096
7,139
(577)
(19,791)
(3,002)
942,900
(1,059,660)
(190,388)
(455)
8,530
8,075
FLOWERS FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
INTERIM FINANCIAL STATEMENTS — The accompanying unaudited Condensed Consolidated Financial Statements of
Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) have been prepared by the company’s
management in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim
financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended. Accordingly, they do
not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the
unaudited Condensed Consolidated Financial Statements included herein contain all adjustments (consisting of only normal recurring
adjustments) necessary to state fairly the company’s financial position, the results of its operations and its cash flows. The results of
operations for the twelve and forty weeks ended October 10, 2015 and October 4, 2014 are not necessarily indicative of the results to
be expected for a full fiscal year. The Condensed Consolidated Balance Sheet at January 3, 2015 has been derived from the audited
financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial
statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes
thereto included in the company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2015.
ESTIMATES — The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. The company believes the following critical accounting estimates affect its more significant judgments and estimates
used in the preparation of its consolidated financial statements: revenue recognition, derivative instruments, valuation of long-lived
assets, goodwill and other intangibles, self-insurance reserves, income tax expense and accruals and pension obligations. These
estimates are summarized in the company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2015.
REPORTING PERIODS — The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31.
Fiscal 2015 consists of 52 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 25, 2015
(sixteen weeks), second quarter ended July 18, 2015 (twelve weeks), third quarter ended October 10, 2015 (twelve weeks) and fourth
quarter ending January 2, 2016 (twelve weeks).
SEGMENTS — Flowers Foods currently operates two business segments: a direct-store-delivery segment (“DSD Segment”)
and a warehouse delivery segment (“Warehouse Segment”). The DSD Segment (84% of total year to date sales) currently operates 39
bakeries that market a wide variety of fresh bakery foods, including fresh breads, buns, rolls, tortillas, and snack cakes. These products
are sold through a DSD route delivery system to retail and foodservice customers in the Southeast, Mid-Atlantic, New England,
Southwest, California and select markets in Nevada, the Midwest and the Pacific Northwest. The Warehouse Segment (16% of total
year to date sales) currently operates ten bakeries that produce snack cakes, breads and rolls for national retail, foodservice, vending,
and co-pack customers and deliver through customers’ warehouse channels. The Warehouse Segment also operates one baking
ingredient mix facility.
SIGNIFICANT CUSTOMER — Following is the effect our largest customer, Walmart/Sam’s Club, had on the company’s
sales for the twelve and forty weeks ended October 10, 2015 and October 4, 2014. Walmart is the only customer to account for greater
than 10% of the company’s sales.
DSD Segment
Warehouse Segment
Total
For the Twelve Weeks Ended
For the Forty Weeks Ended
October 10, 2015
October 4, 2014
(% of Sales)
October 10, 2015
October 4, 2014
(% of Sales)
16.7
2.5
19.2
17.0
2.5
19.5
16.9
2.5
19.4
16.8
2.7
19.5
Walmart/Sam’s Club is our only customer with a balance greater than 10% of outstanding trade receivables. Their percentage
of trade receivables was 16.5% and 17.2%, on a consolidated basis, as of October 10, 2015 and January 3, 2015, respectively. No
other customer accounted for greater than 10% of the company’s outstanding trade receivables.
SIGNIFICANT ACCOUNTING POLICIES — There were no significant changes to our critical accounting policies for the
quarter ended October 10, 2015 from those disclosed in the company’s Annual Report on Form 10-K for the fiscal year ended January
3, 2015.
8
2. RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In May 2014, the FASB issued guidance for recognizing revenue in contracts with customers. This guidance requires entities to
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. There are five steps outlined in the guidance to achieve
this core principle. This guidance was originally effective January 1, 2017 the first day of our fiscal 2017. In July 2015, the FASB
issued a deferral for one year making the effective date December 31, 2017, the first day of our fiscal 2018. Early application is
permitted but not before January 1, 2017. The standard permits the use of either the modified retrospective or cumulative effect
transition method. We are in the process of determining the effect this guidance will have on our Condensed Consolidated Financial
Statements and which transition method we will apply.
In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of
that debt liability, consistent with debt discount presentation. This guidance is effective for financial statements for fiscal years
beginning after December 15, 2015, and interim periods within those years. This guidance is applied on a retrospective basis at
adoption and the disclosures for a change in an accounting principle apply. Earlier application is permitted. Based on the balances as
of October 10, 2015, the adoption of this guidance will require us to reclassify $4.0 million of unamortized debt issuance costs from
other long term assets to long term debt.
In April 2015, the FASB issued guidance to provide a practical expedient permitting applicable entities to measure defined
benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient
consistently from year to year. This guidance is effective for fiscal years beginning after December 15, 2015, and interim periods
within those fiscal years. Earlier application is permitted. The company does not anticipate this guidance having a material impact on
our Condensed Consolidated Financial Statements.
In May 2015, the FASB issued guidance to remove the requirement to categorize within the fair value hierarchy all investments
for which fair value is measured using the net asset value per share expedient. The amendments also remove the requirement to make
certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical
expedient. These disclosures are limited to investments for which the entity has elected to measure the fair value using that practical
expedient. This guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal
years. These are to be applied retrospectively to all periods presented. Earlier adoption is permitted. The company is still analyzing
the potential impact of this guidance on the company’s Condensed Consolidated Financial Statements.
In July 2015, the FASB issued guidance that entities should measure inventory at the lower of cost and net realizable value. Net
realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. This guidance shall be applied prospectively with earlier application permitted as of the beginning of an interim
or annual reporting period. The company is still analyzing the potential impact of this guidance on the company’s Condensed
Consolidated Financial Statements.
In September 2015, the FASB issued guidance that entities that have reported provisional amounts for items in a business
combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the
measurement period have an adjustment to provisional amounts recognized. This update requires that an acquirer recognize
adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. This update also requires that an entity present separately on the face of the income statement or disclose in
the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous
reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is
effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. This is applied
prospectively to adjustments to provisional amounts that occur after the effective date of the guidance. The potential impact of the
guidance on the company’s Condensed Consolidated Financial Statements will only be known after a measurement period adjustment
for an acquisition is recognized. There will be a potential impact as long as our purchase price allocation remains preliminary at the
end of the reporting period.
We have reviewed other recently issued accounting pronouncements and concluded that they are either not applicable to our
business or that no material effect is expected as a result of future adoption.
3. ACQUISITION
Dave’s Killer Bread
On September 12, 2015, the company completed the acquisition of 100% of the stock of Dave’s Killer Bread (“DKB”), the
nation’s best-selling organic bread, from its shareholders for total cash payments of approximately $281.7 million inclusive of
9
payments for certain tax benefits. We believe the acquisition of DKB strengthens our position as the second-largest baker in the U.S.
by giving us access to the fast growing organic bread category and expanding our geographic reach into the Pacific Northwest. The
DKB acquisition has been accounted for as a business combination and is included in our DSD Segment. The results of DKB’s
operations are included in the company’s Condensed Consolidated Financial Statements beginning on September 13, 2015. The total
preliminary goodwill recorded for this acquisition was $142.3 million and it is not deductible for tax purposes.
During the twelve and forty weeks ended October 10, 2015, the company incurred $4.5 million of acquisition-related costs for
DKB. The acquisition-related costs for DKB are recorded in the selling, distribution and administrative expense line item in our
Condensed Consolidated Statements of Income. DKB contributed $9.7 million in sales during the twelve and forty weeks ended
October 10, 2015.
The following table summarizes the consideration paid for DKB based on the fair value at the acquisition date. This table is
based on preliminary valuations for the assets acquired and liabilities assumed. We anticipate changes in the cash consideration paid
for final resolution of a working capital adjustment. We will also continue reviewing the final recognized amounts of identifiable
assets acquired and liabilities assumed (amounts in thousands):
Fair Value of consideration transferred:
Cash consideration paid
$
Recognized amounts of identifiable assets acquired and liabilities assumed:
Property, plant, and equipment
Identifiable intangible asset - trademark
Identifiable intangible asset - customer list
Identifiable intangible asset - non-compete agreements
Deferred income taxes
Financial assets
Net recognized amounts of identifiable assets acquired
Goodwill
$
281,731
9,908
111,400
68,200
700
(61,682)
10,949
139,475
142,256
The following table presents the acquired intangible assets subject to amortization (amounts in thousands, except amortization
periods):
Trademarks
Customer relationships
Non-compete agreements
$
$
Total
111,400
68,200
700
180,300
Weighted average
amortization years
40.0
25.0
2.0
34.2
Attribution Method
Straight-line
Sum of year digits
Straight-line
DKB operates one production facility in Milwaukie, Oregon and has widespread distribution across the U.S. and Canada. The
primary reason for the acquisition was to purchase the leading brand of organic bakery products in the U.S.
The fair value of trade receivables is $14.0 million. The gross amount of the receivable is $14.3 million of which $0.3 million is
determined to be uncollectible. We did not acquire any other class of receivables as a result of the acquisition.
Unaudited pro forma consolidated results of operations for the DKB acquisition are not included because the company
determined that they are immaterial.
10
4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (“AOCI”)
The company’s total comprehensive income presently consists of net income, adjustments for our derivative financial
instruments accounted for as cash flow hedges, and various pension and other postretirement benefit related items.
During the twelve and forty weeks ended October 10, 2015 and October 4, 2014, reclassifications out of accumulated other
comprehensive loss were as follows (amounts in thousands):
Amount Reclassified from AOCI
For the Twelve Weeks Ended
Details about AOCI Components (Note 2)
Gains and losses on cash flow hedges:
Interest rate contracts
Commodity contracts
Total before tax
Tax benefit (expense)
Total net of tax
Amortization of defined benefit pension items:
Prior-service credits
Actuarial losses
Total before tax
Tax benefit
Total net of tax
Total reclassifications
October 10, 2015
$
$
(57)
(1,724)
(1,781)
685
(1,096)
108
(1,014)
(906)
349
(557)
(1,653)
Affected Line Item in the Statement
October 4, 2014
$
$
Where Net Income is Presented
(57)
1,919
1,862
(717)
1,145
Interest income (expense)
Cost of sales, Note 3
Total before tax
Tax benefit
Net of tax
108
(311)
(203)
78
(125)
1,020
Note 1
Note 1
Total before tax
Tax benefit
Net of tax
Net of tax
Amount Reclassified from AOCI
Affected Line Item in the Statement
For the Forty Weeks Ended
Details about AOCI Components (Note 2)
Gains and losses on cash flow hedges:
Interest rate contracts
Commodity contracts
Total before tax
Tax benefit
Total net of tax
Amortization of defined benefit pension items:
Prior-service credits
Actuarial losses
Total before tax
Tax benefit
Total net of tax
Total reclassifications
October 10, 2015
$
$
(192)
(6,205)
(6,397)
2,463
(3,934)
361
(3,381)
(3,020)
1,163
(1,857)
(5,791)
October 4, 2014
$
$
Where Net Income is Presented
(192)
(3,658)
(3,850)
1,481
(2,369)
Interest income (expense)
Cost of sales, Note 3
Total before tax
Tax benefit
Net of tax
360
(1,036)
(676)
261
(415)
(2,784)
Note 1
Note 1
Total before tax
Tax benefit
Net of tax
Net of tax
_______________
Note 1: These items are included in the computation of net periodic pension cost. See Note 14, Postretirement Plans, for
additional information.
Note 2: Amounts in parentheses indicate debits to determine net income.
Note 3: Amounts are presented as an adjustment to reconcile net income to net cash provided by operating activities on the
Condensed Consolidated Statements of Cash Flows.
11
During the forty weeks ended October 10, 2015, changes to accumulated other comprehensive loss, net of income tax, by
component were as follows (amounts in thousands):
Defined
Benefit Pension
Plan Items
Gains/Losses
on Cash
Flow Hedges
Accumulated other comprehensive loss, January 3, 2015
Other comprehensive income before reclassifications
Reclassified to earnings from accumulated other comprehensive loss
Accumulated other comprehensive loss, October 10, 2015
$
(11,408) $
(1,262)
3,934
(8,736) $
$
Total
(86,612) $
—
1,857
(84,755) $
(98,020)
(1,262)
5,791
(93,491)
During the forty weeks ended October 4, 2014, changes to accumulated other comprehensive loss, net of income tax, by
component were as follows (amounts in thousands):
Defined
Benefit Pension
Plan Items
Gains/Losses
on Cash
Flow Hedges
Accumulated other comprehensive loss, December 28, 2013
Other comprehensive income before reclassifications
Reclassified to earnings from accumulated other comprehensive loss
Accumulated other comprehensive loss, October 4, 2014
$
(11,416) $
(10,028)
2,369
(19,075) $
$
Total
(51,099) $
—
415
(50,684) $
(62,515)
(10,028)
2,784
(69,759)
Amounts reclassified out of accumulated other comprehensive loss to net income that relate to commodity contracts are
presented as an adjustment to reconcile net income to net cash provided by operating activities on the Condensed Consolidated
Statements of Cash Flows. The following table presents the net of tax amount of the gain or loss reclassified from accumulated other
comprehensive income (“AOCI”) for our commodity contracts (amounts in thousands):
For the Forty Weeks Ended
October 10, 2015
Gross loss reclassified from AOCI into income
Tax benefit
Net of tax
$
$
12
6,205 $
(2,388)
3,817 $
October 4, 2014
3,658
(1,406)
2,252
5. FINANCIAL STATEMENT REVISIONS
During the fourth quarter of fiscal 2014, we revised net sales. Historically, certain immaterial discounts had been recorded as an
expense to selling, distribution and administrative costs. These discounts are now recorded as contra revenue. These revisions have
been made for all periods presented in our Annual Report on Form 10-K for the fiscal year ended January 3, 2015. We concluded that
these revisions were immaterial to our fiscal 2013 and 2012 financial statements and to each of the quarterly periods in fiscal years
2014, 2013, and 2012. This revision impacted the DSD Segment.
Our financial statements have been revised to correctly report the discounts by decreasing sales and decreasing selling,
distribution and administrative expenses by the amount of the discounts in the respective periods presented. There are no impacts on
our Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders’ Equity, or Consolidated Statements of Cash
Flows for any prior periods. Additionally, the correction did not impact our previously reported income from operations, net income or
earnings per share.
The tables below present the revisions to the applicable financial statement line items for the twelve weeks ended October 4,
2014 (amounts in thousands):
Consolidated
Twelve Weeks Ended October 4, 2014
As Previously
Reported
Impacted Financial Statement line item
Sales
Revisions
As Revised
$
849,360 $
(4,428) $
844,932
Selling, distribution and administrative expense $
306,514 $
(4,428) $
302,086
DSD Segment
Twelve Weeks Ended October 4, 2014
As Previously
Reported
Impacted Financial Statement line item
Sales
Selling, distribution and administrative
expense
Revisions
As Revised
$
718,274 $
(4,428) $
713,846
$
277,158 $
(4,428) $
272,730
The tables below present the revisions to the applicable financial statement line items for the forty weeks ended October 4, 2014
(amounts in thousands):
Consolidated
Forty Weeks Ended October 4, 2014
As Previously
Reported
Impacted Financial Statement line item
Sales
Revisions
As Revised
$
2,886,498 $
(14,858) $
2,871,640
Selling, distribution and administrative expense $
1,052,486 $
(14,858) $
1,037,628
DSD Segment
Forty Weeks Ended October 4, 2014
As Previously
Reported
Impacted Financial Statement line item
Sales
Revisions
As Revised
$
2,428,190 $
(14,858) $
2,413,332
Selling, distribution and administrative expense $
949,766 $
(14,858) $
934,908
13
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The table below summarizes our goodwill and other intangible assets at October 10, 2015 and January 3, 2015, respectively,
each of which is explained in additional detail below (amounts in thousands):
October 10, 2015
Goodwill
Amortizable intangible assets, net of amortization
Indefinite-lived intangible assets
Total goodwill and other intangible assets
$
January 3, 2015
425,216
365,625
455,000
1,245,841
$
$
282,960
189,969
455,000
927,929
$
The changes in the carrying amount of goodwill, by segment, during fiscal 2015, are as follows (amounts in thousands):
DSD Segment
Outstanding at January 3, 2015
Goodwill acquired (Note 3)
Outstanding at October 10, 2015
$
Warehouse Segment
278,483 $
142,256
420,739 $
$
Total
4,477 $
4,477 $
282,960
142,256
425,216
On February 25, 2015, we announced that we acquired the Roman Meal trademark for breads and buns in the United States and
its territories, and in Mexico, Canada, Bermuda, and the Bahamas from the Roman Meal Company in Tacoma, Washington for $5.0
million. This trademark acquisition is being accounted for as an asset purchase and is being amortized over a twenty year estimated
useful life.
On September 12, 2015, we completed the acquisition of DKB for $281.7 million inclusive of payments for certain tax
benefits. This acquisition included several amortizable intangible assets which total $180.3 million and are included in the table
below. See Note 3, Acquisition for details of the assets and the respective amortization period by category.
As of October 10, 2015 and January 3, 2015, the company had the following amounts related to amortizable intangible assets
(amounts in thousands):
October 10, 2015
Asset
Cost
Trademarks
Customer relationships
Non-compete agreements
Distributor relationships
Total
$
$
188,127
238,121
4,974
4,123
435,345
January 3, 2015
Accumulated
Amortization
$
$
16,408
47,787
3,839
1,686
69,720
Net
Value
$
$
171,719
190,334
1,135
2,437
365,625
Accumulated
Amortization
Cost
$
$
71,727
169,921
4,274
4,123
250,045
$
$
14,152
41,099
3,351
1,474
60,076
Net
Value
$
$
57,575
128,822
923
2,649
189,969
Aggregate amortization expense for the twelve and forty weeks ended October 10, 2015 and October 4, 2014 was as follows
(amounts in thousands):
Amortization
Expense
For the twelve weeks ended October 10, 2015
For the twelve weeks ended October 4, 2014
For the forty weeks ended October 10, 2015
For the forty weeks ended October 4, 2014
$
$
$
$
3,359
2,705
9,644
9,041
There are $455.0 million of indefinite life intangible assets at October 10, 2015 and January 3, 2015. These assets are not being
amortized and are separately identified from goodwill. These trademarks are classified as indefinite-lived because we believe there is
no foreseeable limit on the period of time over which they are expected to contribute to our future cash flows. This is primarily
because they are well established brands, many over forty years old with a long history and well defined markets. In addition, we
continue to use these brands both in their original markets and throughout our expansion territories. We believe these factors support
an indefinite-life assignment. We perform an annual impairment analysis to determine if the trademarks are realizing the expected
economic benefits.
14
Estimated amortization of intangibles for each of the next five years is as follows (amounts in thousands):
Amortization of
Intangibles
Remainder of 2015
2016
2017
2018
2019
$
$
$
$
$
4,640
19,619
18,829
18,228
17,870
The table above does not include the acquisition of Alpine Valley Bread Company that was completed on October 13, 2015,
subsequent to our third quarter, because we have not completed our assessment of the impact at this time. See Note 18, Subsequent
Events , for details on this acquisition.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable and short-term debt approximates fair value because of the
short-term maturity of the instruments. Notes receivable are entered into in connection with the purchase of distributors’ territories by
independent distributors. These notes receivable are recorded in the consolidated balance sheet at carrying value, which represents the
closest approximation of fair value. In accordance with GAAP, fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a result, the appropriate
interest rate that should be used to estimate the fair value of the distributor notes is the prevailing market rate at which similar loans
would be made to distributors with similar credit ratings and for the same maturities. However, the company finances approximately
3,700 independent distributors all with varied financial histories and credit risks. Considering the diversity of credit risks among the
independent distributors, the company has no method to accurately determine a market interest rate to apply to the distributor notes.
The territories are generally financed for up to ten years and the distributor notes are collateralized by the independent distributors’
territories. The company maintains a wholly-owned subsidiary to assist in financing route purchase activities if requested by new
independent sales distributors, using the route and certain associated assets as collateral. These notes receivable earn interest at a fixed
rate.
Interest income for the distributor notes receivable was as follows (amounts in thousands):
Interest
Income
For the twelve weeks ended October 10, 2015
For the twelve weeks ended October 4, 2014
For the forty weeks ended October 10, 2015
For the forty weeks ended October 4, 2014
$
$
$
$
5,114
4,875
17,029
15,586
At October 10, 2015 and January 3, 2015, respectively, the carrying value of the distributor notes was as follows (amounts in
thousands):
October 10, 2015
Distributor notes receivable
January 3, 2015
$
182,987
$
182,188
Current portion of distributor notes receivable recorded in accounts and notes receivable, net
Long-term portion of distributor notes receivable
$
20,602
162,385
$
20,283
161,905
At October 10, 2015 and January 3, 2015, the company has evaluated the collectability of the distributor notes and determined
that a reserve is not necessary. Payments on these distributor notes are collected by the company weekly in conjunction with the
distributor settlement process.
The fair value of the company’s variable rate debt at October 10, 2015 approximates the recorded value. The fair value of the
ten-year 4.375% senior notes (“notes”) issued on April 3, 2012, as discussed in Note 9, Debt and Other Obligations below, is
approximately $420.8 million while the carrying value is $399.4 million on October 10, 2015. The fair value of the notes is estimated
using yields obtained from independent pricing sources for similar types of borrowing arrangements and is considered a Level 2
valuation.
For fair value disclosure information about our derivative assets and liabilities see Note 8, Derivative Financial Instruments .
15
8. DERIVATIVE FINANCIAL INSTRUMENTS
The company measures the fair value of its derivative portfolio by using the price that would be received to sell an asset or paid
to transfer a liability in the principal market for that asset or liability. These measurements are classified into a hierarchy by the inputs
used to perform the fair value calculation as follows:
Level 1: Fair value based on unadjusted quoted prices for identical assets or liabilities at the measurement date
Level 2: Modeled fair value with model inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly
Level 3: Modeled fair value with unobservable model inputs that are used to estimate the fair value of the asset or liability
Commodity Risk
The company enters into commodity derivatives designated as cash-flow hedges of existing or future exposure to changes in
commodity prices. The company’s primary raw materials are flour, sweeteners and shortening, along with pulp, paper and
petroleum-based packaging products. Natural gas, which is used as oven fuel, is also an important commodity input for production.
As of October 10, 2015, the company’s hedge portfolio contained commodity derivatives which are recorded in the following
accounts with fair values measured as indicated (amounts in thousands):
Level 1
Assets:
Other current
Other long-term
Total
Liabilities:
Other current
Other long-term
Total
Net Fair Value
$
$
Level 2
—
665
665
(8,566)
(104)
(8,670)
(8,005)
Level 3
—
—
—
$
(2,769)
(291)
(3,060)
(3,060)
$
$
$
Total
—
—
—
—
—
—
—
$
$
665
665
(11,335)
(395)
(11,730)
(11,065)
The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and
effectively fix the price, or limit increases in prices, for a period of time extending primarily into fiscal 2016. These instruments are
designated as cash-flow hedges. The effective portion of changes in fair value for these derivatives is recorded each period in other
comprehensive income (loss), and any ineffective portion of the change in fair value is recorded to current period earnings in selling,
distribution and administrative expenses. All of the company-held commodity derivatives at October 10, 2015 and January 3, 2015
qualified for hedge accounting.
Interest Rate Risk
The company entered into a treasury rate lock on March 28, 2012 to fix the interest rate for the notes issued on April 3, 2012.
The derivative position was closed when the debt was priced on March 29, 2012 with a cash settlement that offset changes in the
benchmark treasury rate between the execution of the treasury rate lock and the debt pricing date. This treasury rate lock was
designated as a cash flow hedge and the cash settlement was $3.1 million, of which $0.6 million was recognized after debt issuance
and $2.5 million ($1.5 million, net of tax) is being amortized to interest expense over the term of the notes.
16
Derivative Assets and Liabilities
The company has the following derivative instruments located on the Condensed Consolidated Balance Sheet, which are
utilized for the risk management purposes detailed above (amounts in thousands):
Derivative Assets
October 10, 2015
Derivatives Designated as
Hedging Instruments
Commodity contracts
Commodity contracts
Total
Balance
Sheet
Location
Other
current
assets
Fair Value
$
Other long
term
assets
$
$
Derivative Liabilities
January 3, 2015
—
665
665
Balance
Sheet
Location
Other
current
assets
October 10, 2015
Fair Value
$
Other long
term
assets
$
—
—
—
Balance
Sheet
Location
Other
current
liabilities
January 3, 2015
Fair Value
$
11,335
Other
long-term
liabilities
395
11,730
$
Balance
Sheet
Location
Fair Value
Other
current
liabilities
$
12,898
$
3,355
16,253
Other
long-term
liabilities
Derivative Accumulated Other Comprehensive Income (“AOCI”) transactions
The company has the following derivative instruments located on the Condensed Consolidated Statements of Income, utilized
for risk management purposes (amounts in thousands and net of tax):
Recognized in OCI on Derivative
(Effective Portion)
For the Twelve Weeks Ended
Derivatives in Cash Flow
Hedge Relationships (2)
October 10, 2015
Interest rate contracts
Commodity contracts
Total
$
$
—
2,652
2,652
October 4, 2014
$
$
—
9,128
9,128
into Income (Effective Portion)(2)
Interest (expense) income
Production costs(1)
Hedge Relationships (2)
October 10, 2015
Interest rate contracts
Commodity contracts
Total
$
$
—
1,262
1,262
October 4, 2014
$
$
—
10,028
10,028
October 10, 2015
$
$
Amount of Gain or (Loss)
Recognized in OCI on Derivative
(Effective Portion)
For the Forty Weeks Ended
Derivatives in Cash Flow
Reclassified from AOCI
into Income (Effective Portion)
For the Twelve Weeks Ended
Location of Gain or (Loss)
Reclassified from AOCI
Interest (expense) income
Production costs(1)
October 4, 2014
$
(35)
1,180
1,145
$
Amount of (Gain) or Loss
Reclassified from AOCI
into Income (Effective Portion)
For the Forty Weeks Ended
Location of Gain or (Loss)
Reclassified from AOCI
into Income (Effective Portion)(2)
(35)
(1,061)
(1,096)
October 10, 2015
$
$
(117)
(3,817)
(3,934)
October 4, 2014
$
(117)
(2,252)
(2,369)
$
1.
Included in materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately).
2.
Amounts in parentheses indicate debits to determine net income.
There was no hedging ineffectiveness, and no amounts were excluded from the ineffectiveness testing, during
the twelve and forty weeks ended October 10, 2015 and October 4, 2014, respectively.
The balance in accumulated other comprehensive loss (income) related to commodity price risk and interest rate risk derivative
transactions that are closed or will expire over the following years are as follows (amounts in thousands and net of tax) at October 10,
2015:
Commodity
price risk
derivatives
Interest
rate risk
derivatives
Totals
Closed contracts
Expiring in 2015
Expiring in 2016
Expiring in 2017
Total
$
930
335
6,541
(70)
7,736
$
17
$
$
1,000
—
—
—
1,000
$
$
1,930
335
6,541
(70)
8,736
Derivative Transactions Notional Amounts
As of October 10, 2015, the company had the following outstanding financial contracts that were entered to hedge commodity
and interest rate risk (amounts in thousands):
Notional
amount
Wheat contracts
Soybean oil contracts
Natural gas contracts
Total
$
144,731
20,247
9,435
174,413
$
The company’s derivative instruments contain no credit-risk-related contingent features at October 10, 2015. As of October 10,
2015 and January 3, 2015, the company had $17.2 million and $16.1 million, respectively, in other current assets representing
collateral for hedged positions.
9. DEBT AND OTHER OBLIGATIONS
Long-term debt and capital leases consisted of the following at October 10, 2015 and January 3, 2015 (amounts in thousands):
October 10, 2015
Unsecured credit facility
Unsecured new term loan
4.375% senior notes due 2022
Accounts receivable securitization
Capital lease obligations
Other notes payable
Current maturities of long-term debt and capital lease obligations
Total long-term debt and capital lease obligations
$
$
40,000 $
247,500
399,378
170,000
21,330
18,900
897,108
53,465
843,643 $
January 3, 2015
53,000
270,000
399,304
—
22,526
18,606
763,436
34,496
728,940
Bank overdrafts occur when checks have been issued but have not been presented to the bank for payment. Certain of our banks
allow us to delay funding of issued checks until the checks are presented for payment. The delay in funding results in a temporary
source of financing from the bank. The activity related to bank overdrafts is shown as a financing activity in our Condensed
Consolidated Statements of Cash Flows. Bank overdrafts are included in other current liabilities on our Condensed Consolidated
Balance Sheets. As of October 10, 2015 and January 3, 2015, the bank overdraft balance was $4.8 million and $15.7 million,
respectively.
The company also had standby letters of credit (“LOCs”) outstanding of $16.9 million and $16.4 million at October 10, 2015
and January 3, 2015, respectively, which reduce the availability of funds under the credit facility. The outstanding LOCs are for the
benefit of certain insurance companies and lessors. None of the LOCs are recorded as a liability on the Condensed Consolidated
Balance Sheet.
Accounts Receivable Securitization Facility, New Term Loan, Senior Notes, and Credit Facility
Accounts Receivable Securitization Facility. On July 17, 2013, the company entered into an accounts receivable securitization
facility (the “facility”). On August 7, 2014, the company entered into an amendment to the facility. The amendment (i) increased the
revolving commitments under the facility to $200.0 million from $150.0 million, (ii) extended the term one year to July 17, 2016, and
(iii) made certain other conforming changes. On December 17, 2014, the company executed a second amendment to the facility to add
a bank to the lending group. The original commitment amount was split between the original lender and the new lender in the
proportion of 62.5% for the original lender and 37.5% for the new lender. This modification, which was accounted for as an
extinguishment of the debt, resulted in a charge of $0.1 million, or 37.5%, of the unamortized financing costs. On August 20, 2015,
the company executed a third amendment to the facility to extend the term to August 11, 2017 and to add a leverage pricing grid. This
amendment was accounted for as a modification. Under the facility, a wholly-owned, bankruptcy-remote subsidiary purchases, on an
ongoing basis, substantially all trade receivables. As borrowings are made under the facility, the subsidiary pledges the receivables as
collateral. In the event of liquidation of the subsidiary, its creditors would be entitled to satisfy their claims from the subsidiary’s
pledged receivables prior to distributions of collections to the company. We include the subsidiary in our Condensed Consolidated
Financial Statements. The facility contains certain customary representations and warranties, affirmative and negative covenants, and
events of default. There was $170.0 million outstanding under the facility as of October 10, 2015. There were no amounts outstanding
under the facility as of January 3, 2015. As of October 10, 2015 and January 3, 2015, the company was in compliance with all
restrictive covenants under the facility. On October 10, 2015, the company had $0.9 million available under its facility for working
18
capital and general corporate purposes. Amounts available for withdrawal under the facility are determined as the lesser of the total
commitments and a formula derived amount based on qualifying trade receivables.
Optional principal repayments may be made at any time without premium or penalty. Interest is due two days after our
reporting periods end in arrears on the outstanding borrowings and is computed as the cost of funds rate plus an applicable margin of
70 basis points. An unused fee of 25 basis points is applicable on the unused commitment at each reporting period. The company paid
financing costs of $0.8 million in connection with the facility at the time we entered into the facility, which are being amortized over
the life of the facility. During fiscal 2014, we incurred $0.2 million in financing costs with the first and second amendments. An
additional $0.2 million in financing costs was paid during fiscal 2015 for the second and third amendments.
New Term Loan. We entered into a senior unsecured delayed-draw term facility (the “new term loan”) on April 5, 2013 with a
commitment of up to $300.0 million. The company drew down the full amount of the new term loan on July 18, 2013 (the “borrowing
date”).
The new term loan amortizes in quarterly installments based on an increasing annual percentage. The first payment was due and
payable on June 30, 2013 (the last business day of the first calendar quarter ending after the borrowing date), quarterly payments are
due on the last business day of each successive calendar quarter and all remaining outstanding principal is due and payable on the fifth
anniversary of the borrowing date. The table below presents the principal payment amounts remaining under the new term loan as of
October 10, 2015 (amounts in thousands):
Fiscal Year
Payments
Remainder of 2015
2016
2017
2018
$
$
$
$
7,500
67,500
112,500
60,000
On February 14, 2014, we entered into an amendment to the new term loan, which was accounted for as a modification of the
debt, favorably reduced the interest rates described below from those entered into originally on April 5, 2013. Voluntary prepayments
on the new term loan may be made without premium or penalty. Interest is due quarterly in arrears on any outstanding borrowings at a
customary Eurodollar rate or the base rate plus applicable margin. The applicable margin ranges from 0.00% to 1.25% for base rate
loans and from 1.00% to 2.25% for Eurodollar loans, and is based on the company’s leverage ratio. Interest on base rate loans is
payable quarterly in arrears on the last business day of each calendar quarter. Interest on Eurodollar loans is payable in arrears at the
end of the interest period and every three months in the case of interest periods in excess of three months. The company paid financing
costs of $1.7 million in connection with the new term loan, which are being amortized over the life of the new term loan. A
commitment fee of 20 basis points on the daily undrawn portion of the lenders’ commitments commenced on May 1, 2013 and
continued until the borrowing date, when the company borrowed the available $300.0 million for the acquisition of certain Hostess
Brands, Inc. bread assets. The new term loan is subject to customary restrictive covenants, including certain limitations on liens and
significant acquisitions and financial covenants regarding minimum interest coverage ratio and maximum leverage ratio. The
February 14, 2014 amendment cost $0.3 million and is being amortized over the remaining term. As of October 10, 2015 and January
3, 2015, the company was in compliance with all restrictive covenants under the new term loan.
Senior Notes. On April 3, 2012, the company issued $400.0 million of senior notes. The company pays semiannual interest on
the notes on each April 1 and October 1, beginning on October 1, 2012, and the notes will mature on April 1, 2022. The notes bear
interest at 4.375% per annum. On any date prior to January 1, 2022, the company may redeem some or all of the notes at a price equal
to the greater of (1) 100% of the principal amount of the notes redeemed and (2) a “make-whole” amount plus, in each case, accrued
and unpaid interest. The make-whole amount is equal to the sum of the present values of the remaining scheduled payments of
principal thereof (not including any interest accrued thereon to, but not including, the date of redemption), discounted to the date of
redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate (as defined in
the indenture governing the notes), plus 35 basis points, plus in each case, unpaid interest accrued thereon to, but not including, the
date of redemption. At any time on or after January 1, 2022, the company may redeem some or all of the notes at a price equal to
100% of the principal amount of the notes redeemed plus accrued and unpaid interest. If the company experiences a “change of
control triggering event” (which involves a change of control of the company and related rating of the notes below investment grade),
it is required to offer to purchase the notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest
thereon unless the company exercised its option to redeem the notes in whole. The notes are also subject to customary restrictive
covenants, including certain limitations on liens and sale and leaseback transactions.
The face value of the notes is $400.0 million and the current discount on the notes is $0.6 million. The company paid issuance
costs (including underwriting fees and legal fees) on the notes of $3.9 million. The issuance costs and the debt discount are being
amortized to interest expense over the term of the notes. As of October 10, 2015 and January 3, 2015, the company was in compliance
with all restrictive covenants under the indenture governing the notes.
19
Credit Facility. On April 21, 2015, the company amended its senior unsecured credit facility (the “credit facility”) to
extend the term to April 21, 2020, reduce the applicable margin on base rate and Eurodollar loans and reduce the facility fees,
described below. The amendment was accounted for as a modification of the debt. The credit facility is a five-year, $500.0
million senior unsecured revolving loan facility. The credit facility contains a provision that permits us to request up to $200.0
million in additional revolving commitments, for a total of up to $700.0 million, subject to the satisfaction of certain conditions.
Proceeds from the credit facility may be used for working capital and general corporate purposes, including capital
expenditures, acquisition financing, refinancing of indebtedness, dividends and share repurchases. The credit facility includes
certain customary restrictions, which, among other things, require maintenance of financial covenants and limit encumbrance of
assets and creation of indebtedness. Restrictive financial covenants include such ratios as a minimum interest coverage ratio and
a maximum leverage ratio. The company believes that, given its current cash position, its cash flow from operating activities and
its available credit capacity, it can comply with the current terms of the amended credit facility and can meet presently
foreseeable financial requirements. As of October 10, 2015 and January 3, 2015, the company was in compliance with all
restrictive covenants under the credit facility.
Interest is due quarterly in arrears on any outstanding borrowings at a customary Eurodollar rate or the base rate plus applicable
margin. The underlying rate is defined as rates offered in the interbank Eurodollar market, or the higher of the prime lending rate or
the federal funds rate plus 0.50%, with a floor rate defined by the one-month interbank Eurodollar market rate plus 1.00%. The
applicable margin ranges from 0.0% to 0.50% for base rate loans and from 0.70% to 1.50% for Eurodollar loans. In addition, a facility
fee ranging from 0.05% to 0.25% is due quarterly on all commitments under the credit facility. Both the interest margin and the
facility fee are based on the company’s leverage ratio. The company paid additional financing costs of $0.4 million in connection with
the April 21, 2015 amendment of the credit facility, which, in addition to the remaining balance of the original $1.3 million in
financing costs, is being amortized over the life of the credit facility. The company recognized $0.1 million in financing costs for the
modification at the time of the April 21, 2015 amendment.
The highest outstanding daily balance during the forty weeks ended October 10, 2015 was $75.0 million and the lowest
outstanding balance was zero. Amounts outstanding under the credit facility vary daily. Changes in the gross borrowings and
repayments can be caused by cash flow activity from operations, capital expenditures, acquisitions, dividends, share repurchases, and
tax payments, as well as derivative transactions which are part of the company’s overall risk management strategy as discussed in
Note 8, Derivative Financial Instruments . During the forty weeks ended October 10, 2015, the company borrowed $436.0 million in
revolving borrowings under the credit facility and repaid $449.0 million in revolving borrowings. The amount available under the
credit facility is reduced by $16.9 million for letters of credit. On October 10, 2015, the company had $443.1 million available under
its credit facility for working capital and general corporate purposes.
Credit Ratings. Currently, the company’s credit ratings by Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s
are BBB, Baa2, and BBB (Standard & Poor’s upgraded the company from a BBB- credit rating on September 16, 2015), respectively.
Changes in the company’s credit ratings do not trigger a change in the company’s available borrowings or costs under the facility, new
term loan, senior notes, or credit facility, but could affect future credit availability and cost.
Assets recorded under capital lease agreements included in property, plant and equipment consist of machinery and equipment
and transportation equipment.
Aggregate maturities of debt outstanding, including capital leases and the associated interest, as of October 10, 2015, are as
follows (excluding unamortized debt discount and issuance costs) (amounts in thousands):
2015
2016
2017
2018
2019
2020 and thereafter
Total
$
$
20
8,541
74,437
294,193
69,690
47,976
403,993
898,830
10. VARIABLE INTEREST ENTITIES
The company maintains a transportation agreement with an entity that transports a significant portion of the company’s fresh
bakery products from the company’s production facilities to outlying distribution centers. The company represents a significant
portion of the entity’s revenue. This entity qualifies as a variable interest entity (“VIE”), but the company has determined it is not the
primary beneficiary.
The company has concluded that certain of the trucks and trailers the VIE uses for distributing our products from the
manufacturing facilities to the distribution centers qualify as right to use leases. As of October 10, 2015 and January 3, 2015, there
was $21.3 million and $22.5 million, respectively, in net property, plant and equipment and capital lease obligations associated with
the right to use leases.
The incorporated independent distributors (“IDs”) who deliver our products in the DSD Segment qualify as VIEs. The
independent distributors who deliver our products that are formed as sole proprietorships are excluded from the following VIE
accounting analysis. The company typically finances the ID’s route acquisition and also enters into a contract with the ID to sell
product at a fixed discount for distribution in the ID’s territory. The combination of the company’s loans to the IDs and the ongoing
supply arrangements with the IDs provide a level of protection and funding to the equity owners of the various IDs that would not
otherwise be available.
The company is not considered to be the primary beneficiary of the VIEs because the company does not (i) have the ability to
direct the significant activities of the VIEs that would affect their ability to operate their respective distributor territories and
(ii) provide any implicit or explicit guarantees or other financial support to the VIEs, other than the financing described above, for
specific return or performance benchmarks. The activities controlled by the IDs that are deemed to most significantly impact the
ultimate success of the ID entities relate to those decisions inherent in operating the distribution business in the territory, including
acquiring trucks and trailers, managing fuel costs, employee matters and other strategic decisions. In addition, we do not provide, nor
do we intend to provide, financial or other support to the IDs. The IDs are responsible for the operations of their respective territories
including ordering of products.
The company’s maximum exposure to loss for the IDs relates to the distributor route note receivable for the portion of the
territory the IDs financed at the time they acquired the route. The IDs remit payment on their route note receivable each week during
the settlement process of their weekly activity. If the IDs discontinued making payment on the note receivable we are permitted under
the agreement to withhold settlement funds to cover the IDs note balance. In the event the IDs abandon their territory and have a
remaining balance outstanding on the route note receivable, we will take the territory back from the IDs (recording the territory as held
for sale) and subsequently sell the territory to another ID. The company’s collateral from the route insures that any potential losses are
mitigated.
11. LITIGATION
The company and its subsidiaries from time to time are parties to, or targets of, lawsuits, claims, investigations and proceedings,
which are being handled and defended in the ordinary course of business. While the company is unable to predict the outcome of these
matters, it believes, based upon currently available facts, that it is remote that the ultimate resolution of any such pending matters will
have a material adverse effect on its overall financial condition, results of operations or cash flows in the future. However, adverse
developments could negatively impact earnings in a particular future fiscal period.
The company’s facilities are subject to various federal, state and local laws and regulations regarding the discharge of material
into the environment and the protection of the environment in other ways. The company is not a party to any material proceedings
arising under these regulations. The company believes that compliance with existing environmental laws and regulations will not
materially affect the consolidated financial condition, results of operations, cash flows or the competitive position of the company.
The company believes it is currently in substantial compliance with all material environmental regulations affecting the company and
its properties.
On September 12, 2012, a complaint was filed in the U.S. District Court for the Western District of North Carolina (Charlotte
Division) by Scott Rehberg, Willard Allen Riley and Mario Ronchetti against the company and its subsidiary, Flowers Baking
Company of Jamestown, LLC. Plaintiffs are or were distributors of our Jamestown subsidiary who contend they were misclassified as
independent contractors. The action sought class certification on behalf of a class comprised of independent distributors of our
Jamestown subsidiary who are classified as independent contractors. In March 2013, the court conditionally certified the class action
for claims under the Fair Labor Standards Act (“FLSA”). On March 23, 2015, the court re-affirmed its FLSA certification decision
and also certified claims under state law.
At this time, the company is also aware of ten other complaints alleging misclassification claims that have been filed. The
company and/or its respective subsidiaries are vigorously defending these lawsuits. Given the stage of the complaints and the claims
and issues presented, the company cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from
the unresolved lawsuits.
21
12. EARNINGS PER SHARE
The following is a reconciliation of net income and weighted average shares for calculating basic and diluted earnings per
common share for the twelve and forty weeks ended October 10, 2015 and October 4, 2014 (amounts and shares in thousands, except
per share data):
For the Twelve Weeks Ended
October 10, 2015
Net income
$
43,796
October 4, 2014
$
44,599
For the Forty Weeks Ended
October 10, 2015
$
156,945
October 4, 2014
$
147,729
Basic Earnings Per Common Share:
Basic weighted average shares outstanding for common stock
Basic earnings per common share
210,842
$
0.21
210,084
$
0.21
210,318
$
0.75
209,573
$
0.70
Diluted Earnings Per Common Share:
Basic weighted average shares outstanding for common stock
Add: Shares of common stock assumed issued upon
exercise of stock options and vesting of restricted stock
Diluted weighted average shares outstanding for common
stock
Diluted earnings per common share
$
210,842
210,084
210,318
209,573
2,468
3,070
2,603
3,432
213,310
213,154
212,921
213,005
0.21
$
0.21
$
0.74
$
0.69
There were no anti-dilutive shares during the twelve and forty weeks ended October 10, 2015 and October 4, 2014.
13. STOCK-BASED COMPENSATION
On March 5, 2014, our Board of Directors approved and adopted the 2014 Omnibus Equity and Incentive Compensation Plan
(“Omnibus Plan”). The Omnibus Plan was approved by our shareholders on May 21, 2014. The Omnibus Plan authorizes the
compensation committee of the Board of Directors to provide equity-based compensation in the form of stock options, stock
appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents and other
awards for the purpose of providing our officers, key employees, and non-employee directors’ incentives and rewards for
performance. The Omnibus Plan replaced the Flowers Foods’ 2001 Equity and Performance Incentive Plan, as amended and restated
as of April 1, 2009 (“EPIP”), the stock appreciation right plan, and the bonus plan. All outstanding equity awards that were made
under the EPIP will continue to be governed by the EPIP; however, all equity awards granted after May 21, 2014 are governed by the
Omnibus Plan. No additional awards will be issued under the EPIP. Awards granted under the Omnibus Plan are limited to the
authorized amount of 8,000,000 shares.
The EPIP authorized the compensation committee of the Board of Directors to make awards of options to purchase our common
stock, restricted stock, performance stock and units and deferred stock. The company’s officers, key employees and non-employee
directors (whose grants are generally approved by the full Board of Directors) were eligible to receive awards under the EPIP. Over
the life of the EPIP, the company issued options, restricted stock and deferred stock.
The following is a summary of stock options, restricted stock, and deferred stock outstanding under the plans described above.
Information relating to the company’s stock appreciation rights, which were issued under a separate stock appreciation right plan, is
also described below.
Stock Options
The company issued non-qualified stock options (“NQSOs”) during fiscal years 2011 and prior that have no additional service
period remaining. All outstanding NQSOs have vested and are exercisable on October 10, 2015.
The stock option activity for the forty weeks ended October 10, 2015 pursuant to the EPIP is set forth below (amounts in
thousands, except price data):
Options
Outstanding at January 3, 2015
Exercised
Outstanding at October 10, 2015
6,191 $
(1,741) $
4,450 $
Weighted
Average
Exercise
Price
10.88
10.66
10.96
Weighted
Average
Remaining
Contractual
Term (Years)
1.63 $
Aggregate
Intrinsic
Value
67,030
Exercisable at October 10, 2015
4,450 $
22
10.96
1.63 $
67,030
As of October 10, 2015, compensation expense related to the NQSOs was fully amortized. The cash received, the
windfall tax benefit, and intrinsic value from stock option exercises for the forty weeks ended October 10, 2015 and October 4,
2014 were as follows (amounts in thousands):
October 10, 2015
Cash received from option exercises
Cash tax windfall, net
Intrinsic value of stock options exercised
$
$
$
October 4, 2014
18,571 $
7,282 $
23,366 $
17,096
3,871
13,995
Performance-Contingent Restricted Stock Awards
Performance-Contingent Total Shareholder Return Shares (“TSR Shares”)
Since 2012, certain key employees have been granted performance-contingent restricted stock under the EPIP and the Omnibus
Plan in the form of TSR Shares. The awards generally vest approximately two years from the date of grant (after the filing of the
company’s Annual Report on Form 10-K), and the shares become non-forfeitable if, and to the extent that, on that date the vesting
conditions are satisfied. As a result of the delay (July as opposed to January) in the grant of the 2012 awards, the 2012 awards vested
during the first quarter of 2014, 18 months from the grant date. The 2013, 2014 and 2015 awards (granted during the first quarters of
their respective years) vest two years from the date of grant. The total shareholder return (“TSR”) is the percent change in the
company’s stock price over the measurement period plus the dividends paid to shareholders. The performance payout is calculated at
the end of each of the last four quarters (averaged) in the measurement period. Once the TSR is determined for the company
(“Company TSR”), it is compared to the TSR of our food company peers (“Peer Group TSR”). The Company TSR compared to the
Peer Group TSR will determine the payout as set forth below:
Payout as %
of Target
Percentile
90th
70th
50th
30th
Below 30th
200%
150%
100%
50%
0%
For performance between the levels described above, the degree of vesting is interpolated on a linear basis. The 2012 award
actual attainment was 195% of target. The 2013 award actual attainment was 88% of target.
The TSR shares vest immediately if the grantee dies or becomes disabled. However, if the grantee retires at age 65 (or age 55
with at least 10 years of service with the company) or later, on the normal vesting date the grantee will receive a pro-rated number of
shares based upon the retirement date and measured at the actual performance for the entire performance period. In addition, if the
company undergoes a change in control, the TSR shares will immediately vest at the target level, provided that if 12 months of the
performance period have been completed, vesting will be determined based on Company TSR as of the date of the change in control
without application of four-quarter averaging. During the vesting period, the grantee has none of the rights of a shareholder. Dividends
declared during the vesting period will accrue and will be paid at vesting on the shares that ultimately vest. The fair value estimate was
determined using a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability of the
company achieving the market condition discussed above. Inputs into the model included the following for the company and
comparator companies: (i) TSR from the beginning of the performance cycle through the measurement date; (ii) volatility;
(iii) risk-free interest rates; and (iv) the correlation of the comparator companies’ TSR. The inputs are based on historical capital
market data.
The following performance-contingent TSR Shares have been granted under the EPIP and have service period remaining
(amounts in thousands, except price data):
Grant date
Shares granted
Vesting date
Fair value per share
January 4, 2015
$
January 1, 2014
414
3/1/2017
21.21 $
366
3/1/2016
23.97
Performance-Contingent Return on Invested Capital Shares (“ROIC Shares”)
Since 2012, certain key employees have been granted performance-contingent restricted stock under the EPIP and the Omnibus
Plan in the form of ROIC Shares. The awards generally vest approximately two years from the date of grant (after the filing of the
company’s Annual Report on Form 10-K), and the shares become non-forfeitable if, and to the extent that, on that date, the vesting
conditions are satisfied. As a result of the delay (July as opposed to January) in the grant of the 2012 awards, the 2012 awards vested
during the first quarter of 2014, 18 months from the grant date. The 2013, 2014, and 2015 awards (granted during the first quarters of
23
their respective years) vest two years from the date of grant. Return on Invested Capital is calculated by dividing our profit, as defined,
by the invested capital (“ROIC”). Generally, the performance condition requires the company’s average ROIC to exceed its average
weighted cost of capital (“WACC”) by between 1.75 to 4.75 percentage points (the “ROI Target”) over the two fiscal year
performance period. If the lowest ROI Target is not met, the awards are forfeited. The shares can be earned based on a range from 0%
to 125% of target as defined below:

0% payout if ROIC exceeds WACC by less than 1.75 percentage points;

ROIC above WACC by 1.75 percentage points pays 50% of ROI Target; or

ROIC above WACC by 3.75 percentage points pays 100% of ROI Target; or

ROIC above WACC by 4.75 percentage points pays 125% of ROI Target.
For performance between the levels described above, the degree of vesting is interpolated on a linear basis. The 2012 and 2013
awards actual attainment was 125% of ROI Target.
The ROIC Shares vest immediately if the grantee dies or becomes disabled. However, if the grantee retires at age 65 (or age 55
with at least 10 years of service with the company) or later, on the normal vesting date the grantee will receive a pro-rated number of
shares based upon the retirement date and actual performance for the entire performance period. In addition, if the company undergoes
a change in control, the ROIC Shares will immediately vest at the target level. During the vesting period, the grantee has none of the
rights of a shareholder. Dividends declared during the vesting period will accrue and will be paid at vesting on the shares that
ultimately vest. The fair value of this type of award is equal to the stock price on the grant date. Since these awards have a
performance condition feature the expense associated with these awards may change depending on the expected ROI Target attained
at each reporting period. The expected ROI Target at October 10, 2015 was 105% for the 2014 award and 100% for the 2015 award.
The following performance-contingent ROIC Shares have been granted under the EPIP and have service period remaining (amounts in
thousands, except price data):
Grant date
Shares granted
Vesting date
Fair value per share
January 4, 2015
$
January 1, 2014
414
3/1/2017
19.14 $
366
3/1/2016
21.47
Performance-Contingent Restricted Stock (2013 Grant)
In connection with the vesting of the performance-contingent restricted stock granted in January 2013, during the forty weeks
ended October 10, 2015, 48,069 common shares available for this grant were reduced because the company attained only 88% of the
S&P TSR target of the grant (“TSR modifier”). An additional 100,090 common shares were issued in the aggregate for this grant
because the company exceeded the ROIC by the maximum at 125% (“ROIC modifier”). At vesting, the company paid accumulated
dividends of $0.9 million. The tax windfall at vesting of these awards was $1.4 million.
Performance-Contingent Restricted Stock
The company’s performance-contingent restricted stock activity for the forty weeks ended October 10, 2015, is presented below
(amounts in thousands, except price data):
Weighted
Average
Grant Date
Fair Value
Shares
Nonvested shares at January 3, 2015
Initial grant at target
Supplemental grant for exceeding the ROIC modifier
Grant reduction for not achieving the TSR modifier
Vested
Forfeited
Nonvested shares at October 10, 2015
1,404
829
100
(48)
(853)
(83)
1,349
$
$
$
$
$
$
$
19.09
20.18
15.51
17.22
16.22
19.61
21.26
As of October 10, 2015, there was $12.2 million of total unrecognized compensation cost related to nonvested restricted stock
granted under the EPIP. That cost is expected to be recognized over a weighted-average period of 1.22 years. The total intrinsic value
of shares vested during the period ended October 10, 2015 was $18.4 million.
24
Deferred and Restricted Stock
Pursuant to the EPIP, previously the company allowed non-employee directors to convert their annual board retainers into
deferred stock equal in value to 130% of the cash payments these directors would have otherwise received. The deferred stock had a
minimum two year vesting period and will be distributed to the individual (along with accumulated dividends) at a time designated by
the individual at the date of conversion. On January 2, 2015 (our fiscal 2014), cash pay was converted into an aggregate of 19,852
shares. The company recorded compensation expense for this deferred stock over the two-year minimum vesting period. There were
no shares distributed under the EPIP during the forty weeks ended October 10, 2015. Following the May 2014 Board of Directors
meeting and the adoption of the Omnibus Plan, annual board retainers converted into deferred stock and issued under the Omnibus
Plan are equal in value to 100% of the cash payments directors would otherwise receive and the vesting period is a one-year period to
match the period of time that cash would have been received if no conversion existed. Going forward, under the Omnibus Plan,
non-employee directors may elect to convert their annual board retainers into deferred stock equal in value to 100% of the cash
payments they otherwise would have received. The deferred stock so converted will have a one-year pro-rated vesting period.
Accumulated dividends are paid upon delivery of the shares.
Pursuant to the Omnibus Plan and the EPIP, non-employee directors also receive annual grants of deferred stock. This deferred
stock vests over one year from the grant date. During the forty weeks ended October 10, 2015, non-employee directors were granted
an aggregate of 69,582 common shares of deferred stock pursuant to the Omnibus Plan. The deferred stock will be distributed to the
grantee at a time designated by the grantee at the date of grant. Compensation expense is recorded on this deferred stock over the one
year minimum vesting period.
On May 31, 2013, the company’s Chief Executive Officer (“CEO”) received a time-based restricted stock award of
approximately $1.3 million of restricted stock pursuant to the EPIP. This award will vest 100% on the fourth anniversary of the date of
the grant provided the CEO remains employed by the company during this period and the award value does not exceed 0.5% of our
cumulative EBITDA over the vesting period. Vesting will also occur in the event of the CEO’s death or disability, but not his
retirement. Dividends will accrue on the award and will be paid to the CEO on the vesting date for all shares that vest. There were
58,500 shares issued for this award at a fair value of $22.25 per share.
The deferred stock activity for the forty weeks ended October 10, 2015 is set forth below (amounts in thousands, except price
data):
Weighted
Average
Fair
Value
Shares
Nonvested shares at January 3, 2015
Vested
Granted
Nonvested shares at October 10, 2015
151
(54)
70
167
$
$
$
$
21.06
20.94
21.59
21.29
Weighted
Average
Remaining
Contractual
Term (Years)
0.95 $
Aggregate
Intrinsic
Value
4,346
As of October 10, 2015, there was $1.6 million of total unrecognized compensation cost related to deferred stock awards
granted under the EPIP that will be recognized over a weighted-average period of 0.95 years. The total intrinsic value of shares vested
during the period ended October 10, 2015 was $1.3 million.
Stock Appreciation Rights
Prior to 2007, the company allowed non-employee directors to convert their retainers and committee chair fees into rights.
These rights vested after one year and can be exercised over nine years. The company records compensation expense for these rights
at a measurement date based on changes between the grant price and an estimated fair value of the rights using the Black-Scholes
option-pricing model.
The fair value of the rights at October 10, 2015 ranged from $17.32 to $17.69. The following assumptions were used to
determine fair value of the rights discussed above using the Black-Scholes option-pricing model at October 10, 2015: dividend yield
2.6%; expected volatility 23.0%; risk-free interest rate 0.07% and expected life of 0.10 years to 0.35 years.
25
The rights activity for the forty weeks ended October 10, 2015 is set forth below (amounts in thousands except price
data):
Weighted
Average
Fair
Value
Rights
Outstanding shares at January 3, 2015
Exercised
Outstanding shares at October 10, 2015
29 $
(15)
14 $
Aggregate
Liability
8.47
8.30
8.67 $
256
Share-Based Payments Compensation Expense Summary
The following table summarizes the company’s stock based compensation expense for the twelve and forty weeks ended
October 10, 2015 and October 4, 2014, respectively (amounts in thousands):
For the Twelve Weeks Ended
October 10, 2015
Stock options
Performance-contingent restricted stock awards
Deferred and restricted stock
Stock appreciation rights
Total stock based compensation
—
1,811
548
124
2,483
$
$
October 4, 2014
For the Forty Weeks Ended
October 10, 2015
— $
3,527
482
(297) $
3,712 $
$
$
—
11,457
1,658
176
13,291
October 4, 2014
$
$
197
12,714
1,663
(388)
14,186
14. POST-RETIREMENT PLANS
The following summarizes the company’s balance sheet related pension and other post-retirement benefit plan accounts at
October 10, 2015 as compared to accounts at January 3, 2015 (amounts in thousands):
October 10, 2015
Current benefit liability
Noncurrent benefit liability
Accumulated other comprehensive loss, net of tax
$
$
$
1,089 $
75,004 $
84,755 $
January 3, 2015
1,089
93,589
86,612
Defined Benefit Plans and Nonqualified Plan
Beginning on January 1, 2016, the company will provide employees who leave or retire from the company on or after January
1, 2016 and employees who separated from service prior to January 1, 2016, and who have not commenced benefits prior to January 1,
2016, the option to receive their benefit as a single lump sum payment. This offer supports our pension risk management strategy
even though plan obligations are not currently reduced.
In September 2014, the company announced a one-time voluntary lump sum offer to approximately 2,500 former employees in
Plan No. 1 and 2 who had not yet started monthly payment of their vested benefits. The offer supports the company’s pension risk
management strategy and reduced plan obligations by 10%. Distributions of $48.4 million in lump sums from existing plan assets in
December 2014 resulted in a settlement charge of $15.4 million for Plan No. 1 only in the fourth quarter of our fiscal 2014. No
settlement charge was required for Plan No. 2 as distributions of $2.0 million were not in excess of service costs and interest costs for
2014.
The company used a measurement date of December 31, 2014 for the defined benefit and post-retirement benefit plans
described below. We believe that the difference in the fair value of plan assets between the measurement date of December 31, 2014
and our fiscal year end date of January 3, 2015 was not material and that for practical purposes the measurement date of December 31,
2014 was used throughout for preparation of our financial statements.
During the forty weeks ended October 10, 2015 the company contributed $10.0 million to our qualified pension plans. We do
not anticipate making additional contributions to our qualified pension plans during the remainder of fiscal 2015.
26
The net periodic pension cost (income) for the company’s plans include the following components (amounts in
thousands):
For the Twelve Weeks Ended
October 10, 2015
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Total net periodic benefit (income) cost
$
201 $
4,155
(6,840)
1,149
(1,335) $
$
For the Forty Weeks Ended
October 4, 2014
October 10, 2015
148 $
4,944
(7,804)
444
(2,268) $
671 $
13,849
(22,801)
3,830
(4,451) $
October 4, 2014
493
16,481
(26,013)
1,480
(7,559)
Post-retirement Benefit Plan
The company provides certain medical and life insurance benefits for eligible retired employees covered under the active
medical plans. The plan incorporates an up-front deductible, coinsurance payments and retiree contributions at various premium
levels. Eligibility and maximum period of coverage is based on age and length of service.
The net periodic post-retirement benefit (income) cost for the company includes the following components (amounts in
thousands):
For the Twelve Weeks Ended
October 10, 2015
Service cost
Interest cost
Amortization of prior service (credit) cost
Amortization of net (gain) loss
Total net periodic benefit (income) cost
$
$
92 $
83
(108)
(135)
(68) $
For the Forty Weeks Ended
October 4, 2014
October 10, 2015
87 $
103
(108)
(133)
(51) $
307 $
277
(361)
(449)
(226) $
October 4, 2014
290
343
(360)
(444)
(171)
401(k) Retirement Savings Plan
The Flowers Foods 401(k) Retirement Savings Plan covers substantially all of the company’s employees who have completed
certain service requirements. During the forty weeks ended October 10, 2015 and October 4, 2014, the total cost and employer
contributions were $20.5 million and $20.1 million, respectively.
15. INCOME TAXES
The company’s effective tax rate for the forty weeks ended October 10, 2015 and October 4, 2014 was 35.4% and 35.1%,
respectively. The increase in the rate is primarily related to certain nondeductible acquisition-related costs, and a reduced Section 199
qualifying production activities deduction. The most significant differences in the effective rate and the federal statutory rate are
additions for state income taxes, offset by reductions for the Section 199 qualifying production activities deduction.
During the forty weeks ended October 10, 2015, the company’s activity with respect to its uncertain tax positions and related
interest expense accrual was immaterial. At this time, we do not anticipate significant changes to the amount of gross unrecognized tax
benefits over the next twelve months.
27
16. SEGMENT REPORTING
The company’s DSD Segment primarily produces fresh packaged bread, rolls, tortillas, and snack products and the Warehouse
Segment produces fresh and frozen bread and rolls and snack products.
The company purchased DKB, described in Note 3, Acquisition, above, on September 12, 2015. DKB is included in our DSD
Segment. Their results from operations and impact on our total assets are included in the tables below.
During the fourth quarter of fiscal 2014, we revised net sales. Historically, certain immaterial discounts had been recorded as an
expense to selling, distribution and administrative costs. These discounts are now recorded as contra revenue. All prior period
information has been revised to reflect this change. See Note 5, Financial Statement Revisions , for details about the impact of these
revisions.
The company evaluates each segment’s performance based on income or loss before interest and income taxes, excluding
unallocated expenses and charges which the company’s management deems to be an overall corporate cost or a cost not reflective of
the segment’s core operating businesses. Information regarding the operations in these reportable segments is as follows (amounts in
thousands):
For the Twelve Weeks Ended
October 10, 2015
For the Forty Weeks Ended
October 4, 2014
October 10, 2015
October 4, 2014
Sales:
DSD Segment
Warehouse Segment
Eliminations:
Sales from Warehouse Segment to DSD
Segment
Sales from DSD Segment to Warehouse
Segment
$
Interest expense
Interest income
Income before income taxes
Assets:
DSD Segment
Warehouse Segment
Other (2)
Total assets
727,614
159,502
$
(30,155)
(28,416)
(14,739)
885,302 $
(13,768)
844,932 $
2,513,397
560,935
$
2,472,303
558,178
(105,192)
(99,870)
(58,971)
2,871,640
$
88,103 $
11,920
(319)
99,704 $
87,286
11,649
(249)
98,686
$
73,803 $
11,393
(15,445)
69,751 $
67,740 $
11,833
(9,192)
70,381 $
251,068 $
41,667
(46,405)
246,330 $
226,935
39,402
(32,374)
233,963
$
$
$
(5,992) $
5,114 $
68,873 $
(6,285) $
4,875 $
68,971 $
(20,349) $
17,029 $
243,010 $
(21,902)
15,586
227,647
$
$
Income (loss) from operations:
DSD Segment
Warehouse Segment
Unallocated corporate costs (1)
$
(48,998)
2,920,142 $
$
Depreciation and amortization:
DSD Segment
Warehouse Segment
Unallocated corporate costs (1)
761,006
169,190
$
25,928 $
3,549
(58)
29,419 $
26,015
3,469
3
29,487
$
October 10, 2015
$
$
2,431,315
206,580
114,348
2,752,243
January 3, 2015
$
$
2,094,047
201,240
113,687
2,408,974
_________________
(1) Represents the company’s corporate head office amounts.
(2) Represents the company’s corporate head office assets, including primarily cash and cash equivalents, deferred taxes
and
deferred financing costs.
28
Sales by product category in each reportable segment are as follows for the twelve and forty weeks ended October 10,
2015 and October 4, 2014 (amounts in thousands):
For the Twelve Weeks Ended
October 10, 2015
Warehouse
Segment
DSD Segment
Branded Retail
Store Branded Retail
Non-retail and Other
Total
$
$
471,353
108,733
166,181
746,267
$
$
$
$
Total
29,397
28,984
80,654
139,035
$
$
500,750
137,717
246,835
885,302
Warehouse
Segment
DSD Segment
$
$
448,205
108,210
157,431
713,846
$
$
29,112
27,727
74,247
131,086
Total
$
$
For the Forty Weeks Ended
For the Forty Weeks Ended
October 10, 2015
October 4, 2014
DSD Segment
Branded Retail
Store Branded Retail
Non-retail and Other
Total
For the Twelve Weeks Ended
October 4, 2014
1,555,354 $
358,404
550,641
2,464,399 $
Warehouse
Segment
Total
100,153 $ 1,655,507 $
95,502
453,906
260,088
810,729
455,743 $ 2,920,142 $
DSD Segment
1,510,823 $
376,195
526,314
2,413,332 $
Warehouse
Segment
477,317
135,937
231,678
844,932
Total
100,047 $ 1,610,870
97,080
473,275
261,181
787,495
458,308 $ 2,871,640
17. ASSETS HELD FOR SALE
The company purchases territories from and sells territories to independent distributors from time to time. The company
repurchases territories from independent distributors in circumstances when the company decides to exit a territory or when the
distributor elects to terminate their relationship with the company. In the event the company decides to exit a territory or stop using the
independent distribution model in a territory, the company is contractually required to purchase the territory from the independent
distributor. In the event an independent distributor terminates his or her relationship with the company, the company, although not
legally obligated, normally repurchases and operates that territory as a company-owned territory. The independent distributors may
also sell their territories to another person or entity. Territories purchased from independent distributors and operated as
company-owned territories are recorded on the company’s Condensed Consolidated Balance Sheet in the line item “Assets Held for
Sale” while the company actively seeks another distributor to purchase the territory.
Territories held for sale and operated by the company are sold to independent distributors at the fair market value of the
territory. In accordance with the terms of the distributor agreement within the six-month period following the date of sale, the
independent distributor has the right to require the company to repurchase the territory and truck, if applicable, at the original purchase
price paid by the distributor. The company is not required to repay interest paid by the distributor during such six-month period. If the
truck is leased, the company will assume the lease payment if the territory is repurchased during the six-month period. Should the
independent distributor wish to sell the territory after the six-month period has expired, the company has the right of first refusal.
The company is also selling certain plants and depots that it acquired from Hostess Brands, Inc. in July 2013, which included 20
closed bakeries and 36 depots (the “Acquired Hostess Bread Assets”). The Acquired Hostess Bread Assets were originally recorded as
held and used. Subsequent to the acquisition of the Acquired Hostess Bread Assets, we determined that some of the acquired plants
and depots do not meet our long-term operating strategy, and we are actively marketing them for sale. There are certain other
properties not associated with the Acquired Hostess Bread Assets that are also in the process of being sold. These assets are recorded
on the Condensed Consolidated Balance Sheet in the line item “Assets Held for Sale” and are included in the “Other” line item in the
summary table below.
During the forty weeks ended October 10, 2015, we closed a production line at one of our bakeries and transitioned the
production to another facility. We recognized an impairment loss of $1.5 million during our second quarter of fiscal 2015 on the
equipment we no longer intend to use. Additionally, during the second quarter of fiscal 2015, we recognized an impairment loss of
$0.8 million on certain properties that are currently recorded as held for sale.
29
Additional assets recorded in assets held for sale are for property, plant and equipment, exclusive of the assets acquired as
part of the Acquired Hostess Bread Assets discussed above. The carrying values of assets held for sale are not amortized and are
evaluated for impairment as required at the end of the reporting period. The table below presents the assets held for sale as of
October 10, 2015 and January 3, 2015, respectively (amounts in thousands):
October 10, 2015
Distributor territories
Acquired Hostess Bread Assets plants and depots
Other
Total assets held for sale
$
$
22,540 $
4,041
7,696
34,277 $
January 3, 2015
20,491
13,406
5,211
39,108
18. SUBSEQUENT EVENTS
The company has evaluated subsequent events since October 10, 2015, the date of these financial statements. We believe there
were no material events or transactions discovered during this evaluation that requires recognition or disclosure in the financial
statements other than the item discussed below.
On October 13, 2015, the company completed the acquisition of Alpine Valley Bread Company, a family-owned producer of
certified organic and all natural breads in the U.S., from its existing shareholders for approximately $120.0 million in cash and stock.
The acquisition is intended to expand our penetration into the organic market and provide additional organic production capacity. We
funded the acquisition with $108.0 million from our existing credit facilities and the issuance of 481,540 shares of our common
stock.
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the financial condition and results of operations of the company as of and for the twelve and forty
weeks ended October 10, 2015 should be read in conjunction with the company’s Annual Report on Form 10-K for the fiscal year
ended January 3, 2015 (the “Form 10-K”).
OVERVIEW:
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is segregated into four
sections, including:

Business — discussion of our long-term strategic objectives, acquisitions, and the competitive environment.

Critical accounting estimates — describes the accounting areas where management makes critical estimates to report our
financial condition and results of operations. There have been no changes to this section from our Form 10-K.

Results of operations — an analysis of the company’s consolidated results of operations for the two comparative periods
presented in our consolidated financial statements.

Liquidity and capital resources — an analysis of cash flow, contractual obligations, and certain other matters affecting the
company’s financial position.
There were several significant events that will provide additional context while reading this discussion. These events include:

Revision of prior period sales — During the fourth quarter of fiscal 2014, we revised net sales. Historically, certain
immaterial discounts had been recorded as an expense to selling, distribution and administrative costs. These discounts are
now recorded as contra revenue. These revisions have been made for the fiscal 2014 information presented in this Form
10-Q.

Further expansion into the organic bread market — As discussed below, we have recently completed two strategic
acquisitions, Dave’s Killer Bread and Alpine Valley Bread, which strengthen our position in the organic bread market.

Alpine Valley Bread acquisition — On October 13, 2015, subsequent to the completion of our third quarter of fiscal 2015,
we completed the acquisition of Alpine Valley Bread Company (“Alpine”), a family-owned producer of certified organic
and all-natural breads in the U.S., for approximately $120.0 million in cash and stock. Alpine has two production facilities
in Mesa, Arizona and is included in our warehouse delivery segment. The acquisition is intended to expand our penetration
into the organic market and provide additional organic production capacity. We funded the cash portion of the purchase
price for the Alpine acquisition with our existing credit facilities and also issued 481,540 common shares to fund the equity
portion of the purchase price. The acquisition of Alpine did not impact our financial results for the third quarter of fiscal
2015.

Dave’s Killer Bread acquisition — On September 12, 2015, we completed the acquisition of AVB, Inc. d/b/a Dave’s Killer
Bread (“DKB”) for total cash payments of approximately $281.7 million inclusive of payments for certain future tax
benefits. The acquisition has been accounted for as a business combination and is included in our direct-store-delivery
segment (the “DSD Segment”). We believe the acquisition strengthens our position as the second-largest baker in the U.S.
by giving us access to the fast growing organic bread category and expanding our geographic reach into the Pacific
Northwest. DKB operates one production facility in Milwaukie, Oregon. We funded the purchase price of the DKB
acquisition with cash on hand and borrowings from our existing credit facilities.

Amendment to accounts receivable securitization facility — On August 20, 2015, we amended our accounts receivable
securitization facility (the “facility”) to extend the term to August 11, 2017 and to add a leverage pricing grid. The
amendment was accounted for as a modification. We drew down on the facility to fund the purchase price of the DKB
acquisition.

Plant closing — During the third quarter of fiscal 2015, we closed one of our DSD Segment production facilities and
relocated this production to one of our other DSD Segment facilities. Costs associated with the closure were $0.7 million
and are included in our results of operations for the twelve and forty weeks ended October 10, 2015.

Impairment of assets — During the second quarter of fiscal 2015, we decided to close a production line at one of our
bakeries and transition this production to another facility. We recognized an impairment loss of $1.5 million on the
equipment we no longer intend to use. Additionally, we recognized an impairment loss of $0.8 million on certain
properties that are currently held for sale. During the second quarter of 2014, we decided to sell certain assets at our Ft.
Worth, Texas tortilla facility and recognized an impairment loss on goodwill of $2.6 million and an impairment loss of $1.9
million on assets to be scrapped. The sale was completed in the third quarter of fiscal 2014.
31

Amendment to the credit facility — On April 21, 2015, we amended our existing senior unsecured revolving loan facility
(the “credit facility”) previously amended and restated on May 20, 2011. The amendment to the credit facility reduced the
applicable interest rate and extended the maturity date to April 21, 2020.

Opening of Lenexa, Kansas bakery — During the second quarter of fiscal 2015, we opened the bread line at our Lenexa
bakery which was acquired as part of the Acquired Hostess Bread Assets (defined below) in July 2013. We opened the bun
line during the third quarter of fiscal 2015. The bakery produces products for the Kansas, eastern Oklahoma, and Missouri
markets under the Nature’s Own , Wonder , and Home Pride brands.

Roman Meal trademark acquisition— On February 25, 2015, we announced that we acquired the Roman Meal trademark
from the Roman Meal Company in Tacoma, Washington. This trademark acquisition for breads and buns in the United
States and its territories, and in Mexico, Canada, Bermuda, and the Bahamas is being accounted for as an asset purchase
and is being amortized over 20 years.

Hostess acquired assets — On July 19, 2013, we completed the acquisition of certain assets of Hostess Brands, Inc.
(“Hostess”), which included the Wonder, Nature’s Pride, Merita, Home Pride and Butternut bread brands, 20 closed
bakeries and 36 depots (the “Acquired Hostess Bread Assets”). Subsequent to the acquisition of the Acquired Hostess
Bread Assets, we determined that certain of these plants and depots do not fit into our long-term operating strategy, and we
are actively marketing them for sale. Several of these plants and depots have already been sold and the remainder are
classified as held for sale in our Condensed Consolidated Balance Sheet included in this Form 10-Q. We expect these sales
to continue throughout fiscal 2015 and into fiscal 2016. We received a total of $8.9 million during the forty weeks ended
October 10, 2015 from the sale of these assets classified as held for sale. We recognized a $0.5 million impairment during
the second quarter of 2015 on certain of the plants and depots acquired as part of the Acquired Hostess Bread Assets that
are currently held for sale. Also, we recorded carrying costs, including depreciation, associated with the plants and depots
acquired as part of the Acquired Hostess Bread Assets that are not currently in operation of approximately $2.5 million and
$3.6 million during the twelve weeks ended October 10, 2015 and October 4, 2014, respectively, and $10.5 million and
$14.8 million for the forty weeks ended October 10, 2015 and October 4, 2014, respectively. These impairment charges
and carrying costs are included in our Condensed Consolidated Statements of Income.
Business
Flowers is focused on opportunities for growth within the baked foods category and seeks to have its products available
wherever baked foods are purchased or consumed — whether in supermarkets, club stores, convenience stores, retail outlets,
restaurants, fast food outlets, or vending machines. The company currently has 49 operating bakeries in 18 states that produce a wide
range of breads, buns, rolls, snack cakes, and tortillas.
Segments and delivery methods
The company has two business segments that reflect its two distinct methods of delivering products to market. The DSD
Segment products are delivered fresh to customers through a network of independent distributors who are incentivized to grow sales
and to build equity in their distributorships. The DSD Segment currently has access to more than 83% of the U.S. population for fresh
bakery foods. The warehouse delivery segment (the “Warehouse Segment”) ships fresh and frozen products to customers’ warehouses
nationwide. Customers then distribute these products to their depots, stores, or restaurants. Flowers’ bakeries fall into either the DSD
Segment or Warehouse Segment depending on the primary method of delivery used to sell their products.
The DSD Segment operates a highly involved system of reciprocal baking whereby each bakery has an assigned production
mission to produce certain items for its own market as well as for other DSD Segment bakeries’ markets and the Warehouse Segment.
This system allows for long and efficient production runs that help the company maintain its position as a low-cost producer. Bakeries
within regional networks exchange products overnight through a third-party transportation system so that at the beginning of each
sales day every DSD Segment bakery has a full complement of fresh products for its independent distributors to provide to their retail
and foodservice customers.
The company has invested significant capital in its bakeries for several decades to ensure its production is as efficient as
possible, uses technology effectively, provides consistent excellent product quality, and offers a good working environment for team
members. During the forty weeks ended October 10, 2015, we had capital expenditures of $61.3 million.
Consumers and our product portfolio
Flowers recognizes the need to stay in touch with changing consumer trends regarding baked foods. As a result, ongoing
research on consumer preferences is conducted and outside resources are engaged to help ensure our bakery products remain on trend
with consumers’ changing taste, texture, and flavor trends. Our marketing, quality assurance, and research and development teams
collaborate regularly as new products are considered, developed, tested, and introduced.
32
Brands are important in the bakery category and the company has invested over several decades in its brand portfolio
through advertising, promotion, and packaging. Nature’s Own , introduced in 1977, was developed to address the developing
trend of consumers demanding baked foods with a healthier profile. Nature’s Own , from inception, has offered baked foods
with no artificial flavors, colors, or preservatives.
On October 13, 2015, which was subsequent to the end of our third quarter of fiscal 2015, we completed the acquisition of
Alpine and their product line of super premium organic and all-natural bread products. These products, which are warehouse
delivered, are marketed under the Alpine Valley Bread brand and are intended to further extend our organic product line. The
Alpine acquisition did not impact our financial results for the third quarter of fiscal 2015.
On September 12, 2015, we completed the DKB acquisition, which includes a full product line of super premium whole-grain
100% organic and non-GMO bakery products sold under the Dave’s Killer Bread label, the leading organic bread brand in the
U.S.
Snack cakes have been part of the company’s product offerings since at least the early 1920s. In more recent years, snack cakes
have been developed and introduced under several brands, such as Blue Bird and Mrs. Freshley’s . In 2011, the company acquired
Tasty Baking Co. (“Tasty”) and its extensive line of Tastykake branded snack cakes. Since the acquisition of Tasty, we have
expanded the distribution of the Tastykake products throughout our territories and expect to continue this expansion.
In 2014, we re-branded the Cobblestone Mill brand to the Cobblestone Bread Company brand. There were twelve core products
and other regional favorites at introduction. This brand includes restaurant and sandwich shop inspired breads and rolls. We completed
the roll-out to the full market in July 2014.
Strengths and core competencies
We aim to achieve consistent and sustainable growth in sales and earnings by focusing on improvements in the operating results
of our existing bakeries and, after detailed analysis, acquiring companies and properties that add value to the company. We believe
this strategy has resulted in consistent and sustainable growth that will continue to build value for our shareholders.
The company also is committed to maintaining a collaborative, in-house information technology team, as well as certain
outsourced services, that meets all of our bakeries’ needs and maximizes efficiencies. The consumer packaged goods industry has used
scan-based trading technology (referred to as “pay by scan” or “PBS”) over several years to share information between the supplier
and retailer. An extension of this technology allows the retailer to pay the supplier when the consumer purchases the goods rather than
at the time they are delivered to the retailer. In addition, PBS permits the manufacturer to more accurately track trends in product sales
and manage inventory.
We regularly articulate our core business strategies to the investment community and internally to our team members, including
long-term (five-year) goals. Compensation and bonus programs are linked to the company’s short and long-term goals. The majority
of our employees participate in an annual formula-driven, performance-based cash bonus program. In addition, certain employees
participate in a long-term incentive program that provides performance-contingent common stock awards that generally vest over a
two-year period. We believe these incentive programs provide both a short and long-term goal for our most senior management team
and aligns their interests with those of our shareholders.
We believe our highly automated bakeries, with teams that focus on quality, bake products that meet consumers’ needs. We
strive to maintain and exceed service levels for our customers, consumers, and suppliers. The design of our delivery systems and
segments permits us to allocate management time and resources to meet marketplace expectations.
Competition and risks
Hostess’ liquidation in late November 2012 impacted the industry as Hostess sales shifted to other providers to meet
marketplace needs. These providers included Flowers, Grupo Bimbo (with Sara Lee , Arnolds , Thomas , and Entenmann’s
brands), Campbell Soup Company (with the Pepperidge Farm brand), McKee Foods Corporation ( Little Debbie ) and smaller
regional bakeries, retailer-owned bakeries, and store brands. Certain Hostess cake products were re-introduced into the market in
July 2013 by a new and separate company, Hostess Brands, LLC (“Hostess LLC”), formed by the outside investment group of Apollo
Global Management and C. Dean Metropoulous & Co. that purchased the Hostess cake brands.
Sales are principally affected by pricing, quality, brand recognition, new product introductions, product line extensions,
marketing, and service. Sales for the twelve weeks ended October 10, 2015 increased 4.8% as compared to the same period in the
prior year. This change was due to both volume increases and the DKB acquisition contribution.
Commodities, such as our baking ingredients, periodically experience price fluctuations. The cost of these inputs may fluctuate
widely due to government policy and regulation, weather conditions, domestic and international demand, or other unforeseen
33
circumstances. We enter into forward purchase agreements and other derivative financial instruments in an effort to manage the
impact of such volatility in raw material prices. Any decrease in the availability of these agreements and instruments could increase
the effective price of these raw materials to us and significantly affect our earnings.
Valuation of Long-Lived Intangible Assets
There are certain inherent risks included in our expectations about the performance of acquired trademarks and brands. If we
are unable to implement our growth strategies for these acquired intangible assets as expected, it could adversely impact the carrying
value of the brands. The implied fair value of the trademarks could be less than our carrying value under Step 1 of our impairment
analysis if any of our four material assumptions in our fair value analysis do not meet our expectations: (a) weighted average cost of
capital; (b) long-term sales growth rates; (c) forecasted operating margins; and (d) market multiples. We are continually monitoring
our trademarks. Based on management’s evaluation, no impairment charges relating to intangible assets not subject to amortization
were recorded during the forty weeks ended October 10, 2015.
The impairment analysis on the indefinite-lived intangible asset trademarks not subject to amortization is sensitive to the
long-term growth rates of the trademarks. The trademarks have been valued based on our expectations of timing in reintroducing the
trademarks in the market. The company also continually analyzes our expansion markets to determine in which markets our
trademarks may be introduced. If the timing of our expansion does not proceed as we currently anticipate or if the anticipated revenues
do not meet our expectations, these trademarks could become impaired in future periods.
CRITICAL ACCOUNTING POLICIES:
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These
principles are numerous and complex. Our significant accounting policies are summarized in the company’s Form 10-K. In many
instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and
circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially
different accounting result. Please see our Form 10-K, for a discussion of the areas where we believe that the estimates, judgments or
interpretations that we have made, if different, could yield the most significant differences in our financial statements. There have
been no significant changes to our critical accounting policies from those disclosed in our Form 10-K.
34
RESULTS OF OPERATIONS:
Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the
twelve weeks ended October 10, 2015 and October 4, 2014, are set forth below (dollars in thousands):
For the Twelve Weeks Ended
% of Sales
October 10, 2015
Sales
DSD Segment
Warehouse Segment
Total
Materials, supplies, labor and other
production costs (exclusive of
depreciation and amortization
shown separately below)
DSD Segment(1)
Warehouse Segment (1)
Total
Selling, distribution and
administrative expenses
DSD Segment (1)
Warehouse Segment(1)
Corporate(2)
Total
Depreciation and amortization
DSD Segment(1)
Warehouse Segment(1)
Corporate(2)
Total
Income from operations
DSD Segment(1)
Warehouse Segment(1)
Corporate(2)
Total
$
$
$
$
$
$
$
$
$
$
October 4, 2014
746,267
139,035
885,302
$
362,362
101,683
464,045
$
284,174
22,410
15,503
322,087
$
October 4, 2014
Dollars
713,846
131,086
844,932
84.3
15.7
100.0
84.5
15.5
100.0
$
347,361
95,617
442,978
48.6
73.1
52.4
48.7
72.9
52.4
$
38.1
16.1
—
36.4
38.2
15.4
—
35.8
$
$
272,730
20,167
9,189
302,086
25,928 $
3,549
(58)
29,419 $
26,015
3,469
3
29,487
3.5
2.6
—
3.3
3.6
2.6
—
3.5
$
73,803 $
11,393
(15,445)
69,751 $
67,740
11,833
(9,192)
70,381
9.9
8.2
—
7.9
9.5
9.0
—
8.3
$
1,410
24,372
44,599
0.1
2.8
4.9
0.2
2.9
5.3
$
$
$
878 $
Interest expense, net
$
25,077 $
Income taxes
$
43,796 $
Net income
_______________
1. As a percentage of revenue within the reporting segment.
2.
October 10, 2015
Increase (Decrease)
The corporate segment has no revenues.
NM. Not meaningful.
35
$
$
$
%
32,421
7,949
40,370
4.5
6.1
4.8
15,001
6,066
21,067
4.3
6.3
4.8
11,444
2,243
6,314
20,001
4.2
11.1
68.7
6.6
(87)
80
(61)
(68)
(0.3)
2.3
NM
(0.2)
$
6,063
(440)
(6,253)
(630)
9.0
(3.7)
(68.0)
(0.9)
$
$
$
(532)
705
(803)
(37.7)
2.9
(1.8)
$
Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for
the forty weeks ended October 10, 2015 and October 4, 2014, are set forth below (dollars in thousands):
For the Forty Weeks Ended
% of Sales
October 10,
2015
Sales
DSD Segment
Warehouse Segment
Total
Increase (Decrease)
October 4,
2014
Dollars
%
$
2,464,399 $
455,743
2,920,142 $
2,413,332
458,308
2,871,640
84.4
15.6
100.0
84.0 $
16.0
100.0 $
51,067
(2,565)
48,502
2.1
(0.6)
1.7
Materials, supplies, labor
and other production costs
(exclusive of depreciation
and amortization shown
separately below)
DSD Segment(1)
$
Warehouse Segment (1)
Total
$
1,178,775 $
328,439
1,507,214 $
1,159,714
337,160
1,496,874
47.8
72.1
51.6
48.1 $
73.6
52.1 $
19,061
(8,721)
10,340
1.6
(2.6)
0.7
Selling, distribution and
administrative expenses
DSD Segment (1)
Warehouse Segment(1)
Corporate(2)
Total
944,178 $
73,717
46,724
1,064,619 $
934,908
70,097
32,623
1,037,628
38.3
16.2
—
36.5
38.7 $
15.3
—
36.1 $
9,270
3,620
14,101
26,991
1.0
5.2
43.2
2.6
2,275 $
—
—
2,275 $
4,489
—
—
4,489
0.1
—
—
0.1
0.2 $
—
—
0.2 $
(2,214)
—
—
(2,214)
NM
—
—
NM
88,103 $
11,920
(319)
99,704 $
87,286
11,649
(249)
98,686
3.6
2.6
—
3.4
3.6 $
2.5
—
3.4 $
817
271
(70)
1,018
0.9
2.3
NM
1.0
$
251,068 $
41,667
(46,405)
246,330 $
226,935
39,402
(32,374)
233,963
10.2
9.1
—
8.4
9.4 $
8.6
—
8.1 $
24,133
2,265
(14,031)
12,367
10.6
5.7
(43.3)
5.3
$
$
$
3,320 $
86,065 $
156,945 $
6,316
79,918
147,729
0.1
2.9
5.4
0.2 $
2.8 $
5.1 $
(2,996)
6,147
9,216
(47.4)
7.7
6.2
Impairment of assets
DSD Segment(1)
Warehouse Segment(1)
Corporate(2)
Total
Depreciation and
amortization
DSD Segment(1)
Warehouse Segment(1)
Corporate(2)
Total
Income from operations
DSD Segment(1)
Warehouse Segment(1)
Corporate(2)
Total
Interest expense, net
Income taxes
Net income
$
October 4, 2014
October 10,
2015
$
$
$
$
$
$
$
1.
As a percentage of revenue within the reporting segment.
2.
The corporate segment has no revenues.
NM. Not meaningful.
36
CONSOLIDATED AND SEGMENT RESULTS
TWELVE WEEKS ENDED OCTOBER 10, 2015 COMPARED TO TWELVE WEEKS ENDED OCTOBER 4, 2014
Consolidated Sales.
For the Twelve Weeks Ended
October 10, 2015
$
For the Twelve Weeks Ended
October 4, 2014
%
$
(Amounts in
thousands)
Branded retail
Store branded retail
Non-retail and other
Total
$
500,750
137,717
246,835
885,302
$
%
% Increase
(Decrease)
(Amounts in
thousands)
56.6 $
15.5
27.9
100.0 $
477,317
135,937
231,678
844,932
56.5
16.1
27.4
100.0
4.9
1.3
6.5
4.8
The change in sales was generally attributable to the following:
Favorable
(Unfavorable)
Percentage Point Change in Sales Attributed to:
—
3.6
1.2
4.8
Pricing/mix
Volume
Acquisition
Total percentage change in sales
Sales category discussion
Volume gains in our branded bread, branded cake and foodservice business drove the overall increase in sales along with the
DKB acquisition contribution. The branded retail sales increase was largely due to the DKB acquisition and volume increases in
branded bread, primarily in the branded soft variety and branded white bread categories, and cake. Branded bread growth was driven
by the brands we acquired as part of the Acquired Hostess Bread Assets and growth in our expansion markets (defined as new markets
that we entered into in the last five years). New Tastykake product introductions and the continued expansion of Tastykake
products in our DSD markets drove the branded cake increase. The increase in store branded retail sales was mostly attributable to
increases in sales of store branded buns, rolls and cake, partially offset by declines in store branded white bread. Non-retail and other
sales, which include contract manufacturing, vending and foodservice, increased mainly due to volume increases in foodservice,
partially offset by decreases in price/mix.
DSD Segment Sales.
For the Twelve Weeks Ended
October 10, 2015
$
For the Twelve Weeks Ended
October 4, 2014
%
(Amounts in
thousands)
Branded retail
Store branded retail
Non-retail and other
Total
$
$
471,353
108,733
166,181
746,267
$
%
% Increase
(Decrease)
(Amounts in
thousands)
63.2 $
14.5
22.3
100.0 $
448,205
108,210
157,431
713,846
62.8
15.2
22.0
100.0
5.2
0.5
5.6
4.5
The change in sales was generally due to the following:
Favorable
(Unfavorable)
Percentage Point Change in Sales Attributed to:
Pricing/mix
Volume
Acquisition
Total percentage change in sales
0.2
2.9
1.4
4.5
37
Sales category discussion
Sales increased mainly due to volume growth in branded retail and non-retail sales and the DKB acquisition contribution. The
increase in branded retail sales was due primarily to the DKB acquisition contribution and volume increases from brands we acquired
as part of the Acquired Hostess Bread Assets. Additionally, sales growth in our expansion markets and growth in our branded cake
brand, Tastykake , from new product introductions and further expansion in our DSD markets led to the increase. Volume gains in
store branded buns and rolls was mostly offset by volume declines in store branded white bread resulting in a modest increase in store
branded retail sales. The increase in non-retail and other sales was primarily due to volume increases in foodservice.
Warehouse Segment Sales.
For the Twelve Weeks Ended
October 10, 2015
$
For the Twelve Weeks Ended
October 4, 2014
%
$
(Amounts in
thousands)
Branded retail
Store branded retail
Non-retail and other
Total
$
$
29,397
28,984
80,654
139,035
%
% Increase
(Decrease)
(Amounts in
thousands)
21.1 $
20.9
58.0
100.0 $
29,112
27,727
74,247
131,086
22.2
21.2
56.6
100.0
1.0
4.5
8.6
6.1
The change in sales was generally attributable to the following:
Favorable
(Unfavorable)
Percentage Point Change in Sales Attributed to:
Pricing/mix
Volume
Total percentage change in sales
0.6
5.5
6.1
Sales category discussion
The increase in branded retail was primarily due to price/mix increases, partially offset by volume declines. Store branded
retail sales increased mostly due to volume increases in store branded cake. The increase in non-retail and other sales, which include
contract manufacturing, vending and foodservice, was due primarily to increases in foodservice driven by new foodservice products
for certain of our customers.
Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately). The
table below presents the significant components of materials, supplies, labor and other production costs (exclusive of depreciation and
amortization shown separately) as a percent of sales:
For the Twelve Weeks Ended
October 10, 2015
% of sales
Line item component
Ingredients
Workforce-related costs
Packaging
Utilities
Other
Total
25.5
14.3
4.6
1.7
6.3
52.4
October 4, 2014
% of sales
26.0
14.1
4.6
1.8
5.9
52.4
Increase
(Decrease) as a
% of sales
(0.5)
0.2
—
(0.1)
0.4
—
Ingredient costs decreased primarily due to lower prices for flour and sweeteners, lower stales and higher outside purchases of
product (sales with no associated ingredient costs), partially offset by substantial increases in egg prices. The increase in the outside
purchased products is reflected in the other line item above of which the majority relates to higher outside purchases for certain of the
DKB products due to capacity constraints.
38
The table below presents the significant components of materials, supplies, labor and other production costs for the DSD
Segment (exclusive of depreciation and amortization shown separately) as a percent of sales:
For the Twelve Weeks Ended
October 10, 2015
% of sales
Line item component
Ingredients
Workforce-related costs
Packaging
Utilities
Other
Total
October 4, 2014
% of sales
23.0
12.5
3.3
1.6
8.2
48.6
23.5
12.4
3.4
1.8
7.6
48.7
Increase
(Decrease) as a
% of sales
(0.5)
0.1
(0.1)
(0.2)
0.6
(0.1)
The DSD Segment’s decrease in ingredient costs as a percent of sales was largely due to lower prices for flour and sweeteners
and increased product purchases from the Warehouse Segment (sales with no associated ingredient costs). Lower stales and increases
in outside purchases of product also contributed to the ingredient decrease, partially offset by a sharp increase in egg prices. The
increase in the other line item was due mostly to increases in outside purchases of product, largely attributable to the DKB products
due to capacity constraints, and increased product purchases from the Warehouse Segment.
The table below presents the significant components of materials, supplies, labor and other production costs for the Warehouse
Segment (exclusive of depreciation and amortization shown separately) as a percent of sales:
For the Twelve Weeks Ended
October 10, 2015
% of sales
Line item component
Ingredients
Workforce-related costs
Packaging
Utilities
Other
Total
October 4, 2014
% of sales
38.7
23.8
11.7
2.0
(3.1)
73.1
39.4
23.8
11.1
2.1
(3.5)
72.9
Increase
(Decrease) as a
% of sales
(0.7)
—
0.6
(0.1)
0.4
0.2
Ingredient costs decreased primarily due to increases in outside purchases of product (sales with no associated ingredient costs)
and lower flour and sweeteners prices, partially offset by significant price increases for eggs and increased sales of product to the DSD
Segment (ingredient costs with no associated sales). Packaging costs increased as a percent of sales primarily due price/mix increases
and increased sales of product to the DSD Segment (packaging costs with no associated sales). The other line item reflects the increase
in outside purchases of product and lower efficiencies, partially offset by increased product sales to the DSD Segment.
Selling, Distribution and Administrative Expenses. The table below presents the significant components of selling, distribution
and administrative expenses as a percent of sales:
For the Twelve Weeks Ended
October 10, 2015
% of sales
Line item component
Workforce-related costs
Distributor distribution fees
Other
Total
16.8
13.4
6.2
36.4
October 4, 2014
% of sales
16.7
13.5
5.6
35.8
Increase
(Decrease) as a
% of sales
0.1
(0.1)
0.6
0.6
The increase in workforce-related costs as a percent of sales was primarily due to higher employee incentive costs in the current
year quarter, partially offset by improvements at Lepage Bakeries, Inc. (“Lepage”) and cost saving initiatives we have
implemented. Acquisition-related costs of $5.0 million, or 60 basis points as a percent of sales, drove the increase in the other line
item component along with higher consulting costs, somewhat offset by lower distribution costs as a percent of sales due to lower fuel
prices.
39
The table below presents the significant components of our DSD Segment selling, distribution and administrative
expenses as a percent of sales:
For the Twelve Weeks Ended
Line item component
Workforce-related costs
Distributor distribution fees
Other
Total
October 10, 2015
% of sales
October 4, 2014
% of sales
16.9
16.0
5.2
38.1
16.8
16.0
5.4
38.2
Increase
(Decrease) as a
% of sales
0.1
—
(0.2)
(0.1)
The modest increase in workforce-related costs as a percentage of sales was attributable to higher employee incentive costs in
the current year which were mostly offset by higher costs in the prior comparable period related to the Lepage integration and cost
saving initiatives that we have implemented. Lower distribution costs as a percent of sales, resulting from lower fuel costs, and lower
marketing expenses contributed to the decrease in the other line item component.
The table below presents the significant components of our Warehouse Segment selling, distribution and administrative
expenses as a percent of sales:
For the Twelve Weeks Ended
Line item component
Workforce-related costs
Freezer storage/rent
Distribution costs (includes freight and shipping and hauling)
Other
Total
October 10, 2015
% of sales
October 4, 2014
% of sales
Increase
(Decrease) as a
% of sales
7.6
2.1
7.2
2.1
0.4
—
2.2
4.2
16.1
2.0
4.1
15.4
0.2
0.1
0.7
Higher employee incentive costs in the current year quarter as compared to the prior year quarter drove the increase in
workforce-related costs. Distribution costs increased due to a shift in product mix resulting in more product being delivered to
customers as opposed to being picked up by the customer.
Depreciation and Amortization. Depreciation and amortization expense was relatively consistent with the prior comparable
period. We anticipate amortization expense to increase in the fourth quarter of fiscal 2015 due to the substantial increase in
amortizable assets related to the DKB and Alpine acquisitions.
Income from Operations. The table below summarizes the percentage change in income from operations by segment:
Operating income (loss)
DSD Segment
Warehouse Segment
Unallocated corporate
Consolidated
% Favorable
(Unfavorable)
9.0
(3.7)
(68.0)
(0.9)
The increase in the DSD Segment income was driven by increased sales and lower ingredient costs as a percent of sales. The
decrease in the Warehouse Segment income from operations was primarily due to higher selling, distribution and administrative costs
as a percent of sales and lower efficiencies. The unfavorable change in unallocated corporate expenses was primarily due to $5.0
million of acquisition-related costs for the DKB and Alpine acquisitions and higher employee incentive and consulting costs, partially
offset by lower stock-based compensation expense due to the lower expected vesting percentage of the ROIC shares awarded in fiscal
2014.
Net Interest Expense. The decrease was related to lower average amounts outstanding under the company’s debt arrangements
which decreased interest expense and higher interest income due to increases in distributor notes receivables outstanding. We drew
down on our credit facilities late in the third quarter to fund the DKB acquisition and early in the fourth quarter to fund the Alpine
acquisition and expect net interest expense to increase in the fourth quarter of fiscal 2015.
Income Taxes. The effective tax rate for the twelve weeks ended October 10, 2015 was 36.4% compared to 35.3% in the third
quarter of the prior year. The increase in the rate was primarily related to certain nondeductible acquisition-related costs and a
40
reduction in the Section 199 qualifying production activities deduction. The adjustment to the year to date tax expense to reflect the
increased annualized effective tax rate also increased the third quarter 2015 effective tax rate. The most significant differences in the
effective rate and the statutory rate were related to state income taxes, partially offset by reductions for the Section 199 qualifying
production activities deduction.
FORTY WEEKS ENDED OCTOBER 10, 2015 COMPARED TO FORTY WEEKS ENDED OCTOBER 4, 2014
Consolidated Sales.
For the Forty Weeks Ended
October 10, 2015
$
For the Forty Weeks Ended
October 4, 2014
%
$
(Amounts in
thousands)
Branded retail
Store branded retail
Non-retail and other
Total
$
$
1,655,507
453,906
810,729
2,920,142
%
% Increase
(Decrease)
(Amounts in
thousands)
56.7 $
15.5
27.8
100.0 $
1,610,870
473,275
787,495
2,871,640
56.1
16.5
27.4
100.0
2.8
(4.1)
3.0
1.7
The change in sales was generally attributable to the following:
Favorable
(Unfavorable)
Percentage Point Change in Sales Attributed to:
Pricing/mix
Volume
Acquisition
Total percentage change in sales
0.4
1.0
0.3
1.7
Sales category discussion
The favorable pricing/mix was primarily due to a shift in mix from lower margin store branded bread and rolls and the
non-retail tortilla business we exited in the second half of fiscal 2014 to higher margin branded bread and rolls and foodservice
products, partially offset by a competitive pricing environment. The increase in branded retail sales was largely due to volume
increases in branded bread driven by the brands we acquired as part of the Acquired Hostess Bread Assets and growth in our
expansion markets (defined as new markets that we entered into in the last five years), partially offset by declines due to pricing/mix.
Additionally, the DKB acquisition sales contributed to the branded retail increase. The decrease in store branded retail sales was
primarily due to exiting certain store branded business in the second half of fiscal 2014 and declines in store branded cake. Non-retail
and other sales, which include contract manufacturing, vending and foodservice, increased mainly due to volume increases in
foodservice, partially offset by decreases in contract manufacturing from exiting the non-retail tortilla business.
DSD Segment Sales.
For the Forty Weeks Ended
October 10, 2015
$
%
(Amounts in
thousands)
Branded retail
Store branded retail
Non-retail and other
Total
$
$
1,555,354
358,404
550,641
2,464,399
For the Forty Weeks Ended
October 4, 2014
$
% Increase
%
(Decrease)
(Amounts in
thousands)
63.1 $
14.6
22.3
100.0 $
1,510,823
376,195
526,314
2,413,332
62.6
15.6
21.8
100.0
2.9
(4.7)
4.6
2.1
The change in sales was generally attributable to the following:
Percentage Point Change in Sales Attributed to:
Pricing/mix
Volume
Acquisition
Favorable
(Unfavorable)
0.3
1.4
0.4
Total percentage change in sales
2.1
41
Sales category discussion
Sales increased mainly due to volume growth in branded retail and non-retail sales and the DKB acquisition contribution,
partially offset by volume declines in the store branded category. The increase in branded retail sales was due primarily to volume
increases from the Acquired Hostess Bread Assets, sales growth in our expansion markets and the DKB acquisition, partially offset by
declines due to pricing/mix. The decrease in store branded retail was due primarily to exiting certain store branded business in the
second half of fiscal 2014. The increase in non-retail and other sales was primarily due to increases in foodservice sales.
Warehouse Segment Sales.
For the Forty Weeks Ended
October 10, 2015
$
For the Forty Weeks Ended
October 4, 2014
%
$
(Amounts in
thousands)
Branded retail
Store branded retail
Non-retail and other
Total
$
$
100,153
95,502
260,088
455,743
%
% Increase
(Decrease)
(Amounts in
thousands)
22.0 $
21.0
57.0
100.0 $
100,047
97,080
261,181
458,308
21.8
21.2
57.0
100.0
0.1
(1.6)
(0.4)
(0.6)
The change in sales was generally due to the following:
Favorable
(Unfavorable)
Percentage Point Change in Sales Attributed to:
—
(0.6)
(0.6)
Pricing/mix
Volume
Total percentage change in sales
Sales category discussion
Store branded retail decreased primarily due to volume decreases in store branded cake. The decrease in non-retail and other
sales, which include contract manufacturing, vending and foodservice, was due primarily to exiting the tortilla business in the second
half of fiscal 2014, decreases in mix sales and overall non-retail price/mix declines, partially offset by volume growth in foodservice.
Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately). The
table below presents the significant components of materials, supplies, labor and other production costs (exclusive of depreciation and
amortization shown separately) as a percent of sales:
For the Forty Weeks Ended
October 10, 2015
% of sales
Line item component
Ingredients
Workforce-related costs
Packaging
Utilities
Other
Total
25.2
14.0
4.7
1.6
6.1
51.6
October 4, 2014
% of sales
26.0
13.8
4.6
1.7
6.0
52.1
Increase
(Decrease) as a
% of sales
(0.8)
0.2
0.1
(0.1)
0.1
(0.5)
Overall, the decrease was attributable to lower ingredient costs as a percent of sales, improved efficiency and higher costs in the
prior comparable period associated with the sold tortilla facility. Ingredient costs decreased as a percent of sales largely due to lower
prices for flour and sweeteners and lower stales, partially offset by higher egg prices. Increases in workforce-related costs as a percent
of sales primarily resulted from increased headcount due to the addition of production lines, partially offset by higher costs in fiscal
2014 related to the sold tortilla facility.
42
The table below presents the significant components of materials, supplies, labor and other production costs for the DSD
Segment (exclusive of depreciation and amortization shown separately) as a percent of sales:
For the Forty Weeks Ended
October 10, 2015
% of sales
Line item component
Ingredients
Workforce-related costs
Packaging
Utilities
Other
Total
October 4, 2014
% of sales
22.7
12.2
3.3
1.6
8.0
47.8
23.6
12.1
3.4
1.7
7.3
48.1
Increase
(Decrease) as a
% of sales
(0.9)
0.1
(0.1)
(0.1)
0.7
(0.3)
The DSD Segment’s decrease in ingredient costs as a percent of sales was mostly attributable to lower pricing on flour and
sweeteners, decreased product sales to the Warehouse Segment (ingredient costs with no associated sales), increased product
purchases from the Warehouse Segment (sales with no associated ingredient costs) and lower stales. Decreases in sales of product to
the Warehouse Segment, largely the tortilla products from the non-retail tortilla business we exited in the second half of fiscal 2014,
and increases in product purchases from the Warehouse Segment drove the increase in the other line item as a percent of sales.
Improved efficiency also contributed to the overall decrease.
The table below presents the significant components of materials, supplies, labor and other production costs for the Warehouse
Segment (exclusive of depreciation and amortization shown separately) as a percent of sales:
For the Forty Weeks Ended
October 10, 2015
% of sales
Line item component
Ingredients
Workforce-related costs
Packaging
Utilities
Other
Total
October 4, 2014
% of sales
38.9
23.7
11.9
1.9
(4.3)
72.1
38.8
22.6
10.9
1.9
(0.6)
73.6
Increase
(Decrease) as a
% of sales
0.1
1.1
1.0
—
(3.7)
(1.5)
The Warehouse Segment’s decrease was largely due to exiting the lower margin non-retail tortilla business in the second half of
fiscal 2014 and a shift in mix from lower margin store branded cake to higher margin foodservice products. Increases in sales of
product to the DSD Segment increased workforce-related costs (workforce-related costs with no associated sales) as a percent of sales,
partially offset by increased outside purchases of product (sales with no associated costs). Packaging costs increased primarily due to
price/mix increases and increased sales to the DSD Segment (packaging costs with no associated sales). The other line item reflects
decreases in purchases of product from the DSD Segment, mainly the tortilla products from the tortilla business we exited in fiscal
2014, and increases in sales of product to the DSD Segment, partially offset by increases in outside purchases of product. Lower
efficiencies partially offset the overall decrease.
Selling, Distribution and Administrative Expenses. The table below presents the significant components of selling, distribution
and administrative expenses as a percent of sales:
For the Forty Weeks Ended
October 10, 2015
% of sales
Line item component
Workforce-related costs
Distributor distribution fees
Other
Total
17.0
13.6
5.9
36.5
43
October 4, 2014
% of sales
17.3
13.3
5.5
36.1
Increase
(Decrease) as a
% of sales
(0.3)
0.3
0.4
0.4
The workforce-related costs decreased as a percent of sales primarily due to converting to independent distributors in
newer markets, implementing cost saving initiatives and higher costs in the prior comparable period associated with the Lepage
integration. Distributor distribution fees increased as a percent of sales due to the conversions discussed above.
Acquisition-related costs of $5.0 million, or 20 basis points as a percent of sales, as well as higher legal and consulting costs
largely resulted in the other line item component increase. Lower distribution costs as a percent of sales, due partly to lower fuel
costs, partially offset the overall increase.
The table below presents the significant components of our DSD Segment selling, distribution and administrative expenses as a
percent of sales:
For the Forty Weeks Ended
Line item component
Workforce-related costs
Distributor distribution fees
Other
Total
October 10, 2015
% of sales
Increase
(Decrease) as a
% of sales
October 4, 2014
% of sales
16.9
16.1
5.3
38.3
17.5
15.8
5.4
38.7
(0.6)
0.3
(0.1)
(0.4)
The decrease in workforce-related costs as a percent of sales was attributable to the conversion to independent distributors in
newer markets, improvements at Lepage and implementing cost saving initiatives. The distributor distribution fees as a percent of
sales increased due to the conversion to independent distributors.
The table below presents the significant components of our Warehouse Segment selling, distribution and administrative
expenses as a percent of sales:
For the Forty Weeks Ended
Line item component
October 10, 2015
% of sales
Workforce-related costs
Freezer storage/rent
Distribution costs (includes freight and shipping and hauling)
Other
Total
October 4, 2014
% of sales
Increase
(Decrease) as a
% of sales
7.8
2.1
7.5
1.9
0.3
0.2
2.1
4.2
16.2
2.0
3.9
15.3
0.1
0.3
0.9
The overall increase in selling, distribution and administrative expenses was primarily driven by higher employee incentive
costs and lower sales which spread the costs over a smaller sales base.
Impairment of Assets. Refer to the discussion in the “Overview” section above.
Depreciation and Amortization. Depreciation and amortization expense as a percent of sales was consistent with the prior
comparable period. We anticipate amortization expense to increase in the fourth quarter of fiscal 2015 due to the substantial increase
in amortizable assets related to the DKB and Alpine acquisitions.
Income from Operations. The table below summarizes the percentage change in income from operations by segment:
Operating income (loss)
DSD Segment
Warehouse Segment
Unallocated corporate
Consolidated
% Favorable
(Unfavorable)
10.6
5.7
(43.3)
5.3
The increase in the DSD Segment income from operations was largely attributable to sales increases, lower ingredient costs as a
percent of sales and the decrease in the asset impairment charge of $2.2 million discussed in the “Overview” section above. The
increase in the Warehouse Segment income from operations was primarily due to exiting lower margin business in the second half of
fiscal 2014, largely the non-retail tortilla business and certain store branded cake business, partially offset by higher selling,
distribution and administrative costs as a percent of sales. The unfavorable increase in unallocated corporate expenses was primarily
due to $5.0 million of acquisition-related costs associated with the DKB and Alpine acquisitions, higher legal and consulting costs and
lower pension income in the current period as compared to the same period in the prior year.
44
Net Interest Expense. The decrease was related to lower average amounts outstanding under the company’s debt
arrangements which decreased interest expense and higher interest income resulting from the increase in distributor notes
receivables outstanding. We expect net interest expense to increase in the fourth quarter of fiscal 2015 due to higher amounts
outstanding under our debt facilities from funding the DKB acquisition (late in the third quarter of fiscal 2015) and Alpine
acquisition (early in the fourth quarter of fiscal 2015).
Income Taxes. The company’s effective tax rate was 35.4% and 35.1%for the forty weeks ended October 10, 2015 and October
4, 2014, respectively. The increase in the rate was primarily related to certain nondeductible acquisition-related costs and a reduction
in the Section 199 qualifying production activities deduction. The most significant differences in the effective rate and the statutory
rate were related to state income taxes, partially offset by reductions for the Section 199 qualifying production activities deduction.
LIQUIDITY AND CAPITAL RESOURCES:
Liquidity represents our ability to generate sufficient cash flows from operating activities to meet our obligations and
commitments as well as our ability to obtain appropriate financing and convert into cash those assets that are no longer required to
meet existing strategic and financing objectives. Therefore, liquidity cannot be considered separately from capital resources that
consist primarily of current and potentially available funds for use in achieving long-range business objectives. Currently, the
company’s liquidity needs arise primarily from working capital requirements, capital expenditures, pension contributions and
obligated debt payments. The company’s strategy for use of its cash flow includes paying dividends to shareholders, making
acquisitions, growing internally and repurchasing shares of its common stock, when appropriate. We believe we have access to
available funds to meet our short and long-term capital requirements.
On September 12, 2015, the acquisition of DKB described in the Overview section above required approximately $281.7
million in cash (excluding acquisition-related costs). This transaction was financed with cash on hand, funds available under the
accounts receivable securitization facility and funds available under the credit facility. On October 13, 2015, subsequent to our third
quarter, we completed the acquisition of Alpine, a family-owned producer of certified organic and all-natural breads in the U.S., for
approximately $108.0 million in cash funded by our existing credit facilities and the issuance of 481,540 shares of our common
stock. The Alpine acquisition is not included in the Liquidity discussion below since it occurred after our third quarter.
The company leases certain property and equipment under various operating and capital lease arrangements. Most of the
operating leases provide the company with the option, after the initial lease term, either to purchase the property at the then fair value
or renew its lease at the then fair value. The capital leases provide the company with the option to purchase the property at a fixed
price at the end of the lease term. The company believes the use of leases as a financing alternative places the company in a more
favorable position to fulfill its long-term strategy for the use of its cash flow. See Note 12, Debt, Lease and Other Commitments , of
Notes to Consolidated Financial Statements of our Form 10-K for detailed financial information regarding the company’s lease
arrangements.
Liquidity discussion for the forty weeks ended October 10, 2015 and October 4, 2014
Cash and cash equivalents were $8.8 million at October 10, 2015 as compared to $7.5 million at January 3, 2015. The cash and
cash equivalents were derived from the activities presented in the table below (amounts in thousands):
For the Forty Weeks Ended
Cash flow component
October 10, 2015
Cash flows provided by operating activities
Cash disbursed for investing activities
Cash provided by (disbursed for) financing activities
Total change in cash
$
$
45
280,542 $
(333,098)
53,813
1,257 $
October 4, 2014
220,242 $
(30,309)
(190,388)
(455) $
Change
60,300
(302,789)
244,201
1,712
Cash Flows Provided by Operating Activities. Net cash provided by operating activities consisted of the following items
for non-cash adjustments to net income (amounts in thousands):
For the Forty Weeks Ended
October 10, 2015
Depreciation and amortization
Impairment of assets
Stock-based compensation
Loss reclassified from accumulated other
comprehensive income to net income
Deferred income taxes
Provision for inventory obsolescence
Bad debt expense (allowance for accounts receivable)
Pension and postretirement plans income
Other non-cash items
Net non-cash adjustment to net income
$
$
99,704
2,275
13,291
October 4, 2014
Change
$
98,686 $
4,489
14,186
1,018
(2,214)
(895)
6,205
11,029
839
2,340
(4,677)
(1,913)
129,093 $
3,658
8,244
1,026
3,206
(7,730)
(4,122)
121,643 $
2,547
2,785
(187)
(866)
3,053
2,209
7,450
Net cash used for working capital requirements and pension contributions consisted of the following items (amounts in
thousands):
For the Forty Weeks Ended
October 10, 2015
Changes in accounts receivable, net
Changes in inventories, net
Changes in hedging activities, net
Changes in other assets, net
Changes in accounts payable, net
Changes in other accrued liabilities, net
Qualified pension plan contributions
Net changes in working capital and pension contributions
$
$
(19,710) $
(10,461)
(8,387)
(2,377)
31,214
14,225
(10,000)
(5,496) $
October 4, 2014
(6,873) $
1,971
(16,286)
(12,088)
(3,798)
943
(12,999)
(49,130) $
Change
(12,837)
(12,432)
7,899
9,711
35,012
13,282
2,999
43,634
The pension and postretirement plan income decreased from the forty weeks ended October 4, 2014 to the forty weeks ended
October 10, 2015 due to the performance of the plan’s assets during fiscal 2014 and the new mortality tables which increased our
pension benefit obligations at the end of our fiscal 2014. Other non-cash items include non-cash interest expense for the amortization
of debt discounts and deferred financing costs and gains or losses on the sale of assets.
The changes in accounts receivable and inventories are described above and were due to sales increases. Hedging activities
change from market movements that affect the fair value and required collateral of positions and the timing and recognition of
deferred gains or losses. The other assets and accrued liabilities changes are from changes in income tax receivable balances, deferred
tax liabilities, accrued interest and accrued employee costs (including accrued compensation for our formula driven,
performance-based cash bonus program).
The company’s derivative instruments contained no credit-risk-related contingent features at October 10, 2015. As of October
10, 2015 and January 3, 2015, the company had $17.2 million and $16.1 million, respectively, recorded in other current assets
representing collateral from or with counterparties for hedged positions.
We contributed $10.0 million to our qualified pension plans during the forty weeks ended October 10, 2015 and we do not
expect to make any additional contributions to these plans this fiscal year. We do expect to pay an additional $0.2 million in
nonqualified pension benefits from corporate assets during the fourth quarter of fiscal 2015. The contributions to qualified pension
plans were discretionary. The company believes its cash flow and balance sheet will allow it to fund future pension needs without
adversely affecting the business strategy of the company.
During the first quarter of fiscal 2015, the company paid $16.4 million, including our share of employment taxes and deferred
compensation contributions, relating to its formula-driven, performance-based cash bonus program earned during fiscal 2014. An
additional $1.5 million for our share of employment taxes on the vesting of the performance-contingent restricted stock award was
also paid during the first quarter of fiscal 2015. We paid $24.7 million during the first quarter of 2014 for the performance-based cash
bonus program earned during fiscal 2013.
46
Cash Flows Disbursed for Investing Activities. The table below presents net cash disbursed for investing activities for the
forty weeks ended October 10, 2015 and October 4, 2014 (amounts in thousands):
For the Forty Weeks Ended
October 10, 2015
Purchase of property, plant, and equipment
Repurchase of independent distributor territories
Principal payments from notes receivable
Acquisition of businesses, net of cash acquired
Contingently refundable consideration
Acquisition of intangible assets
Proceeds from sale of property, plant and equipment
Net cash disbursed for investing activities
$
October 4, 2014
(61,258) $
(16,255)
19,916
(280,848)
—
(5,000)
10,347
(333,098) $
$
(58,564) $
(14,845)
17,436
—
7,500
—
18,164
(30,309) $
Change
(2,694)
(1,410)
2,480
(280,848)
(7,500)
(5,000)
(7,817)
(302,789)
Net cash disbursed for investing activities included the DKB acquisition, net of cash acquired, of $280.8 million and the Roman
Meal trademark acquisition of $5.0 million in the first quarter of fiscal 2015. Capital expenditures for the DSD Segment and
Warehouse Segment were $50.1 million and $6.7 million, respectively. The company currently estimates capital expenditures of
approximately $85.0 million to $95.0 million on a consolidated basis during fiscal 2015. There were more asset sales from assets
currently classified as held for sale during the current period as compared to the prior comparable period.
Cash Flows Provided by (Disbursed for) Financing Activities. The table below presents net cash disbursed for financing
activities for the forty weeks ended October 10, 2015 and October 4, 2014 (amounts in thousands):
For the Forty Weeks Ended
October 10, 2015
Dividends paid
Exercise of stock options, including windfall tax benefit
Payment of debt issuance costs and financing fees
Stock repurchases
Change in bank overdrafts
Net debt and capital lease obligations changes
Net cash provided by (disbursed for) financing activities
$
$
October 4, 2014
(89,672) $
27,313
(602)
(6,858)
(10,868)
134,500
53,813 $
(74,493) $
24,235
(577)
(19,791)
(3,002)
(116,760)
(190,388) $
Change
(15,179)
3,078
(25)
12,933
(7,866)
251,260
244,201
Our dividends paid increased due to an increased dividend payout rate. While there are no requirements to increase the dividend
payout, we have shown a recent historical trend to do so. Should this trend continue in the future, we will have additional working
capital needs to meet these increased payouts. Stock option exercises and the associated tax windfall benefit increased due to more
exercises in the current fiscal year as compared to the same period in the prior year. As of October 10, 2015 there were nonqualified
stock option grants of 4.5 million shares that were exercisable. These have a remaining contractual life of approximately 1.63 years
and a weighted average exercise price of $10.96 per share. At this time, it is expected that these shares will be exercised before the
contractual term expires and they may provide an increase to the cash provided by financing activities.
Stock repurchase decisions are made based on our stock price, our belief of relative value, and our cash projections at any given
time. Payments for debt issuance costs and financing fees increased because we incurred fees of $0.6 million for amending our
accounts receivable securitization facility and unsecured credit facility, as described below. The change in bank overdraft was a
function of our cash receipts at the end of fiscal 2014. Our cash objective is to minimize cash on hand by using the credit facility
described below. The net debt obligations increased primarily because we drew down on our facilities to fund the DKB acquisition,
net of the repayments on our new term loan and our credit facilities.
The credit facility is variable rate debt, as described below. In periods of rising interest rates the cost of using the credit facility
will become more expensive and increase our interest expense. The stated interest rate of the notes will not change. Therefore, draw
downs on the credit facility provide us the greatest direct exposure to rising rates. In addition, if interest rates do increase it will make
the cost of raising funds more expensive. Considering our current debt obligations, an environment of rising rates could materially
affect our Condensed Consolidated Statements of Income.
Additional liquidity items are discussed below for context.
Accounts Receivable Securitization Facility, New Term Loan, Senior Notes, and Credit Facility
Accounts Receivable Securitization Facility. On July 17, 2013, the company entered into an accounts receivable securitization
facility (the “facility”). On August 7, 2014, the company entered into an amendment to the facility. The amendment (i) increased the
47
revolving commitments under the facility to $200.0 million from $150.0 million, (ii) extended the term one year to July 17, 2016, and
(iii) made certain other conforming changes. On December 17, 2014, the company executed a second amendment to the facility to add
a bank to the lending group. The original commitment amount was split between the original lender and the new lender in the
proportion of 62.5% for the original lender and 37.5% for the new lender. This modification, which was accounted for as an
extinguishment of the debt, resulted in a charge of $0.1 million, or 37.5%, of the unamortized financing costs. On August 20, 2015,
the company executed a third amendment to the facility to extend the term to August 11, 2017 and to add a leverage pricing grid. This
amendment was accounted for as a modification. Under the facility, a wholly-owned, bankruptcy-remote subsidiary purchases, on an
ongoing basis, substantially all trade receivables. As borrowings are made under the facility, the subsidiary pledges the receivables as
collateral. In the event of liquidation of the subsidiary, its creditors would be entitled to satisfy their claims from the subsidiary’s
pledged receivables prior to distributions of collections to the company. We include the subsidiary in our Condensed Consolidated
Financial Statements. The facility contains certain customary representations and warranties, affirmative and negative covenants, and
events of default. As of October 10, 2015, there were $170.0 million outstanding under the facility compared to no amounts
outstanding as of January 3, 2015. As of October 10, 2015 and January 3, 2015, the company was in compliance with all restrictive
covenants under the facility. On October 10, 2015, the company had $0.9 million available under its facility for working capital and
general corporate purposes. Amounts available for withdrawal under the facility are determined as the lesser of the total commitments
and a formula derived amount based on qualifying trade receivables.
Optional principal repayments may be made at any time without premium or penalty. Interest is due two days after our
reporting periods end in arrears on the outstanding borrowings and is computed as the cost of funds rate plus an applicable margin of
70 basis points. An unused fee of 25 basis points is applicable on the unused commitment at each reporting period. The company paid
financing costs of $0.8 million in connection with the facility at the time we entered into the facility, which are being amortized over
the life of the facility. During fiscal 2014, we incurred $0.2 million in financing costs with the first and second amendments. An
additional $0.2 million in financing costs was paid during fiscal 2015 for the second and third amendments.
New Term Loan. We entered into a senior unsecured delayed-draw term facility (the “new term loan”) on April 5, 2013 with a
commitment of up to $300.0 million. The company drew down the full amount of the new term loan on July 18, 2013 (the “borrowing
date”).
The new term loan amortizes in quarterly installments based on an increasing annual percentage. The first payment was due and
payable on June 30, 2013 (the last business day of the first calendar quarter ending after the borrowing date), quarterly payments are
due on the last business day of each successive calendar quarter and all remaining outstanding principal is due and payable on the fifth
anniversary of the borrowing date. The table below presents the principal payment amounts remaining under the new term loan as of
October 10, 2015 (amounts in thousands):
Fiscal Year
Payments
Remainder of 2015
2016
2017
2018
$
$
$
$
7,500
67,500
112,500
60,000
On February 14, 2014, we entered into an amendment to the new term loan, which was accounted for as a modification of the
debt, favorably reduced the interest rates described below from those entered into originally on April 5, 2013. Voluntary prepayments
on the new term loan may be made without premium or penalty. Interest is due quarterly in arrears on any outstanding borrowings at a
customary Eurodollar rate or the base rate plus applicable margin. The applicable margin ranges from 0.00% to 1.25% for base rate
loans and from 1.00% to 2.25% for Eurodollar loans, and is based on the company’s leverage ratio. Interest on base rate loans is
payable quarterly in arrears on the last business day of each calendar quarter. Interest on Eurodollar loans is payable in arrears at the
end of the interest period and every three months in the case of interest periods in excess of three months. The company paid financing
costs of $1.7 million in connection with the new term loan, which are being amortized over the life of the new term loan. A
commitment fee of 20 basis points on the daily undrawn portion of the lenders’ commitments commenced on May 1, 2013 and
continued until the borrowing date, when the company borrowed the available $300.0 million for the acquisition of certain Hostess
Brands, Inc. bread assets. The new term loan is subject to customary restrictive covenants, including certain limitations on liens and
significant acquisitions and financial covenants regarding minimum interest coverage ratio and maximum leverage ratio. The
February 14, 2014 amendment cost $0.3 million and is being amortized over the remaining term. As of October 10, 2015 and January
3, 2015, the company was in compliance with all restrictive covenants under the new term loan.
Senior Notes. On April 3, 2012, the company issued $400.0 million of senior notes. The company pays semiannual interest on
the notes on each April 1 and October 1, beginning on October 1, 2012, and the notes will mature on April 1, 2022. The notes bear
interest at 4.375% per annum. On any date prior to January 1, 2022, the company may redeem some or all of the notes at a price equal
to the greater of (1) 100% of the principal amount of the notes redeemed and (2) a “make-whole” amount plus, in each case, accrued
and unpaid interest. The make-whole amount is equal to the sum of the present values of the remaining scheduled payments of
principal thereof (not including any interest accrued thereon to, but not including, the date of redemption), discounted to the date of
48
redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate (as defined in
the indenture governing the notes), plus 35 basis points, plus in each case, unpaid interest accrued thereon to, but not including, the
date of redemption. At any time on or after January 1, 2022, the company may redeem some or all of the notes at a price equal to
100% of the principal amount of the notes redeemed plus accrued and unpaid interest. If the company experiences a “change of
control triggering event” (which involves a change of control of the company and related rating of the notes below investment grade),
it is required to offer to purchase the notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest
thereon unless the company exercised its option to redeem the notes in whole. The notes are also subject to customary restrictive
covenants, including certain limitations on liens and sale and leaseback transactions.
The face value of the notes is $400.0 million and the current discount on the notes is $0.6 million. The company paid issuance
costs (including underwriting fees and legal fees) for issuing the notes of $3.9 million. The issuance costs and the debt discount are
being amortized to interest expense over the term of the notes. As of October 10, 2015 and January 3, 2015, the company was in
compliance with all restrictive covenants under the indenture governing the notes.
Credit Facility. On April 21, 2015, the company amended its senior unsecured credit facility (the “credit facility”) to extend the
term to April 21, 2020, reduce the applicable margin on base rate and Eurodollar loans and reduce the facility fees, described below.
The amendment was accounted for as a modification of the debt. The credit facility is a five-year, $500.0 million senior unsecured
revolving loan facility. The credit facility contains a provision that permits Flowers to request up to $200.0 million in additional
revolving commitments, for a total of up to $700.0 million, subject to the satisfaction of certain conditions. Proceeds from the credit
facility may be used for working capital and general corporate purposes, including capital expenditures, acquisition financing,
refinancing of indebtedness, dividends and share repurchases. The credit facility includes certain customary restrictions, which, among
other things, require maintenance of financial covenants and limit encumbrance of assets and creation of indebtedness. Restrictive
financial covenants include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. The company believes
that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the
current terms of the amended credit facility and can meet presently foreseeable financial requirements. As of October 10, 2015 and
January 3, 2015, the company was in compliance with all restrictive covenants under the credit facility.
Interest is due quarterly in arrears on any outstanding borrowings at a customary Eurodollar rate or the base rate plus applicable
margin. The underlying rate is defined as rates offered in the interbank Eurodollar market, or the higher of the prime lending rate or
the federal funds rate plus 0.50%, with a floor rate defined by the one-month interbank Eurodollar market rate plus 1.00%. The
applicable margin ranges from 0.0% to 0.50% for base rate loans and from 0.70% to 1.50% for Eurodollar loans. In addition, a facility
fee ranging from 0.05% to 0.25% is due quarterly on all commitments under the credit facility. Both the interest margin and the
facility fee are based on the company’s leverage ratio. The company paid additional financing costs of $0.4 million in connection with
the April 21, 2015 amendment of the credit facility, which, in addition to the remaining balance of the original $1.3 million in
financing costs, is being amortized over the life of the credit facility. The company recognized $0.1 million in financing costs for the
modification at the time of the April 21, 2015 amendment.
At October 10, 2015, there was $40.0 million outstanding under the credit facility. There were $53.0 million in outstanding
borrowings under the credit facility at January 3, 2015. The highest outstanding daily balance during the forty weeks ended October
10, 2015 was $75.0 million and the lowest outstanding balance was zero. Amounts outstanding under the credit facility vary daily.
Changes in the gross borrowings and repayments can be caused by cash flow activity from operations, capital expenditures,
acquisitions, dividends, share repurchases, and tax payments, as well as derivative transactions which are part of the company’s
overall risk management strategy as discussed in Note 8, Derivative Financial Instruments . During the forty weeks ended October
10, 2015, the company borrowed $436.0 million in revolving borrowings under the credit facility and repaid $449.0 million in
revolving borrowings. The amount available under the credit facility is reduced by $16.9 million for letters of credit. On October 10,
2015, the company had $443.1 million available under its credit facility for working capital and general corporate purposes.
Credit Ratings. Currently, the company’s credit ratings by Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s
are BBB, Baa2, and BBB (Standard & Poor’s upgraded the company from a BBB- credit rating on September 16, 2015), respectively.
Changes in the company’s credit ratings do not trigger a change in the company’s available borrowings or costs under the facility, new
term loan, senior notes, and credit facility, but could affect future credit availability and cost.
Uses of Cash
On October 13, 2015, subsequent to our third quarter ended October 10, 2015, we completed the acquisition of Alpine, a
family-owned producer of certified organic and all-natural breads in the U.S., for approximately $108.0 million in cash and the
issuance of 481,540 shares of our common stock.
We completed the DKB acquisition on September 12, 2015, which required approximately $281.7 million in cash inclusive of
payments for certain tax benefits (excluding acquisition-related costs). This transaction was financed with cash on hand, funds
available under the facility and funds available under the credit facility.
49
On August 18, 2015 the Board of Directors declared a dividend of $0.145 per share on the company’s common stock that
was paid on September 15, 2015 to shareholders of record on September 1, 2015. The dividend payment was $30.5 million. On
June 5, 2015, the Board of Directors declared a dividend of $0.145 per share on the company’s common stock that was paid on
July 2, 2015 to shareholders of record on June 19, 2015. This dividend payment was $30.5 million. On February 20, 2015, the
Board of Directors declared a dividend of $0.1325 per share on the company’s common stock that was paid on March 20, 2015
to shareholders of record on March 6, 2015. This dividend payment was $27.8 million. Dividends of $0.9 million were paid at
the time of vesting of our performance-contingent restricted stock award and at issuance of deferred compensation shares.
Our Board of Directors has approved a plan that authorizes share repurchases of up to 67.5 million shares of the company’s
common stock. At the Board of Directors meeting in November 2014, the Board increased the company’s share repurchase
authorization by 7.1 million shares to a total of 74.6 million shares. Under the plan, the company may repurchase its common stock in
open market or privately negotiated transactions at such times and at such prices as determined to be in the company’s best interest.
These purchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and
other factors. During the forty weeks ended October 10, 2015, 0.3 million shares, at a cost of $6.9 million, of the company’s common
stock were purchased under the plan. From the inception of the plan through October 10, 2015, 60.9 million shares, at a cost of $504.1
million, have been purchased.
During the first quarter of fiscal 2015, the company paid $16.4 million, including our share of employment taxes, in
performance-based cash awards under the company’s bonus plan. An additional $1.5 million for our share of employment taxes on
the vesting of the performance-contingent restricted stock award were also paid during the first quarter.
During the forty weeks ended October 10, 2015, the company contributed a total of $10.0 million to our qualified pension
plans. We do not expect to make any additional contributions to these plans during the remainder of fiscal 2015.
50
Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance for recognizing revenue in contracts
with customers. This guidance requires entities to recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. There
are five steps outlined in the guidance to achieve this core principle. This guidance was originally effective January 1, 2017 the first
day of our fiscal 2017. In July 2015, the FASB issued a deferral for one year making the effective date December 31, 2017, the first
day of our fiscal 2018. Early application is permitted but not before January 1, 2017. The standard permits the use of either the
modified retrospective or cumulative effect transition method. We are in the process of determining the effect this guidance will have
on our Condensed Consolidated Financial Statements and which transition method we will apply.
In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of
that debt liability, consistent with debt discount presentation. This guidance is effective for financial statements for fiscal years
beginning after December 15, 2015, and interim periods within those years. This guidance is applied on a retrospective basis at
adoption and the disclosures for a change in an accounting principle apply. Earlier application is permitted. Based on the balances as
of October 10, 2015, the adoption of this guidance will require us to reclassify $4.0 million of unamortized debt issuance costs from
other long term assets to long term debt.
In April 2015, the FASB issued guidance to provide a practical expedient permitting applicable entities to measure defined
benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient
consistently from year to year. This guidance is effective for fiscal years beginning after December 15, 2015, and interim periods
within those fiscal years. Earlier application is permitted. The company does not anticipate this guidance having a material impact on
our Condensed Consolidated Financial Statements.
In May 2015, the FASB issued guidance to remove the requirement to categorize within the fair value hierarchy all investments
for which fair value is measured using the net asset value per share expedient. The amendments also remove the requirement to make
certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical
expedient. These disclosures are limited to investments for which the entity has elected to measure the fair value using that practical
expedient. This guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal
years. These are to be applied retrospectively to all periods presented. Earlier adoption is permitted. The company is still analyzing
the potential impact of this guidance on the company’s Condensed Consolidated Financial Statements.
In July 2015, the FASB issued guidance that entities should measure inventory at the lower of cost and net realizable value. Net
realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. This guidance shall be applied prospectively with earlier application permitted as of the beginning of an interim
or annual reporting period. The company is still analyzing the potential impact of this guidance on the company’s Condensed
Consolidated Financial Statements.
In September 2015, the FASB issued guidance that entities that have reported provisional amounts for items in a business
combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the
measurement period have an adjustment to provisional amounts recognized. This update requires that an acquirer recognize
adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. This update also requires that an entity present separately on the face of the income statement or disclose in
the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous
reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is
effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. This is applied
prospectively to adjustments to provisional amounts that occur after the effective date of the guidance. The potential impact of the
guidance on the company’s Condensed Consolidated Financial Statements will only be known after a measurement period adjustment
for an acquisition is recognized. There will be a potential impact as long as our purchase price allocation remains preliminary at the
end of the reporting period.
We have reviewed other recently issued accounting pronouncements and concluded that they are either not applicable to our
business or that no material effect is expected as a result of future adoption.
51
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses
forward, futures, swap and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices.
The company does not enter into these derivative financial instruments for trading or speculative purposes. If actual market conditions
are less favorable than those anticipated, raw material prices could increase significantly, adversely affecting the margins from the sale
of our products.
COMMODITY PRICE RISK
The company enters into commodity forward, futures and option contracts and swap agreements for wheat and, to a lesser
extent, other commodities in an effort to provide a predictable and consistent commodity price and thereby reduce the impact of
market volatility in its raw material and packaging prices. As of October 10, 2015, the company’s hedge portfolio contained
commodity derivatives with a fair value (liability) of $(11.1) million. Of this fair value, $(8.0) million is based on quoted market
prices and $(3.1) million is based on models and other valuation methods. Approximately $(0.6) million of this fair value relates to
instruments that will be utilized in fiscal 2015, $(10.6) million that will be utilized in fiscal 2016, and $0.1 million that will be utilized
in fiscal 2017.
A sensitivity analysis has been prepared to quantify the company’s potential exposure to commodity price risk with respect to
the derivative portfolio. Based on the company’s derivative portfolio as of October 10, 2015, a hypothetical ten percent increase
(decrease) in commodity prices would increase (decrease) the fair value of the derivative portfolio by $10.3 million. The analysis
disregards changes in the exposures inherent in the underlying hedged items; however, the company expects that any increase
(decrease) in fair value of the portfolio would be substantially offset by increases (decreases) in raw material and packaging prices.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
We have established and maintain a system of disclosure controls and procedures that are designed to ensure that material
information relating to the company, which is required to be timely disclosed by us in reports that we file or submit under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to management in a timely
fashion and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Under the supervision and with the participation of our management, including our CEO, CFO and CAO, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered
by this report, the CEO, CFO and CAO concluded that the company’s disclosure controls and procedures were effective to allow
timely decisions regarding disclosure in its reports that the company files or submits to the SEC under the Exchange Act.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended October
10, 2015 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
52
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company and its subsidiaries from time to time are parties to, or targets of, lawsuits, claims, investigations and proceedings,
which are being handled and defended in the ordinary course of business. While the company is unable to predict the outcome of these
matters, it believes, based upon currently available facts, that it is remote that the ultimate resolution of any such pending matters will
have a material adverse effect on its overall financial condition, results of operations or cash flows in the future. However, adverse
developments could negatively impact earnings in a particular future fiscal period.
The company’s facilities are subject to various federal, state and local laws and regulations regarding the discharge of material
into the environment and the protection of the environment in other ways. The company is not a party to any material proceedings
arising under these regulations. The company believes that compliance with existing environmental laws and regulations will not
materially affect the consolidated financial condition, results of operations, cash flows or the competitive position of the company.
The company believes it is currently in substantial compliance with all material environmental regulations affecting the company and
its properties.
On September 12, 2012, a complaint was filed in the U.S. District Court for the Western District of North Carolina (Charlotte
Division) by Scott Rehberg, Willard Allen Riley and Mario Ronchetti against the company and its subsidiary, Flowers Baking
Company of Jamestown, LLC. Plaintiffs are or were distributors of our Jamestown subsidiary who contend they were misclassified as
independent contractors. The action sought class certification on behalf of a class comprised of independent distributors of our
Jamestown subsidiary who are classified as independent contractors. In March 2013, the court conditionally certified the class action
for claims under the Fair Labor Standards Act (“FLSA”). On March 23, 2015, the court re-affirmed its FLSA certification decision
and also certified claims under state law.
At this time, the company is also aware of ten other complaints alleging misclassification claims that have been filed. The
company and/or its respective subsidiaries are vigorously defending these lawsuits. Given the stage of the complaints and the claims
and issues presented, the company cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from
the unresolved lawsuits.
ITEM 1A. RISK FACTORS
Please refer to Part I, Item 1A., Risk Factors, in the company’s Annual Report on Form 10-K for the year ended January 3,
2015 and Part II, Item 1A., Risk Factors , in the company’s Quarterly Report on Form 10-Q for the quarter ended April 25, 2015 for
information regarding factors that could affect the company’s results of operations, financial condition and liquidity.
ITEM 6. EXHIBITS
Exhibits filed as part of this report are listed in the Exhibit Index attached hereto.
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FLOWERS FOODS, INC.
By:
Name:
Title:
/s/ ALLEN L. SHIVER
Allen L. Shiver
President and Chief
Executive Officer
By:
Name:
Title:
/s/ R. STEVE KINSEY
R. Steve Kinsey
Executive Vice President
and
Chief Financial Officer
By:
Name:
Title:
/s/ KARYL H. LAUDER
Karyl H. Lauder
Senior Vice President and
Chief Accounting Officer
Date: November 12, 2015
54
EXHIBIT INDEX
Exhibit
No
Name of Exhibit
2.1
—
Distribution Agreement, dated as of October 26, 2000, by and between Flowers Industries, Inc. and Flowers
Foods, Inc. (Incorporated by reference to Exhibit 2.1 to Flowers Foods’ Registration Statement on Form 10,
dated December 1, 2000, File No. 1-16247).
2.2
—
Amendment No. 1 to Distribution Agreement, dated as of March 12, 2001, by and between Flowers
Industries, Inc. and Flowers Foods, Inc. (Incorporated by reference to Exhibit 2.2 to Flowers Foods’ Annual
Report on Form 10-K, dated March 30, 2001, File No. 1-16247).
—
Acquisition Agreement, dated as of May 31, 2012, by and among Flowers Foods, Inc., Lobsterco I, LLC,
Lepage Bakeries, Inc., RAL, Inc., Bakeast Company, Bakeast Holdings, Inc., and the equity holders named
therein (Incorporated by reference to Exhibit 2.1 to Flowers Foods’ Current Report on Form 8-K, dated June
1, 2012, File No. 1-16247).
—
Agreement and Plan of Merger, dated as of May 31, 2012, by and among Flowers Foods, Inc., Lobsterco II,
LLC, Aarow Leasing, Inc., The Everest Company, Incorporated and the shareholders named therein
(Incorporated by reference to Exhibit 2.2 to Flowers Foods’ Current Report on Form 8-K, dated June 1, 2012,
File No. 1-16247).
—
Asset Purchase Agreement, dated as of January 11, 2013, by and among Hostess Brands, Inc., Interstate
Brands Corporation, IBC Sales Corporation, Flowers Foods, Inc. and FBC Georgia, LLC (Incorporated by
reference to Exhibit 2.1 to Flowers Foods’ Current Report on Form 8-K, dated January 14, 2013, File No.
1-16247).
2.3
2.4
2.5
2.6
** —
3.1
—
3.2
—
4.1
—
4.2
—
4.3
—
4.4
—
4.5
—
4.6
—
4.7
—
4.8
—
Stock Purchase Agreement, dated as of August 12, 2015, by and among Flowers Foods, Inc., AVB, Inc.,
Goode Seed Holdings, LLC, Goode Seed Co-Invest, LLC, Glenn Dahl, trustee of the Glenn Dahl Family
Trust, U/A/D November 28, 2012, David J. Dahl, trustee of the David Dahl Family Trust, U/A/D May 1,
2012, Shobi L. Dahl, trustee of the Shobi Dahl Family Trust, U/A/D, December 16, 2011, and Flowers
Bakeries, LLC.
Restated Articles of Incorporation of Flowers Foods, Inc., as amended through June 5, 2015 (Incorporated by
reference to Exhibit 3.1 to Flowers Foods’ Current Report on Form 8-K, dated June 10, 2015, File No.
1-16247).
Amended and Restated Bylaws of Flowers Foods, Inc., as amended through June 5, 2015 (Incorporated by
reference to Exhibit 3.2 to Flowers Foods’ Current Report on Form 8-K, dated June 10, 2015, File No.
1-16247).
Form of Share Certificate of Common Stock of Flowers Foods, Inc. (Incorporated by reference to Exhibit 4.1
to Flowers Foods’ Annual Report on Form 10-K, dated February 29, 2012, File No. 1-16247).
Form of Indenture (Incorporated by reference to Exhibit 4.6 to Flowers Foods’ Registration Statement on
Form S-3, dated February 8, 2011, File No. 1-16247).
Form of Indenture (Incorporated by reference to Exhibit 4.1 to Flowers Foods’ Current Report on Form 8-K,
dated March 29, 2012, File No. 1-16247).
Indenture, dated as of April 3, 2012, by and between Flowers Foods, Inc. and Wells Fargo Bank, National
Association (Incorporated by reference to Exhibit 4.1 to Flowers Foods’ Current Report on Form 8-K, dated
April 3, 2012, File No. 1-16247).
Officers’ Certificate pursuant to Section 2.02 of the Indenture (Incorporated by reference to Exhibit 4.2 to
Flowers Foods’ Current Report on Form 8-K, dated April 3, 2012, File No. 1-16247).
Form of 4.375% Senior Notes due 2022 (Incorporated by reference to Exhibit 4.3 to Flowers Foods’ Current
Report on Form 8-K, dated April 3, 2012, File No. 1-16247).
Registration Rights Agreement, dated as of July 21, 2012, by and among Flowers Foods, Inc. and the holders
named therein (Incorporated by reference to Exhibit 4.1 to Flowers Foods’ Current Report on Form 8-K,
dated July 23, 2012, File No. 1-16247).
Flowers Foods, Inc. 401(k) Retirement Savings Plan, as amended through December 17, 2013 (Incorporated
by reference to Exhibit 4.1 to Flowers Foods’ Registration Statement on Form S-8, dated May 21, 2014, File
No. 333-196125).
10.1
10.2
—
Amended and Restated Credit Agreement, dated as of May 20, 2011, by and among, Flowers Foods, Inc., the
Lenders party thereto from time to time, Deutsche Bank AG New York Branch, as administrative agent, Bank
of America, N.A., as syndication agent, and Coöperatieve Centrale Raiffeisen-Boerenleenbank, B.A.,
“Rabobank International,” New York Branch, Branch Banking & Trust Company and Regions Bank, as
co-documentation agents (Incorporated by reference to Exhibit 10.1 to Flowers Foods’ Current Report on
Form 8-K, dated May 26, 2011, File No. 1-16247).
—
First Amendment to Amended and Restated Credit Agreement, dated as of November 16, 2012, by and
among Flowers Foods, Inc., the Lenders party thereto and Deutsche Bank AG, New York Branch, as
administrative agent (Incorporated by reference to Exhibit 10.1 to Flowers Foods’ Current Report on Form
8-K, dated November 21, 2012, File No. 1-16247).
55
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
—
Second Amendment to Amended and Restated Credit Agreement, dated as of April 5, 2013, by and among
Flowers Foods, Inc., the Lenders party thereto and Deutsche Bank AG New York Branch, as administrative
agent, swingline lender and issuing lender (Incorporated by reference to Exhibit 10.3 to Flowers Foods’
Current Report on Form 8-K, dated April 10, 2013, File No. 1-16247).
—
Third Amendment to Amended and Restated Credit Agreement, dated as of February 14, 2014, by and among
Flowers Foods, Inc., the Lenders party thereto and Deutsche Bank AG New York Branch, as administrative
agent, swingline lender and issuing lender (Incorporated by reference to Exhibit 10.2 to Flowers Foods’
Current Report on Form 8-K, dated February 18, 2014, File No. 1-16247).
—
Fourth Amendment to Amended and Restated Credit Agreement, dated as of April 21, 2015, by and among
Flowers Foods, Inc., the Lenders party thereto and Deutsche Bank AG New York Branch, as administrative
agent, swingline lender and issuing lender (Incorporated by reference to Exhibit 10.5 to Flowers Foods'
Quarterly Report on Form 10-Q, dated May 28, 2015, File No. 1-16247)
—
Credit Agreement, dated as of April 5, 2013, by and among Flowers Foods, Inc., the lenders party thereto,
Branch Banking and Trust Company, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank
Nederland,” New York Branch, and Regions Bank, as co-documentation agents, Bank of America, N.A., as
syndication agent, and Deutsche Bank AG New York Branch, as administrative agent (Incorporated by
reference to Exhibit 10.1 to Flowers Foods’ Current Report on Form 8-K, dated April 10, 2013, File No.
1-16247).
—
First Amendment to Credit Agreement, dated as of February 14, 2014, by and among Flowers Foods, Inc., the
lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent (Incorporated by
reference to Exhibit 10.1 to Flowers Foods’ Current Report on Form 8-K, dated February 18, 2014, File No.
1-16247).
—
Receivables Loan, Security and Servicing Agreement, dated as of July 17, 2013, by and among Flowers
Finance II, LLC, Flowers Foods, Inc., as servicer, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
“Rabobank Nederland,” New York Branch, as administrative agent and facility agent, and certain financial
institutions party thereto (Incorporated by reference to Exhibit 10.1 to Flowers Foods’ Current Report on Form
8-K, dated July 22, 2013, File No. 1-16247).
—
First Amendment to Receivables Loan, Security and Servicing Agreement, dated as of August 7, 2014, by and
among Flowers Finance II, LLC, Flowers Foods, Inc., as servicer, Nieuw Amsterdam Receivables Corporation
and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland,” New York Branch, as
administrative agent and facility agent (Incorporated by reference to Exhibit 10.1 to Flowers Foods’ Current
Report on Form 8-K, dated August 12, 2014, File No. 1-16247).
—
Second Amendment to Receivables Loan, Security and Servicing Agreement, dated as of December 17, 2014,
by and among Flowers Finance II, LLC, Flowers Foods, Inc., as servicer, Nieuw Amsterdam Receivables
Corporation and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank,” New York Branch, as
administrative agent and facility agent. (Incorporated by reference to Exhibit 10.9 to Flowers Foods’ Annual
Report on Form 10-K, dated February 25, 2015, File No. 1-16247).
10.11
*—
Third Amendment to Receivables Loan, Security and Servicing Agreement, dated as of August 20, 2015, by
and among Flowers Finance II, LLC, Flowers Foods, Inc., as servicer, Nieuw Amsterdam Receivables
Corporation and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank,” New York Branch, as
administrative agent and facility agent.
10.12
+—
Flowers Foods, Inc. Retirement Plan No. 1, as amended and restated effective as of March 26, 2001
(Incorporated by reference to Exhibit 10.3 to Flowers Foods’ Annual Report on Form 10-K, dated March 30,
2001, File No. 1-16247).
10.13
+—
10.14
+—
10.15
+—
10.16
+—
Flowers Foods, Inc. 2014 Omnibus Equity and Incentive Compensation Plan (Incorporated by reference to
Exhibit 10.1 to Flowers Foods’ Current Report on Form 8-K, dated May 27, 2014, File No. 1-16247).
10.17
+—
Flowers Foods, Inc. Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.10 to
Flowers Foods’ Annual Report on Form 10-K, dated March 29, 2002, File No. 1-16247).
Flowers Foods, Inc. 2001 Equity and Performance Incentive Plan, as amended and restated effective as of
April 1, 2009 (Incorporated by reference to Annex A to Flowers Foods’ Proxy Statement on Schedule 14A,
dated April 24, 2009, File No. 1-16247).
Flowers Foods, Inc. Stock Appreciation Rights Plan (Incorporated by reference to Exhibit 10.8 to Flowers
Foods’ Annual Report on Form 10-K, dated March 29, 2002, File No. 1-16247).
Flowers Foods, Inc. Annual Executive Bonus Plan (Incorporated by reference to Annex B to Flowers Foods’
Proxy Statement on Schedule 14A, dated April 24, 2009, File No. 1-16247).
10.18
+—
Form of Indemnification Agreement, by and between Flowers Foods, Inc., certain executive officers and the
directors of Flowers Foods, Inc. (Incorporated by reference to Exhibit 10.14 to Flowers Foods’ Annual Report
on Form 10-K, dated March 28, 2003, File No. 1-16247).
10.19
+—
Ninth Amendment to the Flowers Foods, Inc. Retirement Plan No. 1, dated as of November 7, 2005
(Incorporated by reference to Exhibit 10.15 to Flowers Foods’ Quarterly Report on Form 10-Q, dated
November 17, 2005, File No. 1-16247).
56
10.20
+—
Form of 2011 Nonqualified Stock Option Agreement by and between Flowers Foods, Inc. and certain
executive officers of Flowers Foods, Inc. (Incorporated by reference to Exhibit 10.17 to Flowers Foods’
Annual Report on Form 10-K, dated February 23, 2011, File No. 1-16247).
10.21
+—
Flowers Foods, Inc. Change of Control Plan, dated as of February 23, 2012 (Incorporated by reference to
Exhibit 10.1 to Flowers Foods’ Current Report on Form 8-K, dated February 29, 2012, File No. 1-16247).
10.22
+—
10.23
+—
10.24
+—
Form of 2014 Restricted Stock Agreement by and between Flowers Foods, Inc. and certain executive officers
of Flowers Foods, Inc. (Incorporated by reference to Exhibit 10.19 to Flowers Foods’ Annual Report on
Form 10-K, dated February 19, 2014, File No. 1-16247).
10.25
+—
Form of 2014 Restricted Stock Agreement by and between Flowers Foods, Inc. and a certain executive officer
of Flowers Foods, Inc. (Incorporated by reference to Exhibit 10.20 to Flowers Foods’ Annual Report on
Form 10-K, dated February 19, 2014, File No. 1-16247).
10.26
+—
31.1
31.2
31.3
*—
*—
*—
32
*—
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
*—
*—
*—
*—
*—
*—
Form of 2012 Restricted Stock Agreement by and between Flowers Foods, Inc. and certain executive officers
of Flowers Foods, Inc. (Incorporated by reference to Exhibit 10.16 to Flowers Foods’ Annual Report on
Form 10-K, dated February 20, 2013, File No. 1-16247).
Form of 2013 Restricted Stock Agreement by and between Flowers Foods, Inc. and certain executive officers
of Flowers Foods, Inc. (Incorporated by reference to Exhibit 10.17 to Flowers Foods’ Annual Report on
Form 10-K, dated February 20, 2013, File No. 1-16247).
Form of 2015 Restricted Stock Agreement by and between Flowers Foods, Inc. and certain executive officers
of Flowers Foods, Inc. (Incorporated by reference to Exhibit 10.24 to Flowers Foods’ Annual Report on
Form 10-K, dated February 25, 2015, File No. 1-16247).
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by Allen L. Shiver, Chief Executive Officer, R. Steve Kinsey, Chief Financial Officer and Karyl
H. Lauder, Chief Accounting Officer for the Quarter Ended October 10, 2015.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Linkbase.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
*
Filed herewith
**
Filed herewith; portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission as
part of an application for confidential treatment pursuant to Rule 24B-2 promulgated under the Securities Exchange Act of 1934.
Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Flowers Foods, Inc. undertakes to
furnish supplementary copies of any such omitted schedules upon request to the Securities and Exchange Commission.
+
Management contract or compensatory plan or arrangement
57
Exhibit 2.6
EXECUTION VERSION
stock purchase AGREEMENT
by and among
AVB, Inc.,
Goode Seed Holdings, LLC,
Goode Seed Co-Invest, LLC,
GLENN DAHL, TRUSTEE OF THE GLENN DAHL FAMILY TRUST,
U/A/D NOVEMBER 28, 2012,
DAVID J. DAHL, TRUSTEE OF THE DAVID DAHL FAMILY TRUST,
U/A/D MAY 1, 2012,
SHOBI L. DAHL, TRUSTEE OF THE SHOBI L. DAHL FAMILY TRUST,
U/A/D DECEMBER 16, 2011,
FLOWERS BAKERIES, LLC,
Flowers Foods, Inc.,
and
Goode Seed Holdings, LLC, as Shareholders’ Representative
Dated as of AUGUST 12, 2015
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Table of Contents
Page
ARTICLE I.
DEFINITIONS
Section 1.1
Certain Definitions
Section 1.2
Certain Additional Definitions
ARTICLE II.
THE PURCHASE AND SALE
1
1
10
12
Section 2.1
Purchase and Sale
12
Section 2.2
Closing
13
Section 2.3
Certain Closing Date Payments
13
Section 2.4
Purchase Price Adjustment
14
Section 2.5
Transfer Taxes
18
Section 2.6
Withholding
18
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
18
Section 3.1
Authority
19
Section 3.2
Organization; Subsidiaries
19
Section 3.3
Capitalization
20
Section 3.4
Conflicts
20
Section 3.5
Consents, Approvals, Etc
20
Section 3.6
Financial Statements; Undisclosed Liabilities
21
Section 3.7
Certain Changes or Events
22
Section 3.8
Tax Matters
23
Section 3.9
Litigation and Governmental Orders
25
Section 3.10
Compliance with Laws
25
Section 3.11
Permits
25
Section 3.12
Real Property
25
Section 3.13
Tangible Personal Property
26
Section 3.14
Intellectual Property
27
Section 3.15
Certain Contracts
28
Section 3.16
Employee Benefit Matters
30
Section 3.17
Labor Matters
31
Page
Section 3.18
Environmental Matters
32
Section 3.19
Related Party Transactions
33
i
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Table of Contents
(continued)
Page
Section 3.20
Brokers
33
Section 3.21
Suppliers, Customers and Distributors
33
Section 3.22
Product Standards
34
Section 3.23
No Other Representations or Warranties
34
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
34
Section 4.1
Authority
35
Section 4.2
Organization
35
Section 4.3
Conflicts
35
Section 4.4
Consents, Approvals, Etc
35
Section 4.5
Ownership
36
Section 4.6
No Other Representations or Warranties
36
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER AND
GUARANTOR
36
Section 5.1
Authority
36
Section 5.2
Organization
37
Section 5.3
Conflicts
37
Section 5.4
Consents, Approvals, Etc
38
Section 5.5
Litigation and Governmental Orders
38
Section 5.6
Adequate Funds
38
Section 5.7
Due Diligence Investigation
38
Section 5.8
Brokers
39
Section 5.9
Investment Intent
39
Section 5.10
No Other Representations or Warranties
39
ARTICLE VI.
COVENANTS OF THE COMPANY AND THE SELLERS
39
Section 6.1
No Solicitation
39
Section 6.2
Conduct of the Company Prior to the Closing
40
Section 6.3
Access to Information
43
Section 6.4
Stock Options
43
Section 6.5
Termination of Certain Agreements
43
ii
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Table of Contents
(continued)
Page
Section 6.6
Parachute Payments
43
Section 6.7
Update to Schedule
44
Section 6.8
Directors’ and Officers’ Insurance
44
ARTICLE VII.
COVENANTS OF BUYER AND GUARANTOR
44
Section 7.1
Indemnification
44
Section 7.2
Confidentiality
45
Section 7.3
R&W Insurance
45
ARTICLE VIII.
COVENANTS OF THE COMPANY, THE SELLERS AND BUYER
45
Section 8.1
Efforts; Consents; Regulatory and Other Authorizations
45
Section 8.2
Further Action
47
ARTICLE IX.
CONDITIONS TO CLOSING
47
Section 9.1
Conditions to Obligations of All Parties
47
Section 9.2
Conditions to Obligations of the Sellers
47
Section 9.3
Conditions to Obligations of Buyer
48
ARTICLE X.
TERMINATION
49
Section 10.1
Termination
49
Section 10.2
Buyer Termination Fee
50
Section 10.3
Effect of Termination
50
ARTICLE XI.
TAX MATTERS
51
Section 11.1
Tax Returns
51
Section 11.2
Straddle Period Allocation
51
Section 11.3
Amended Tax Returns
52
Section 11.4
Tax Refunds
52
Section 11.5
Audits
52
Section 11.6
Cooperation; Tax Records
52
ARTICLE XII.
INDEMNIFICATION
53
Section 12.1
Indemnification by the Sellers
53
Section 12.2
Indemnification by Buyer
53
Section 12.3
Notice and Opportunity to Defend
54
iii
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Table of Contents
(continued)
Page
Section 12.4
Survivability; Limitations
55
Section 12.5
Exclusive Remedy
57
Section 12.6
Treatment of Indemnification Payments
57
ARTICLE XIII.
GENERAL PROVISIONS
57
Section 13.1
Shareholders’ Representative
57
Section 13.2
Expenses
59
Section 13.3
Costs and Attorneys’ Fees
59
Section 13.4
Notices
60
Section 13.5
Public Announcements
61
Section 13.6
Provision Respecting Legal Representation
62
Section 13.7
Interpretation
62
Section 13.8
Severability
63
Section 13.9
Entire Agreement
63
Section 13.10
Assignment
63
Section 13.11
No Third-Party Beneficiaries
63
Section 13.12
Waivers and Amendments
63
Section 13.13
Governing Law; Consent to Jurisdiction
64
Section 13.14
Waiver of Jury Trial
64
Section 13.15
Exclusivity of Representations and Warranties
65
Section 13.16
Equitable Remedies
65
Section 13.17
Counterparts
65
Section 13.18
Time is of the Essence
65
Section 13.19
Guaranty
65
iv
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
EXHIBITS
Exhibit A
Exhibit B
Exhibit C
–
–
–
Form of Escrow Agreement
Form of Optionholder Pay-Off Agreement
Seller Notice Information
SCHEDULES*
Schedule 1.1(a)
Schedule 1.1(b)
Schedule 1.1(c)
Schedule 1.1(d)
Schedule 2.1
Schedule 2.4(a)
Schedule 6.2(a)
Schedule 6.2(b)
Schedule 9.3
–
–
–
–
–
–
–
–
–
Closing Debt
Sample Calculation of Closing Net Working Capital Amount
Company Transaction Expenses Tax Benefit
Identified Capital Expenditures
Shares
Specified Accounting Principles
Conduct of the Company
Limitations on Conduct of the Company
Certain Closing Conditions
* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Flowers Foods, Inc. undertakes to furnish
supplementally copies of any such omitted schedule upon request by the Securities and Exchange Commission.
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of August
12, 2015 (the “ Effective Date ”) by and among AVB, Inc., an Oregon corporation (the “ Company ”), Goode
Seed Holdings, LLC, a Delaware limited liability company (“ GSH ”), Goode Seed Co-Invest, LLC, a Delaware
limited liability company (“ GSC ”), Glenn Dahl, Trustee of the Glenn Dahl Family Trust, U/A/D
November 28, 2012 (“ GDT ”), David J. Dahl, Trustee of the David Dahl Family Trust, U/A/D May 1, 2012 (“
DDT ”), Shobi L. Dahl, Trustee of the Shobi L. Dahl Family Trust, U/A/D December 16, 2011 (“ SDT ”, and
together with GDT, DDT, GSH and GSC, the “ Sellers ”), Flowers Bakeries, LLC, a Georgia limited liability
company (“ Buyer ”), Flowers Foods, Inc., a Georgia corporation (“ Guarantor ”), and GSH, as the
Shareholders’ Representative.
RECITALS
WHEREAS, the Sellers collectively own all of the issued and outstanding capital stock (the “ Shares
”) of the Company;
WHEREAS, Buyer desires to purchase from each Seller, and each Seller desires to sell to Buyer,
100% of the Shares owned by such Seller, upon the terms and subject to the conditions set forth herein;
WHEREAS, the Company and the Sellers have approved this Agreement and the consummation of the
transactions contemplated hereby in accordance with the Company Organizational Documents.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, promises and
agreements hereinafter set forth, the mutual benefits to be gained by the performance thereof, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and accepted, the
parties to this Agreement, intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1Certain Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:
“Acquisition Proposal” means, other than the transactions contemplated by this Agreement, any offer,
proposal relating to (a) the sale, license, disposition or acquisition of all or substantially all of the assets of the
Company, taken as a whole, (b) the issuance, disposition or acquisition of (i) shares of capital stock or other
equity securities of the Company (other than the exercise of stock options in existence as of the Effective Date),
(ii) any subscription, option, call, warrant, preemptive right, right of first refusal or any other right (whether or
not exercisable) to
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
acquire shares of capital stock or other equity securities of the Company, or (iii) securities, instruments or
obligations that are or may become convertible into or exchangeable for shares of capital stock or other equity
securities of the Company, or (c) any merger, consolidation, business combination, reorganization or similar
transaction involving the Company.
“Act” means the Oregon Business Corporation Act.
“Action” means any claim, action, suit or proceeding, arbitral action, criminal prosecution or other
governmental investigation.
“Affiliate” means, when used with respect to a specified Person, another Person that either directly or
indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the
specified Person.
“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks
located in Portland, Oregon or New York, New York are authorized or required by Law to be closed for
business.
“Cash” means cash and Cash Equivalents determined in accordance with GAAP on a consolidated
basis, using the Specified Accounting Principles.
“Cash Equivalents” means investment securities with original maturities of ninety (90) days or less
and credit card receivables incurred in the ordinary course of business consistent with past practice.
“CERCLA” means the United States Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.).
“Closing Cash” means the aggregate amount of all Cash of the Company as of the close of business on
the day immediately preceding the Closing Date.
“Closing Date Payment Schedule” means a schedule, prepared by the Company, setting forth as of the
close of business on the day immediately preceding the Closing Date, (a) the calculation of the Closing Date
Purchase Price pursuant to Section 2.1 ; (b) to the extent applicable for each Seller: (i) such Seller’s name and
wire transfer instructions and (ii) the number and type of Shares held by such Seller; and (c) the portion of the
Closing Date Payment to be paid to each Seller.
“Closing Debt” means the aggregate principal amount of, and accrued interest on, the Debt of the
Company as of the close of business on the day immediately preceding the Closing Date set forth on Schedule
1.1(a) .
2
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
“Closing Net Working Capital Amount” means, except as provided in Section 2.3(f), (a) the aggregate
dollar amount of all assets properly characterized as current assets of the Company and that are of a type listed
on Schedule 1.1(b) attached hereto (excluding, for the avoidance of doubt, Cash, all income Tax accounts, all
interest accounts, and prepaid Company Transaction Expenses), minus (b) the aggregate dollar amount of all
liabilities properly characterized as current liabilities of the Company and that are of a type listed on
Schedule 1.1(b) attached hereto (excluding, for the avoidance of doubt, income Tax accounts, all interest
accounts, Closing Debt and Unpaid Company Transaction Expenses), in the case of each of clause (a) and
clause (b), as of the close of business on the day immediately preceding the Closing Date and calculated in
accordance with GAAP using the Specified Accounting Principles. Schedule 1.1(b) attached hereto sets forth
the Closing Net Working Capital Amount and the Closing Net Working Capital Adjustment Amount as if the
Closing occurred on the Business Day immediately following the Balance Sheet Date.
“Closing Net Working Capital Adjustment Amount” means an amount equal to: the Closing Net
Working Capital Amount minus (a) $13,000,000 if the Closing Net Working Capital Amount is greater than
$13,000,000 or (b) $10,100,000 if the Closing Net Working Capital Amount is less than $10,100,000, it being
understood that the “Closing Net Working Capital Adjustment Amount” means $0 if the Closing Net Working
Capital Amount is between $10,100,000 and $13,000,000.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company Employee” means each employee of the Company immediately before the Effective Date.
“Company Licensed IP” means all Intellectual Property licensed to the Company, other than COTS
Software.
“Company Owned IP” means all Intellectual Property owned by, registered to, or purportedly owned
by or registered to the Company.
“Company Registered IP” means all Company Owned IP that constitutes Registered Intellectual
Property.
“Company Transaction Expenses” means (a) the fees and disbursements payable to legal counsel,
accountants or other advisors of the Company that are payable by the Company in connection with the
transactions contemplated by this Agreement; (b) any amounts payable to any current or former employees,
officers or directors of the Company as a result of the transactions contemplated by this Agreement pursuant to
(i) agreements in existence as of the date hereof, (ii) bonuses set forth on Section 3.16(a) of the Company
Disclosure Schedule, but specifically excluding the Special Employee Bonuses which are payable pursuant to
Section 2.1(i) and Section 2.3(f) , (iii) the Optionholder Pay-off Agreements, and (iv) any withholding and
payroll taxes associated with (i), (ii) or (iii) herein; (c) all other miscellaneous expenses or costs, in each case,
incurred by the Company in connection with the transactions contemplated by this Agreement; (d) the total
costs for the R&W Insurance (including all
3
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
underwriting costs and binding fees) in an aggregate amount not to exceed $880,000; and (e) the premium for
directors’ and officers’ insurance for the Company’s directors and officers obtained pursuant to Section 6.8
in each case to the extent not paid by Company as of the Closing Date; provided , however , that the foregoing
clauses (a) and (b) shall not include any fees, expense or disbursements incurred by Buyer, or by the Company
which are on behalf of Buyer, including without limitation, the advisory fee payable to Deutsche Bank
Securities, Inc. and the fees and expenses of Buyer’s attorneys, accountants and other advisors.
“Company Transaction Expenses Tax Benefit” means the sum of the (1) estimated Tax refunds that
will be received by Buyer, any Affiliate of Buyer, the Company or any affiliated group of which any of them is
a member with respect to any Pre-Closing Tax Period, and (2) 50% of the estimated reduction in liability for
Taxes of Buyer, any Affiliate of Buyer, the Company or any affiliated group of which any of them is a member
with respect to any Tax period or portion thereof ending after the Closing Date, in either case resulting directly
or indirectly from (including by way of a net operating loss carryback or carryover) a Company Transaction
Expense or payment of the Special Employee Bonuses, in each case as set forth on Schedule 1.1(c) .
“Confidentiality Agreement” means the letter agreement between the Company and Buyer dated April
2, 2015.
“Contract” means any legally binding contract, agreement, license, indenture, note, bond, loan,
instrument, lease, conditional sales contract, mortgage or other arrangement or commitment, whether written or
oral.
“COTS Software” means commercially available software non-exclusively licensed on standard terms
for an annual cost of less than $100,000.
“Debt” means both the current and long-term portions of any amount owed (including unpaid interest
thereon), without duplication and without regard to whether matured or unmatured, absolute or contingent, (a)
in respect of borrowed money, (b) in respect of obligations evidenced by bonds, debentures, notes, or other
similar instruments; (c) in respect of obligations to pay the deferred purchase price of assets or services
excluding (i) any trade accounts payables arising in the ordinary course of business consistent with past practice
and accrued expenses incurred and properly recorded on the Financial Statements, and (ii) the Identified Capital
Expenditures; (d) capitalized lease obligations (determined under GAAP); (e) in respect of obligations to
reimburse or prepay any Person in respect of amounts paid under a letter of credit, banker’s acceptance, or
similar instrument in support of Debt; (f) in respect of obligations to repurchase assets previously sold
(including any obligation to repurchase any accounts or chattel paper under any factoring, receivables purchase,
or similar arrangement, but excluding any obligation to repurchase unsold products in the ordinary course of
business consistent with past practice); and (g) guarantees of obligations of the type described in clauses (a)
through (g); provided , however , that notwithstanding the foregoing, Debt shall not be deemed to include
any accounts payable incurred in the ordinary course of business consistent with past practice or any obligations
under undrawn letters of credit.
4
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
“Encumbrance” means any security interest, pledge, mortgage, lien, charge, adverse claim of
ownership or use, restriction on transfer (such as a right of first refusal or other similar rights), defect of title or
other similar encumbrance.
“Environmental Law” means any and all Laws issued or promulgated by any Governmental Authority,
relating to pollution (or the cleanup thereof) or the protection of human health, including worker health, the
environment, preservation or reclamation of natural resources, or to the management or Release of Hazardous
Materials, including CERCLA, the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136 et seq.),
the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401
et seq.), the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), the Toxic Substances Control Act of
1976 (15 U.S.C. § 2601 et seq.), the United States Emergency Planning and Community Right-to-Know Act of
1986 (42 U.S.C. § 11001 et seq.), the United States Safe Drinking Water Act of 1974 (42 U.S.C. § 300f et seq.),
the United States Hazardous Materials Transportation Act (49 U.S.C. § 180 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. § 6901 et seq.) and any similar Law, and all amendments thereto or regulations
promulgated thereunder effective as of the date of this Agreement.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any entity that is a member of a “controlled group of corporations” with or
otherwise required to be aggregated with the Company pursuant to Sections 414(b), (c), (m) or (o) of the Code.
“Escrow Fund” means the Working Capital Escrow Fund and the Indemnity Escrow Fund.
“Estimated Adjustment Amount” means (a) Estimated Closing Cash, plus (b) Estimated Identified
Capital Expenditures, less (c) the Estimated Closing Debt, less (d) the Estimated Unpaid Company
Transaction Expenses, in each case as finally estimated in accordance with Section 2.4(a) .
“FDA” means the Food and Drug Administration.
“Final Adjustment Amount” means (a) the Closing Net Working Capital Adjustment Amount, plus
(b) Closing Cash, plus (c) Identified Capital Expenditures, less (d) Closing Debt, less (d) Unpaid
Company Transaction Expenses, in each case as finally determined in accordance with Section 2.4(c) .
“Fundamental Representations” means Section 3.1 (Authority), Section 3.2 (Organization;
Subsidiaries), Section 3.3 (Capitalization), the second sentence of Section 3.13(a) , Section 3.20
(Brokers), Section 4.1 (Authority), Section 4.2 (Organization) and Section 4.5 (Ownership).
5
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
“GAAP” means generally accepted accounting principles in the United States as of the date of this
Agreement.
“Governmental Authority” means any national, sovereign, federal, state, local or foreign government
or any political subdivision thereof, any governmental entity, commission, board, agency or instrumentality, any
court, tribunal or judicial body or other governmental entity, instrumentality or official exercising executive,
legislative, judicial, regulatory or administrative functions of government whether domestic or foreign.
“Governmental Order” means any order, judgment, injunction, award, ruling, charge, writ or decree
issued, promulgated or entered by any Governmental Authority.
“Hazardous Material” means any material or substance that the use, generation, transportation,
storage, treatment, disposal, Release of, or exposure to is prohibited or regulated by any Environmental Law.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, any
successor statute thereto, and the rules and regulations promulgated thereunder.
“Identified Capital Expenditures” means the capital expenditures paid by the Company as of the
Closing Date associated with the Milwaukie facility’s installation of a Divider, Molder and Auto-Enrober
including those amounts set forth on Schedule 1.1(d) ; provided, however, if after the Effective Date, the
Company believes that amounts paid prior to Closing are reasonably likely to exceed the amounts set forth on
Schedule 1.1(d) , then the Company shall provide an updated Schedule 1.1(d) , and to the extent permitted by
Law, consult with the Buyer as to the anticipated increases, with such increases not to exceed $2,500,000.
“Income Tax” means any federal, state, local or non-U.S. income Tax measured by or imposed on net
income, including any interest, penalty, or addition thereto.
“Income Tax Return” means any Tax Return relating to Income Tax.
“Indemnity Escrow Fund” means an amount equal to $1,375,000 to be held for the purpose of securing
the obligations of the Sellers in Article XII .
“Intellectual Property” means all intellectual property and other similar proprietary rights in any
jurisdiction worldwide, whether registered or unregistered, including such rights in and to: (a) industrial
designs, industrial design registrations, patents (including all reissues, divisions, provisionals, continuations and
continuations-in-part, re-examinations, renewals and extensions thereof), patent applications, patent disclosures
or other indicia of ownership of an invention, discovery or improvement issued by an Governmental Authority;
(b) copyrights, whether in published or unpublished works of authorship and all registrations, applications for
registration, and renewals for any of the foregoing, and any “moral” rights or other similar rights recognized in
a work of authorship by a Governmental Authority; (c) trademarks, service marks, trade names, business names,
logos, trade dress, certification marks and other indicia of commercial
6
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
source or origin together with all goodwill associated with the foregoing, and all registrations, applications and
renewals for any of the foregoing; (d) trade secrets and business, technical and know-how information,
databases, data collections and other confidential and proprietary information that is not generally known or
readily ascertainable and all rights therein (“ Trade Secrets ”); (e) software, including data files, source code,
object code, application programming interfaces, architecture, files, records, schematics, computerized
databases and other software-related specifications and documentation; (f) Internet domain name registrations
and social media addresses and accounts; (g) recipes and formulas; and (h) any and all other intellectual or
industrial property rights recognized by any Governmental Authority under the Laws of any country throughout
the world.
“IRS” means the United States Internal Revenue Service, and any successor agency thereto.
“Knowledge of the Company” and any other phrases of similar import means, with respect to any
matter in question relating to the Company, means the actual knowledge, after reasonable inquiry, of John
Tucker, John Wells, Greg Intlekofer and Martin Nash.
“Law” means any common law or federal, state, county, local or foreign statute, law, ordinance,
Governmental Order or regulation or code of any Governmental Authority of competent jurisdiction.
“Liability” means any and all debts, liabilities and obligations of any kind or nature, whether accrued
or fixed, absolute or contingent, matured or unmatured, or determined or determinable.
“Loss” means any Liability, claim, judgment, damage, award, loss, penalty, fine, cost, Tax, settlement,
or obligation, including court costs and reasonable attorneys’ fees and expenses, but excluding any special,
indirect, consequential, exemplary or punitive damages, and any damages associated with any lost profits or lost
opportunities (including loss of future revenue, income or profits, diminution of value or loss of business
reputation). The parties acknowledge and agree that “Losses” will be calculated without application of any
multiple of revenue or earnings to any of the foregoing items that would otherwise constitute a “Loss”.
“Material Adverse Effect” means any change or effect that is, or would reasonably be expected to be,
materially adverse to the business, operations, condition (financial or otherwise) or results of operations of the
Company, taken as a whole; provided , however , that none of the following shall be deemed, either alone or
in combination, to constitute, and no change or effect arising from or attributable or relating to any of the
following shall be taken into account in determining whether there has been a Material Adverse Effect: (a) the
execution, delivery, public announcement or pendency of this Agreement or any of the transactions
contemplated herein or compliance with the terms of, or the taking of any action required by, this Agreement, or
otherwise taken with the consent of Buyer, including the impact thereof on the relationships of the Company
with customers, suppliers, consultants, employees or independent contractors or other third parties with whom
the Company has any relationship; (b) conditions affecting the
7
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
industry in which the Company operates or participates, the U.S. economy or financial markets, other than any
such condition that has a materially disproportionate effect on the Company relative to other Persons principally
engaged in the same industry as the Company; (c) any change in GAAP or applicable Laws (or interpretation
thereof); (d) any acts of God, calamities, acts of war or terrorism, or national or international political or social
conditions; (e) any action required to be taken under applicable Laws, including any actions taken or required to
be taken by the Company in order to obtain any approval or authorization for the consummation of the
transactions contemplated by this Agreement under applicable antitrust or competition Laws; or (f) any failure
in and of itself by the Company to meet any projections, estimates or forecasts for any period.
“Permit” means any license, authorization, registration, certificate, franchise, approval or permit
issued by any Governmental Authority.
“Permitted Encumbrances” means (a) all statutory or other liens for current Taxes or assessments
which are not yet due and payable or Taxes the validity of which are being contested in good faith by
appropriate proceedings; (b) all landlords’, workmen’s, repairmen’s, warehousemen’s and carriers’ liens and
other similar liens imposed by Law if payment is not yet due and payable on the underlying obligation, or as
may contested in good faith and for which appropriate reserves have been established in accordance with
GAAP; (c) Encumbrances that will be released and discharged at or prior to the Closing; and (d) all matters of
record, easements, claims of easement and other imperfections of title and Encumbrances that, individually or in
the aggregate, would not reasonably be expected to have a material adverse effect on the use of such property
(real or personal) or assets of the Company.
“Person” means any individual, general or limited partnership, firm, corporation, limited liability
company, association, trust, unincorporated organization or other entity.
“Post-Closing Payment Schedule” means a schedule, prepared by the Shareholders’ Representative
with respect to any Positive Adjustment Amount, any Escrow Fund Excess Amount or any Expense Fund
Excess Amount, as applicable, setting forth (a) to the extent applicable for each Seller: (i) such Seller’s name
and wire transfer instructions and (ii) the number and type of Shares held by such Seller; and (b) the portion of
such Positive Adjustment Amount, such Escrow Fund Excess Amount or such Expense Fund Excess Amount,
as applicable, to be paid to each Seller.
“Post-Closing Tax Period” means any Tax period (other than a Straddle Period) of the Company
ending after the Closing Date, and, in the case of a Straddle Period, the portion of such Straddle Period
beginning on the day immediately following the Closing Date.
“PPACA” means the Patient Protection and Affordable Care Act.
“Pre-Closing Tax Period” means any Tax period of the Company ending on or prior to the Closing
Date, and, in the case of a Straddle Period, the portion of such Straddle Period ending on and including the
Closing Date.
8
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
“Pro Rata Portion” means as to each Seller as of any specific date, the ratio equal to (a) the portion of
the Purchase Price to be paid to such Seller divided by (b) the Purchase Price, as forth on Schedule 2.1
attached hereto.
“Registered Intellectual Property” means any active copyright registration or application for
registration, design registration or application for registration, patent or patent application, trademark
registration or application for registration, or Internet domain name registration or social media address or
account.
“Related Party” means: (a) each of the Sellers; (b) each individual who is an officer or board member
of the Company or any of the Sellers; (c) each member of the immediate family of each of the individuals
referenced in (a) and (b) above; and (d) any trust or other Person (other than the Company) in which any one of
the individuals referred to in clauses (a), (b) and (c) above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a controlling voting, proprietary or equity interest.
“Release” has the meaning ascribed to such term in Section 101(22) of CERCLA (42 U.S.C.
§ 9601(22)).
“R&W Insurance” means that certain binding representations and warranties insurance policy for the
benefit of Buyer and Buyer’s Affiliates issued as of the Closing Date by Illinois Union Insurance Company, a
copy of which has been provided to the Shareholders’ Representative.
“Special Employee Bonuses” means those certain bonuses described and defined in Section 3.16(a)
of the Company Disclosure Schedule.
“Straddle Period” means any Tax period of the Company that begins on or before the Closing Date
and ends after the Closing Date.
“Subsidiary” means with respect to any entity, that such entity shall be deemed to be a “Subsidiary” of
another Person if such other Person directly or indirectly owns, beneficially or of record, an amount of voting
securities of other interests in such entity that is sufficient to enable such Person to elect at least a majority of
the members of such entity’s board of directors or other governing body.
“Tax” or “Taxes” means any and all taxes, assessments, levies, tariffs, duties or other charges or
impositions in the nature of a tax (together with any and all interest, penalties, additions to tax and additional
amounts imposed with respect thereto) imposed by any Governmental Authority, including income, estimated
income, gross receipts, profits, license, occupation, franchise, capital stock, real or personal property, sales, use,
transfer, value added, employment or unemployment, social security, disability, alternative or add-on minimum,
customs, excise, stamp, environmental, commercial rent or withholding taxes.
9
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
“Tax Return” means any return (including any information return or statement), report, claim for
refund or other document (including any schedule or attachment thereto and any amendment thereof) filed with
or submitted to, or required to be filed with or submitted to, any Governmental Authority with respect to any
Tax.
“Trade Secrets” has the meaning set forth in the definition of Intellectual Property.
“Transfer Taxes” means any and all transfer, documentary, sales, use, stamp, registration, value added,
goods and services, recording and other similar Taxes incurred in connection with the transactions contemplated
by this Agreement (including any real property or leasehold interest transfer Tax and any similar Tax).
“Unpaid Company Transaction Expenses” means Company Transaction Expenses, but only to the
extent they have not been paid by or on behalf of the Company in Cash on or prior to the close of business on
the day immediately preceding the Closing Date and have, accordingly, not reduced the Closing Cash.
“USDA” means the United States Department of Agriculture.
“Working Capital Escrow Fund” means an amount equal to $1,000,000 to be held for the purpose of
securing the obligations of the Company and the Sellers in Section 2.4 .
Section 1.2Certain Additional Definitions. As used in this Agreement, the following terms shall
have the respective meanings ascribed thereto in the respective sections of this Agreement set forth opposite
each such term below:
Term
Section
Accounting Firm
Agreement
Balance Sheet Date
Buyer
Buyer Indemnified Parties
Buyer Subsidiaries
Buyer Termination Fee
Claims Notice
Closing
Closing Balance Sheet
Closing Date
Closing Date Payment
Closing Date Purchase Price
Closing Date Schedule
Closing Employee Payments
Common Stock
Company
2.4(c)(iv)
Preamble
3.6(a)
Preamble
12.1
5.5
10.2
12.3(a)
2.2
2.4(b)
2.2
2.1(i)
2.1(f)
2.4(b)
2.3(f)
3.3(a)
Preamble
10
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Term
Section
Company Benefit Plan
Company Disclosure Schedule
Company Financial Statements
Company Indemnified Parties
Company Organizational Documents
Company Pre-Closing Certificate
Company Representatives
Current Balance Sheet
DDT
Dispute Notice
Effective Date
Escrow Agent
Escrow Agreement
Escrow Fund Excess Amount
Estimated Closing Cash
Estimated Closing Debt
Estimated Identified Capital Expenditures
Estimated Unpaid Company Transaction Expenses
Excluded Claims
Expense Fund Excess Amount
Expert Calculations
Expiration Date
Final Closing Date Payment Schedule
Fraud Claims
GDT
GSC
GSH
Guarantor
Holder Group
Indemnified Party
Indemnifying Party
Leased Real Property
Liability Claim
Listed Contracts
Litigation Conditions
Major Customers
Major Suppliers
Mini-Basket
Negative Adjustment Amount
Optionholder
Optionholder Pay-Off Agreements
Outside Date
3.16(a)
Article III
3.6(a)
7.1(a)
3.2(a)
2.4(a)
6.1
3.6(a)
Preamble
2.4(c)(ii)
Preamble
2.3(d)
2.3(d)
2.4(d)(iii)
2.4(a)
2.4(a)
2.4(a)
2.4(a)
12.4(b)
2.4(d)(iv)
2.4(c)(iv)
12.4(a)
2.3(a)
12.4(a)
Preamble
Preamble
Preamble
Preamble
13.6
12.3(a)
12.3(a)
3.12(b)
12.3(a)
3.15(a)
12.3(b)
3.21(b)
3.21(a)
12.4(b)
2.4(d)(i)
3.3(a)
6.4(a)
10.1(c)
11
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Term
Section
Positive Adjustment Amount
Pre-Closing Period
Property Taxes
Purchase and Sale
Purchase Price
Review Period
SDT
Seller Indemnified Parties
Sellers
Shareholders’ Representative
Shareholders’ Representative Expense Fund
Shares
Specified Accounting Principles
Stock Options
*****
Threshold Amount
2.4(d)(ii)
6.1
11.2
2.1
2.1(h)
2.4(c)(ii)
Preamble
12.2
Preamble
13.1(a)
2.3(e)
Recitals
2.4(a)
3.3(a)
12.4(c)
12.4(b)
ARTICLE II.
THE PURCHASE AND SALE
Section 2.1Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, at the
Closing, Buyer shall purchase from the Sellers, and each Seller shall, severally and not jointly, sell and transfer
to Buyer, the Shares owned by such Seller that are set forth on Schedule 2.1 attached hereto (the “ Purchase
and Sale ”), for an aggregate amount in cash (adjusted to the nearest whole cent), equal to the sum of the
following:
(a)Two Hundred Seventy Five Million Dollars ($275,000,000), plus
(b)the Estimated Closing Cash, plus
(c)an amount equal to the Company Transaction Expenses Tax Benefit, plus
(d)the Estimated Identified Capital Expenditures, less
(e)the Estimated Unpaid Company Transaction Expenses, less
(f)the Estimated Closing Debt, (the result of clauses (a) through (f), the “Closing Date Purchase Price
”); plus
(g)any Positive Adjustment Amount; less
(h)any Negative Adjustment Amount (the result of clauses (a) through (h), the “Purchase Price ”).
12
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(i)For purposes of this Agreement, the amount equal to (i) the Closing Date Purchase Price less (ii) the
sum of (A) the Escrow Fund and (B) the Shareholders’ Representative Expense Fund shall be referred to herein
as the “ Closing Date Payment ”. As of any specific date, the aggregate cash amount to be paid to each Seller
hereunder shall be calculated in accordance with the Seller’s Pro Rata Portion set forth on Schedule 2.1
. Similarly, in the event that the Purchase Price payable pursuant to this Section 2.1(i) is reduced as a result
of a payment to Buyer from the Escrow Fund or to the Shareholders’ Representative from the Shareholders’
Representative Expense Fund in accordance with this Agreement, the portion of the Purchase Price to which
each Seller is otherwise entitled hereunder shall be calculated by so reducing the aggregate Purchase Price and
then determining the distribution of the remaining portion of the Purchase Price in accordance with the
preceding sentence. Notwithstanding the foregoing, immediately prior to the Closing, a portion of the Closing
Date Payment otherwise payable to each of GDT, DDT and SDT equal to the Special Employee Bonuses shall
be transferred, on their behalf, pro rata in proportion to the Closing Date Payments, to the Company as a capital
contribution. The Company shall use such amount to pay all the Special Employee Bonuses pursuant to
Section 2.3(f) .
Section 2.2Closing. The closing of the transactions contemplated by this Agreement (the “ Closing ”)
shall take place by electronic exchange of signature pages, documents and funds on a date to be mutually agreed
to by the parties hereto, which date shall be no later than three (3) Business Days after the satisfaction or waiver
of the last of the conditions set forth in ARTICLE IX to be satisfied or waived (other than those conditions to
be satisfied at the Closing but subject to the satisfaction or waiver of those conditions), or at such other time,
date and location as the parties hereto agree in writing (such date hereinafter, the “ Closing Date ”). The
Company shall provide written notice of the Closing Date to Buyer promptly after such date is known.
Section 2.3Certain Closing Date Payments.
(a)Closing Date Payment Schedule. At least two (2) Business Days prior to the Closing, the Company
shall prepare and deliver to Buyer the Company’s good faith draft of the Closing Date Payment Schedule. The
Company may update the Closing Date Payment Schedule from time to time prior to the Closing, and shall
provide Buyer with a final Closing Date Payment Schedule at least one (1) Business Day prior to the Closing
(the “ Final Closing Date Payment Schedule ”).
(b)Payment of Closing Date Payment. At the Closing, Buyer shall pay or cause to be paid the
applicable portion of the Closing Date Payment to each Seller, by wire transfer of immediately available funds,
in accordance with the payment instructions contained in the Final Closing Date Payment Schedule.
(c)Payment of Unpaid Company Transaction Expenses and Closing Debt. At the Closing, Buyer shall
pay or cause to be paid (i) all Unpaid Company Transaction Expenses, as directed by the Company in writing at
or prior to Closing and (ii) all Closing Debt, as directed by the Company in writing at or prior to Closing.
13
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(d)Deposit of Escrow Fund. At the Closing, Buyer shall deposit an amount equal to the Working
Capital Escrow Fund and an amount equal to the Indemnity Escrow Fund with Union Bank, N.A. or an
alternative nationally recognized banking corporation reasonably agreed to by the Shareholders’ Representative
and Buyer (the “ Escrow Agent ”) to hold in separate accounts and distribute in accordance with the terms of
this Agreement and the escrow agreement to be executed at Closing by Buyer, the Escrow Agent and the
Shareholders’ Representative in substantially the form attached hereto as Exhibit A (the “ Escrow Agreement
”).
(e)Deposit of Shareholders’ Representative Expense Fund. At the Closing, Buyer shall deposit an
amount equal to $250,000 (the “ Shareholders’ Representative Expense Fund ”) with the Shareholders’
Representative, which the Shareholders’ Representative shall hold in a segregated account and distribute in
accordance with the terms of this Agreement.
(f)Payments to Employees. On the Closing Date, Buyer shall deposit with the Company an amount
equal to (i) the portion of the Company Transaction Expenses attributable to the payments in subsection (b) of
the definition of the Company Transaction Expenses, plus (ii) the Special Employee Bonuses (the “ Closing
Employee Payments ”). Promptly, and no later than the first regular payroll date of the Company following the
Closing Date, the Company shall pay or cause to be paid all Closing Employee Payments, less any Taxes
required to be withheld pursuant to Section 2.6 . For clarity, for purposes of determining the Closing Net
Working Capital Amount, an amount of cash equal to the Closing Employee Payments will not be treated as a
current asset, or as cash or a cash equivalent asset, of the Company at Closing, nor will the obligations arising in
connection with such payments be treated as current liabilities of the Company at Closing.
Section 2.4Purchase Price Adjustment.
(a)Estimated Purchase Price. Not later than two (2) days before the Closing, the Company shall
deliver to Buyer and the Shareholders’ Representative a certificate of the Company (the “ Company Pre-Closing
Certificate ”) executed on its behalf by the Chief Financial Officer of the Company that sets forth in reasonable
detail the Company’s estimates of the Closing Cash (“ Estimated Closing Cash ”), Identified Capital
Expenditures (the “ Estimated Identified Capital Expenditures ”), Closing Debt (“ Estimated Closing Debt ”)
and Unpaid Company Transaction Expenses (“ Estimated Unpaid Company Transaction Expenses ”), along
with reasonable supporting detail therefore, such estimates to be prepared in accordance with GAAP, using the
policies, conventions, methodologies and procedures set forth on Schedule 2.4(a) attached hereto and used by
the Company in preparation of Schedule 1.1(d) (the “ Specified Accounting Principles ”). Prior to Closing,
the Company and Buyer shall cooperate in good faith to agree upon the calculation of the Estimated Closing
Cash, Estimated Identified Capital Expenditures, Estimated Closing Debt and Estimated Unpaid Company
Transaction Expenses upon which the Closing Date Purchase Price shall be based; provided that, if the
Company and Buyer are unable to agree as to any item set forth on the Company Pre-Closing Certificate, then
the amount set forth as the Estimated Closing Cash, Estimated Identified Capital Expenditures, Estimated
Closing Debt or Estimated Unpaid Company Transaction Expenses, as applicable, on the Company Pre-Closing
Certificate shall be deemed to be the parties’ estimate of Estimated Closing Cash, Estimated Identified Capital
Expenditures, Estimated Closing Debt or Estimated Unpaid Company Transaction Expenses, as applicable.
14
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(b)Calculation. As promptly as practicable, but in no event later than forty-five (45) days following
the Closing Date, Buyer shall cause the Company, at its expense, (i) to cause to be prepared, in accordance with
GAAP, using the policies, conventions, methodologies and procedures used by the Company in preparing the
Company Financial Statements, an unaudited consolidated balance sheet of the Company as of the close of
business on the day immediately preceding the Closing Date, but which shall not reflect the transactions
occurring at the Closing (the “ Closing Balance Sheet ”), together with a statement (the “ Closing Date Schedule
”) setting forth in reasonable detail the Company’s calculation of the Closing Net Working Capital Amount,
Closing Cash, Identified Capital Expenditures, Closing Debt and the Unpaid Company Transaction Expenses in
each case with reasonable supporting detail therefore, such calculations to be prepared in accordance with
GAAP using the Specified Accounting Principles; and (ii) deliver to the Shareholders’ Representative the
Closing Balance Sheet and the Closing Date Schedule, together with a certificate of the Company executed on
its behalf by the Chief Financial Officer of the Company confirming that the Closing Balance Sheet and the
Closing Date Schedule were properly prepared in good faith and in accordance with the Specified Accounting
Principles and this Section 2.4(b) .
(c)Review; Disputes.
(i)From and after the Closing, Buyer shall and shall cause the Company to provide the Shareholders’
Representative and any accountants or advisors retained by the Shareholders’ Representative with full access
to the books and records of the Company for the purposes of: (A) enabling the Shareholders’ Representative
and its accountants and advisors to calculate, and to review the Company’s calculation of, the Closing Net
Working Capital Amount, Closing Cash, Identified Capital Expenditures, Closing Debt and the Unpaid
Company Transaction Expenses; and (B) identifying any dispute related to the calculation of any of the
Closing Net Working Capital Amount, Closing Cash, Identified Capital Expenditures, Closing Debt or the
Unpaid Company Transaction Expenses. The reasonable fees and expenses of any such accountants and
advisors retained by the Shareholders’ Representative shall not be the personal obligations of the
Shareholders’ Representative and shall be paid by the Shareholders’ Representative (on behalf of the Sellers)
from the Shareholders’ Representative Expense Fund.
(ii)If the Shareholders’ Representative disputes the calculation of any of the Closing Net Working
Capital Amount, Closing Cash, Identified Capital Expenditures, Closing Debt or the Unpaid Company
Transaction Expenses set forth in the Closing Date Schedule, then the Shareholders’ Representative shall
deliver a written notice (a “ Dispute Notice ”) to Buyer and the Company at any time during the forty-five
(45)-day period commencing upon receipt by the Shareholders’ Representative of the Closing Balance Sheet,
the Closing Date Schedule and the related certificate of the Company’s Chief Financial Officer, all as prepared
by the Company in accordance with the requirements of Section 2.4(b) (subject to automatic extension for
any period of inadequate access to the underlying records pursuant to Section 2.4(c)(i) (the “ Review Period
”). The Dispute Notice shall set forth the basis for the dispute of any such calculation in reasonable detail.
15
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(iii)If the Shareholders’ Representative does not deliver a Dispute Notice to the Company prior to the
expiration of the Review Period, the Company’s calculation of the Closing Net Working Capital Amount,
Closing Cash, Identified Capital Expenditures, Closing Debt and the Unpaid Company Transaction Expenses
set forth in the Closing Date Schedule shall be deemed final and binding on Buyer, the Company, the
Shareholders’ Representative and the Sellers for all purposes of this Agreement.
(iv)If the Shareholders’ Representative delivers a Dispute Notice to Buyer prior to the expiration of
the Review Period, then the Shareholders’ Representative and Buyer shall use commercially reasonable efforts
to reach agreement on the Closing Net Working Capital Amount, Closing Cash, Identified Capital
Expenditures, Closing Debt and the Unpaid Company Transaction Expenses. If the Shareholders’
Representative and Buyer are unable to reach agreement on the Closing Net Working Capital Amount,
Closing Cash, Identified Capital Expenditures, Closing Debt, and the Unpaid Company Transaction Expenses
within thirty (30) days following delivery of the Dispute Notice, either party shall have the right to refer such
dispute to an accounting firm of national reputation that is independent of Buyer and the Company and is
reasonably acceptable to both the Shareholders’ Representative and Buyer (such firm, or any successor
thereto, being referred to herein as the “ Accounting Firm ”) after such thirtieth day. In connection with the
resolution of any such dispute by the Accounting Firm: (A) each of Buyer and the Shareholders’
Representative shall have a reasonable opportunity to meet with the Accounting Firm to provide their views as
to any disputed issues with respect to the calculation of any of the Closing Net Working Capital Amount,
Closing Cash, Identified Capital Expenditures, Closing Debt and the Unpaid Company Transaction Expenses;
(B) the Accounting Firm shall determine the Closing Net Working Capital Amount, Closing Cash, Identified
Capital Expenditures, Closing Debt and the Unpaid Company Transaction Expenses in accordance with the
terms of this Agreement and using the Specified Accounting Principles within thirty (30) days of such referral
and upon reaching such determination shall deliver a copy of its calculations (the “ Expert Calculations ”) to
the Shareholders’ Representative, Buyer and the Escrow Agent; and (C) the determination made by the
Accounting Firm of the Closing Net Working Capital Amount, Closing Cash, Identified Capital Expenditures,
Closing Debt and the Unpaid Company Transaction Expenses shall be final and binding on Buyer, the
Company, the Shareholders’ Representative and the Sellers for all purposes of this Agreement, absent
manifest error. In calculating the Closing Net Working Capital Amount, Closing Cash, Identified Capital
Expenditures, Closing Debt and the Unpaid Company Transaction Expenses, the Accounting Firm (x) shall be
limited to addressing any particular disputes referred to in the Dispute Notice and (y) such calculation shall,
with respect to any disputed item, be no greater than the higher amount calculated by the Shareholders’
Representative or the Company, and no less than the lower amount calculated by the Shareholders’
Representative or the Company, as the case may be. The Expert Calculations shall reflect in detail the
differences, if any, between the Closing Net Working Capital Amount, Closing Cash, Identified Capital
Expenditures, Closing Debt and the Unpaid Company Transaction Expenses reflected therein and the Closing
Net
16
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Working Capital Amount, Closing Cash, Identified Capital Expenditures, Closing Debt and the Unpaid
Company Transaction Expenses set forth in the Closing Date Schedule. The fees and expenses of the
Accounting Firm shall be borne equally by Buyer and the Shareholders’ Representative (on behalf of the
Sellers) (it being understood that any fees and expenses of the Accounting Firm payable by the Shareholders’
Representative (on behalf of the Sellers) shall be payable from the Shareholders’ Representative Expense
Fund).
(d)Payment upon Final Determination of Adjustments.
(i)If (A) the Estimated Adjustment Amount is greater than (B) the Final Adjustment Amount (such
difference between the Final Adjustment Amount and the Estimated Adjustment Amount, the “ Negative
Adjustment Amount ”), then (x) the Shareholders’ Representative and Buyer shall deliver joint written
instructions to the Escrow Agent directing the Escrow Agent to deliver an amount equal to the Negative
Adjustment Amount (from dollar one) from the Working Capital Escrow Fund, to Buyer and (y) each Seller
shall pay to Buyer within two (2) Business Days the applicable portion of the difference, if any, between the
Negative Adjustment Amount and the Working Capital Escrow Fund.
(ii)If (A) the Final Adjustment Amount is greater than (B) the Estimated Adjustment Amount (such
difference between the Final Adjustment Amount and the Estimated Adjustment Amount, the “ Positive
Adjustment Amount ”), then (x) the Shareholders’ Representative shall prepare a Post-Closing Payment
Schedule with respect to an amount equal to the Positive Adjustment Amount (from dollar one) and deliver
such Post-Closing Payment Schedule to Buyer, and (y) no later than two (2) Business Days after receipt of
such Post-Closing Payment Schedule and in accordance with the Post-Closing Payment Schedule, Buyer shall
pay, or cause the Company to pay, the applicable portion of the Positive Adjustment Amount set forth in the
Post-Closing Payment Schedule to each Seller, as applicable.
(iii)Promptly following the payment of the Final Adjustment Amount pursuant to this Section 2.4(d)
(and in any event within two (2) Business Days after the date of such payment) any amount remaining in the
Working Capital Escrow Fund (such remaining portion, the “ Escrow Fund Excess Amount ”) shall be paid to
the Sellers, by wire transfer of immediately available funds, in accordance with the payment instructions
contained in the Post-Closing Payment Schedule.
(iv)In connection with the payment of the Final Adjustment Amount pursuant to this Section 2.4(d)
and the preparation of the Post-Closing Payment Schedule, Shareholders’ Representative shall include in the
Post-Closing Payment Schedule any amount remaining in the Shareholders’ Representative Expense Fund
following the payment of any amounts pursuant to Section 13.1 to the Shareholders’ Representative in
connection with costs and expenses incurred or to be incurred by the Shareholders’ Representative resulting
from the performance of its rights or obligations under this
17
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Agreement and the Escrow Agreement and the taking of any and all actions in connection therewith (such
remaining portion, the “ Expense Fund Excess Amount ”). Promptly after the payment of the Final
Adjustment Amount, the Shareholders’ Representative shall promptly (and in any event within two (2)
Business Days) following preparation of such Post-Closing Payment Schedule pay from the Shareholders’
Representative Expense Fund, to each Seller the applicable portion of the Expense Fund Excess Amount set
forth in the Post-Closing Payment Schedule in accordance therewith.
Section 2.5Transfer Taxes. Buyer shall be responsible for and shall timely pay (without any
adjustment to or deduction or withholding from the Purchase Price) all Transfer Taxes arising from or in
connection with the transactions effected pursuant to this Agreement. Buyer shall, at its own expense, timely
file all Tax Returns with respect to such Transfer Taxes. The Sellers will cooperate as reasonably requested by
Buyer in filing any such Tax Returns and will provide any information and take any other actions as Buyer shall
reasonably request in connection with filing any such Tax Returns.
Section 2.6Withholding. Buyer shall be entitled to deduct and withhold from any payment made
pursuant to this Agreement such amounts as are required to be deducted and withheld with respect to such
payment under the Code, or any other provision of applicable Law; provided , however , that there shall be
no withholding from any payment if, on or before the Closing Date, each Seller shall have delivered to Buyer a
duly executed and properly completed IRS Form W-9 establishing a complete exemption from backup
withholding and complied with Section 9.3(f) . To the extent that any amounts are so withheld, such withheld
amounts (a) shall be remitted by Buyer to the applicable Governmental Authority, and (b) shall be treated for all
purposes of this Agreement as having been paid to the Person in respect of which such withholding was made.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Attached hereto is a disclosure schedule prepared by the Company with numbered sections
corresponding to the relevant sections in this Agreement (the “ Company Disclosure Schedule ”). Any
exception or qualification set forth in the Company Disclosure Schedule with respect to a particular
representation, warranty or covenant contained herein shall be deemed to be an exception or qualification with
respect to all other representations, warranties and covenants contained in this Agreement if the applicability of
such exception or qualification to any other representation, warranty or covenant would be reasonably apparent
to a Person reviewing the Company Disclosure Schedule, regardless of whether an explicit reference to such
other representation, warranty or covenant is made. Nothing in the Company Disclosure Schedule is intended
to broaden the scope of any representation, warranty or covenant of the Company contained in this
Agreement. Subject to the exceptions and qualifications set forth in the Company Disclosure Schedule, the
Company hereby represents and warrants to Buyer as follows with respect to the Company:
18
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 3.1Authority. The Company has the requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the Purchase and Sale and the other
transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company,
the performance by the Company of its obligations hereunder, and the consummation by the Company of the
Purchase and Sale and the other transactions contemplated by this Agreement, have been duly authorized by the
board of directors of the Company, and no other corporate action on the part of the Company is necessary to
authorize the execution and delivery of this Agreement by the Company, the performance by the Company of
its obligations hereunder or the consummation by the Company of the Purchase and Sale and the other
transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery by the other parties to this Agreement, this
Agreement constitutes a legally valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as such enforceability may be subject to (a) the effect of any applicable
Law of general application relating to bankruptcy, reorganization, insolvency, moratorium or similar Laws
affecting creditors’ rights and relief of debtors generally and (b) the effect of rules of Law and general
principles of equity, including rules of Law and general principles of equity governing specific performance,
injunctive relief and other equitable remedies (regardless of whether such enforceability is considered in a
proceeding in equity or at Law).
Section 3.2Organization; Subsidiaries.
(a)The Company is a corporation, duly incorporated, validly existing and in good standing under the
Laws of the State of Oregon, and has the requisite corporate power and authority to own, operate or lease the
properties and assets now owned, operated or leased by it, and to carry on the Company’s business as currently
conducted. The Company is duly qualified to do business as a foreign company, and is in good standing (where
such concept is recognized), under the Laws of each jurisdiction in which the character of its properties owned,
operated or leased, or the nature of its activities, makes such qualification necessary, except in those
jurisdictions where the failure to be so qualified or in good standing, when taken together with all other failures
by the Company to be so qualified or in good standing, would not have a Material Adverse Effect. True and
complete copies of the Company’s organizational documents (collectively, the “ Company Organizational
Documents ”), each as amended and in effect as of the date of this Agreement, have been made available to
Buyer or its advisors.
(b)The Company does not have any Subsidiaries.
19
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 3.3Capitalization.
(a)The authorized capital stock of the Company consists of (i) 10,000,000 shares of common stock
(the “ Common Stock ”), 5,000,000 of which are issued and outstanding and (ii) 10,000,000 shares of
convertible preferred stock, 5,000,000 of which are issued and outstanding, and are collectively owned and held
of record by the Sellers. As of the date of this Agreement, there are 608,000 stock options for the purchase of
shares of Common Stock issued and outstanding (“ Stock Options ”). Section 3.3(a) of the Company
Disclosure Schedule sets forth a list of the Shares owned by each Seller and a list of each Stock Option, the
strike price, the holder thereof (each, an “ Optionholder ”) and whether each Stock Option is fully vested or will
be fully vested as of the Closing.
(b)The Shares have not been issued in violation of any purchase option, call, right of first refusal,
preemptive, subscription or similar rights under any provision of applicable Law, the charter and bylaws of the
Company, or any Contract to which the Company is subject or by which it is bound. Except as set forth in
Section 3.3(a) of the Company Disclosure Schedule, there are no outstanding warrants, options, rights,
agreements, convertible or exchangeable securities or other commitments pursuant to which either the Company
is or may become obligated to issue, sell, purchase, return or redeem any Shares. There are no agreements with
respect to the voting or transfer of the Company’s capital stock, other than this Agreement.
Section 3.4Conflicts. Assuming all consents, waivers, approvals, authorizations, orders, Permits,
declarations, filings, registrations and notifications and other actions set forth in Section 3.5 have been
obtained or made, the execution and delivery of this Agreement by the Company, the performance by the
Company of its obligations hereunder, and the consummation by the Company of the Purchase and Sale and the
other transactions contemplated by this Agreement, does not and will not (i) conflict with or result in a violation
of the Company Organizational Documents; (ii) conflict with or result in a violation of any Governmental Order
or Law applicable to the Company or its assets or properties; or (iii) result in a breach of, or constitute a default
(or event which with the giving of notice or lapse of time, or both, would become a default) under, or give rise
to any rights of termination, amendment, modification, acceleration or cancellation of or loss of any material
benefit under, or result in the creation of any Encumbrance on any of the assets or properties of the Company
pursuant to, any Contract to which the Company is a party, or by which any of the assets or properties of the
Company is bound, except, in the case of clauses (ii) and (iii) of this Section 3.4 , as would not result in a
material liability to the Company.
Section 3.5Consents, Approvals, Etc. No consent, waiver, approval, authorization, order or Permit
of, or declaration, filing or registration with, or notification to, any Governmental Authority is required to be
made or obtained by the Company in connection with the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder, or the consummation by the Company
of the Purchase and Sale and the other transactions contemplated by this Agreement, except: (a) applicable
requirements, if any, under the Act, federal or state securities or “blue sky” Laws; (b) such filings as may be
required under the HSR Act; (c) as set forth in Section 3.5 of the Company Disclosure Schedule; and (d) any
failure to obtain any of the foregoing that would not, when taken together with all other such failures, result in a
Liability that is material in nature or amount to the Company.
20
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 3.6Financial Statements; Undisclosed Liabilities.
(a)The Company has prepared, or caused to be prepared, and made available to Buyer or its advisors
the audited financial statements of the Company (including the balance sheet and the related statements of
operations, shareholders’ capital and cash flows of the Company) as of and for each of the fiscal years ended
December 25, 2013, and December 30, 2014 and the unaudited financial statements of the Company (including
the balance sheet and the related statements of operations, shareholders’ capital and cash flows of the Company)
as of and for the year to date period ended June 20, 2015 (collectively, the “ Company Financial Statements
”). Except as set forth therein, the Company Financial Statements have been prepared in accordance with
GAAP and applied on a consistent basis throughout the periods indicated therein and with each other, (except
that such financial statements which are unaudited do not contain all of the footnotes required under GAAP and
are subject to year-end adjustments), and present fairly, in all material respects, the financial position, results of
operations and cash flows of the Company as of the respective dates and during the respective periods indicated
therein. The unaudited balance sheet of the Company as of June 20, 2015 shall be referred to in this Agreement
as the “ Current Balance Sheet ” and the date thereof shall be referred to in this Agreement as the “ Balance
Sheet Date .”
(b)The Company has no material Liabilities that would be required to be shown on the Company
Financial Statements in accordance with GAAP, other than (i) as disclosed, reflected or reserved against in the
Company Financial Statements and (ii) Liabilities incurred in the ordinary course of business consistent with
past practice since the Balance Sheet Date and not otherwise in violation of this Agreement, or (iii) otherwise
disclosed on Section 3.6(b) of the Company Disclosure Schedule.
(c)To the Knowledge of the Company, there have been no instances of fraud that involve the
Company’s management or other employees who have a significant role in the Company’s system of internal
control over financial reporting.
(d)The financial books and records of the Company represent actual, bona fide transactions.
(e)All accounts receivable and notes receivable due and uncollected of the Company reflected on the
Company Financial Statements or arising subsequent to the Balance Sheet Date have arisen from bona fide
transactions in the ordinary course of business consistent with past practice. The Company has good and
marketable title to its accounts receivable, free and clear of all Encumbrances except for Permitted
Encumbrances.
(f)Since the Balance Sheet Date, there have not been any write-offs of any notes or accounts
receivable of the Company nor is there any such write-off that has not been made but that is required to be made
consistent with past practice, as of the date of this Agreement, except in each case for write-offs that were
properly recorded on the Company Financial Statements.
21
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 3.7Certain Changes or Events. Between January 1, 2015 and the Effective Date, there has
not been, occurred or arisen:
(a)any event or condition of any kind or character that has had a Material Adverse Effect;
(b)any amendment or modification to the Company Organizational Documents;
(c)any issuance, delivery, sale or grant of (i) shares of capital stock or other equity interests of the
Company, except upon the exercise of warrants, options, rights, agreements, convertible or exchangeable
securities or other commitments, (ii) any warrants, options, rights, agreements, convertible or exchangeable
securities, (iii) any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock-based
performance units, or (iv) other commitments obligating the Company to issue, sell, purchase, return or redeem
any shares of capital stock or other equity interests of the Company;
(d)any declaration, setting aside or payment of any dividend, or other distribution or capital return in
respect of any shares of capital stock or other equity interests of the Company, or any redemption, repurchase or
other acquisition by the Company of any shares of capital stock or other equity interests of the Company;
(e)(i) any material damage, destruction or other material casualty loss (whether or not covered by
insurance) affecting the Company or the assets of, or property owned, leased or otherwise used by the
Company; (ii) any sale (except for inventory in the ordinary course of business consistent with past practice),
lease, or disposition of any material asset of the Company; or (iii) any mortgage, pledge, or imposition of any
Encumbrance (other than Permitted Encumbrances) upon, any material asset of the Company;
(f)any sale, assignment, transfer or license, or agreement to sell, assign, transfer or license, any
material Intellectual Property, other than nonexclusive licenses granted in the ordinary course of business
consistent with past practice;
(g)any acquisition (by merger, consolidation or other combination, or acquisition of stock or assets or
otherwise) by the Company of any Person or division, or business of or equity interest in any Person, except for
purchases of inventory, components or supplies in the ordinary course of business consistent with past practice;
(h)any material change in any method of financial or Tax accounting or financial or Tax accounting
practice used by the Company, other than such changes as are required by GAAP or Tax law, as applicable;
(i)any material Tax election (including any change to any such election);
(j)any employment agreement with a Company Employee entered into or amended;
22
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(k)(i) any cancellation or waiver of any material claims or material rights with a value to the Company
or (ii) any settlement or compromise of any material Actions, other than such Actions in which the amount paid
in settlement or compromise, including the cost to the Company of complying with any provisions of such
settlement or compromise other than cash payments, does not exceed $100,000 without regard to any amount
covered by insurance;
(l)any capital expenditure, or commitment for a capital expenditure in excess of $100,000 individually
or $500,000 in the aggregate (excluding any individual capital expenditures or commitments for capital
expenditures in amounts less than $50,000), for additions or improvements to the property, plant and equipment
of the Company, other than the Identified Capital Expenditures;
(m)any amendment, termination, or written notice of termination of any Contract involving a
commitment by the Company extending for more than one year and involving a total remaining commitment by
the Company of at least $100,000;
(n)any loan, advance or capital contribution to or investment in any Person;
(o)any default in any Liability set forth on the Company Financial Statements that has not since been
cured and that, taken together with all other defaults in Liabilities set forth on the Company Financial
Statements, resulted in or is reasonably likely to result in Losses to the Company in excess of $50,000.
(p)any labor dispute, other than routine individual grievances, or, to the Knowledge of the Company,
any activity or proceeding by a labor union or representative thereof to organize any Company Employees, or
any lockouts, strikes, slowdowns, work stoppages or, to the Knowledge of the Company, threats thereof by or
with respect to any Company Employees; or
(q)any agreement, other than this Agreement, to take any actions specified in this Section 3.7.
Section 3.8Tax Matters.
(a)All Tax Returns required to be filed by the Company have been timely filed and such Tax Returns
are complete and correct in all material respects. All Taxes shown as due and outstanding on such Tax Returns
have been timely paid, other than such Taxes, if any, as are being contested in good faith. All Taxes that the
Company is required to withhold in connection with amounts paid or owing to any employee, independent
contractor, creditor or stockholder have been duly withheld and, to the extent required, have been paid to the
proper Governmental Authority.
(b)Section 3.8(b) of the Company Disclosure Schedule lists all Tax Returns filed with respect to the
Company for Tax periods ended on or after December 31, 2012, indicates those Tax Returns that have been
audited or for which the applicable Governmental Authority has notified the Company in writing that an audit
will begin in the future, and indicates those Tax
23
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Returns that currently are the subject of audit. The Sellers have delivered to Buyer correct and complete copies
of all Income Tax Returns, examination reports, and statements of deficiencies filed, assessed against or agreed
to by the Company since December 31, 2012. No Governmental Authority has indicated in writing to the
Company that it will assess any additional Taxes for any period for which Tax Returns have been filed.
(c)The Company has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to and Tax assessment or deficiency.
(d)The Company has not been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code filing a consolidated federal Income Tax Return, other than a group the common
parent of which is the Company. The Company has no liability for the Taxes of any Person other than the
Company under Treasury Regulations Section 1.1502‑6 (or any similar provision of state, local or non-U.S.
law).
(e)The Company has not (i) made any change in method of accounting for a taxable period ending on
or prior to the Closing Date, (ii) executed any “closing agreement” as described in Code Section 7121 (or any
corresponding or similar provision of Income Tax Law) on or prior to the Closing Date, (iii) entered into any
intercompany transaction or created any excess loss account described in Treasury Regulations under Code
Section 1502 (or any corresponding provision of Income Tax Law), (iv) entered into any installment sale or
open transaction disposition on or prior to the Closing Date, (v) received any prepaid amount on or prior to the
Closing Date, or (vi) made an election under Code Section 108(i), in each case, to the extent any such action
would increase the Company’s liability for Taxes in a Post-Closing Tax Period.
(f)The Company is not a party to any Tax allocation or sharing agreement.
(g)The Company has not been a “United States real property holding corporation” within the meaning
of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii).
(h)The Company is not and has not been a party to any (i) “listed transaction,” as defined in Section
6707A(c)(2) of the Code and Treasury Regulations Section 1.6011-4(b)(2).
(i)The Company has disclosed on its U.S. federal Income Tax Returns all positions taken therein that
could give rise to a substantial understatement of U.S. federal Income Tax within the meaning of Code Section
6662.
(j)The representations and warranties set forth in this Section 3.8 are the sole representations and
warranties of the Company as to Tax matters.
24
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 3.9Litigation and Governmental Orders. There are no Actions pending or, to the
Knowledge of the Company, threatened against the Company, any of the assets or properties of the Company,
or any of the board members and officers of the Company in their capacity as board members or officers of the
Company. Neither the Company nor any of the Company’s assets and properties is subject to any
Governmental Order.
Section 3.10Compliance with Laws.
(a)The Company is conducting its business in compliance in all material respects with applicable
Law. Since January 1, 2013, the Company has not received any written notice from any Governmental
Authority to the effect that the Company is not in compliance with any applicable Law.
(b)Since January 1, 2013, the Company has not received and, to the Knowledge of the Company, no
third party that manufactures or processes products for the Company received written notice that the products
sold by the Company are or at any time have been the subject of any warning letter, written notice of violation,
seizure, injunction, regulatory enforcement action, or criminal Action issued, initiated or, to the Knowledge of
the Company, threatened by the FDA or USDA or other Governmental Authority.
Section 3.11Permits. The Company has all material Permits required to permit the Company to
conduct its business as currently conducted, each of which is listed on Section 3.11 of the Company
Disclosure Schedule. All of the material Permits held by or issued to the Company are in full force and effect,
and the Company is in compliance with each such material Permit held by or issued to them. To the Knowledge
of the Company, there are no processes pending or threatened that would be reasonably likely to result in the
revocation, cancellation or suspension of any such material Permit by any Governmental Authority.
Section 3.12Real Property.
(a)The Company does not own any real property.
(b)Section 3.12(b) of the Company Disclosure Schedule contains a true, correct and complete list of
each item of real property that is leased from or to a third party by the Company (“ Leased Real Property ”), the
name of the third party lessor(s) or lessee(s) thereof, as the case may be, the date of the lease contract relating
thereto and all amendments thereof. (i) All Leased Real Property is leased by the Company under valid and
subsisting leases or subleases (as the same may have been amended or modified) that are in full force and effect
and constitute a legal, valid and binding obligation of the Company and, to the Knowledge of the Company, the
other parties thereto; (ii) the Company has not received written notice of any material breach or default, or
cancellation or termination thereunder; (iii) to the Knowledge of the Company, there are no conditions, events
or circumstances which with notice or lapse of time, or both, would constitute a material breach or default under
such lease or sublease; and (iv) the Company has not received any payment from a lessor as inducement for
entry into such lease. None of the Leased Real Property is subleased to any other Person.
25
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(c)There are no pending, or to the Knowledge of the Company, threatened, condemnation or similar
proceedings against the Company or otherwise relating to any of the Leased Real Property, and the Company
has not received any written notice of the same.
(d)To the Knowledge of the Company, no assessments, water charges or sewer charges relating to the
Leased Real Property are delinquent and to the Knowledge of the Company, there are no special assessments or
charges pending or threatened in writing against the Leased Real Property, and the Company has not received
any written notice of the same.
(e)The water, sewer, gas, electric, telephone and drainage facilities and all other utilities currently
service the Leased Real Property in the capacities necessary to satisfy (i) to the Knowledge of the Company,
existing requirements of Law and (ii) the current use and operation of the Leased Real Property.
(f)The Leased Real Property is in good operating condition and repair, subject only to ordinary wear
and tear, for the purposes for which it is currently used.
(g)The Company has not received written notice of any pending or contemplated changes in the status
of the zoning for the Leased Real Property. The Company is not a party to any agreement currently in effect
with any county or township in which a tract is located, or any other entity, public or private, other than any
Permitted Encumbrances, which would be binding and would prevent the use of the Leased Real Property for
any of the uses allowed by the current zoning of the Leased Real Property.
(h)The Company has delivered or otherwise made available to Buyer true and complete copies of all
leases for the Leased Real Property together with all amendments, modifications or supplements, if any, thereto.
Section 3.13Tangible Personal Property.
(a)Section 3.13(a) of the Company Disclosure Schedule sets forth a list of all material machinery and
equipment, and all vehicles owned by the Company. The Company has good and marketable title to all of the
assets set forth on Section 3.13(a) of the Company Disclosure Schedule, free and clear of all Encumbrances
other than Permitted Encumbrances. None of the assets set forth on Section 3.13(a) of the Company
Disclosure Schedule is leased to any other Person.
(b)Section 3.13(b) of the Company Disclosure Schedule includes a list of all leases of all material
machinery and equipment of which the Company is a lessee. The Company has not received any payment from
a lessor in connection with or as inducement for entering into any such lease. None of the assets set forth on
Section 3.13(b) of the Company Disclosure Schedule is subleased to any Person.
26
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(c)To the Knowledge of the Company, all material tangible personal assets and properties used or
leased for use by the Company in connection with the conduct of its business are in good operating condition
and repair, subject only to ordinary wear and tear.
(d)All inventories owned by the Company consist only of items of a quality and quantity readily
usable or readily salable, at prices equal to the values at which such items are reflected in the Company’s books,
in the ordinary course of business consistent with past practice and are valued so as to reflect the normal
valuation policy of the Company, all in accordance with GAAP, applied on a basis consistent with prior years,
but not in excess of the lower of cost or net realizable market value. Since the Balance Sheet Date, there have
not been any write-downs of the value of, or establishment of any reserves against, any inventory, except for
write-downs and reserves that were made in the ordinary course of business consistent with past practice.
Section 3.14Intellectual Property.
(a)Section 3.14(a) of the Company Disclosure Schedule sets forth a true, correct and complete list of
(i) all Company Registered IP, (ii) all Company Owned IP which is not Registered Intellectual Property that is
material to the conduct of the Company’s business as currently conducted, and (iii) all Company Licensed IP
that is material to the conduct of the Company’s business as currently conducted. Section 3.14(a) of the
Company Disclosure Schedule lists the registration or application numbers, registration filing dates, countries in
which registered or filed and expiration or renewal dates for registrations listed thereon. With respect to
registered trademarks, Section 3.14(a) of the Company Disclosure Schedule sets forth a list of all goods and
services in which such trademarks are registered or applied for. Each of the applications to register or obtain
any copyrights, patents or trademarks required to be listed in Section 3.14(a) of the Company Disclosure
Schedule is pending and in good standing without final rejection or denial of any kind. Except as set forth on
Section 3.14(a) of the Company Disclosure Schedule, the Company exclusively owns, or possesses adequate
and enforceable rights to use the Company Owned IP that is material to the conduct of the Company’s business
as currently conducted and the Company Licensed IP that is material to the conduct of the Company’s business
as currently conducted and has the right to utilize such rights without payment to any other Person, and the
consummation of the transactions contemplated by this Agreement will not conflict, alter or impair any of such
rights. Except as set forth on Section 3.14(a) of the Company Disclosure Schedule, there is no Company
Licensed IP that is material to the conduct of the Company’s business as currently conducted.
(b)Except as set forth on Section 3.14(b) of the Company Disclosure Schedule, the Company has not
granted any options, licenses, assignments or agreements of any kind relating to any of the Company Owned
IP. Except as set forth on Section 3.14(b) , the Company is not bound by or a party to any material options,
licenses or agreements of any kind relating to the Intellectual Property rights of any other Person, except
agreements relating to software. All Company Owned IP that is material to the conduct of the Company’s
business as currently conducted is free and clear of the claims of any other Person and of all Encumbrances,
other than Permitted Encumbrances. To the Knowledge of the Company, none of (i) the Company Owned
27
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
IP, (ii) the Company Licensed IP, and (iii) the operation of the business of the Company as currently conducted
and proposed to be conducted violate, conflict with, misappropriate or infringe the Intellectual Property rights
of any other Person. No Actions are pending or, to the Knowledge of the Company, threatened against the
Company by any other Person with respect to the ownership, validity, enforceability, effectiveness or use of any
of the Company Owned IP or the Company Licensed IP, and the Company has not received any written
communications alleging that the Company has violated any rights relating to Intellectual Property rights of any
other Person.
(c)No former or current personnel has asserted any claim against the Company in connection with
such personnel’s involvement in the conception and development of any Company Owned IP; and no such
claim has been asserted or, to the Knowledge the Company, is threatened. To the Knowledge of the Company,
no former or current employee of the Company has any patent issued, copyright registered, or application
pending for any device, process, design or invention of any kind now used or needed by the Company in the
operation of its business, which patents, registrations, or applications have not been assigned to the Company
with such assignment duly recorded in the United States Patent Office.
(d)The Company has taken reasonable security measures to protect the secrecy, confidentiality and
value of all Trade Secrets used in the Company’s business.
Section 3.15Certain Contracts.
(a)Section 3.15(a) of the Company Disclosure Schedule contains a true, correct and complete list, and
true, correct and complete copies have been made available to Buyer of, all of the following Contracts to which
the Company is a party or to which its assets, property or business is bound or subject (other than purchase
orders in the ordinary course of business consistent with past practice):
(i)Contracts governing the borrowing of money or the guarantee or the repayment of Debt or granting
of Encumbrances on any property or asset of the Company (including any such Contract under which the
Company has incurred any Debt) in excess of $100,000;
(ii)Contracts providing for the employment of any Person other than offer letters confirming at-will
employment;
(iii)joint venture Contracts, partnership agreements or limited liability company agreements;
(iv)Contracts (excluding Contracts for Leased Real Property) with annual expenditures after the date
of this Agreement in excess of $100,000 which are not terminable by the Company upon thirty (30) days’
notice without payment of a fee or other penalty;
28
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(v)Contracts between the Company, on the one hand, and any board member, Company Employee or
Affiliate of the Company, on the other hand (other than employment arrangements, including stock option
grant agreements, entered into in the ordinary course of business);
(vi)Contracts containing covenants limiting the freedom of the Company to compete with any Person
in any line of business or in any geographic area or market;
(vii)Contracts for the use of or restricting the use of Intellectual Property, other than for COTS
Software;
(viii)Contracts providing for the purchase, maintenance or acquisition, or the sale or furnishing, of
materials, supplies, merchandise or equipment (including but not limited to computer hardware or software or
other property or services, but excluding COTS Software) with annual expenditures after the date of this
Agreement in excess of $100,000, except for purchase orders submitted in the ordinary course of business;
(ix)Contracts granting to any Person a first refusal, first offer or similar preferential right to purchase
or acquire any right, asset or property of the Company;
(x)Contracts pertaining to the lease of equipment or other personal property with annual expenditures
after the date of this Agreement in excess of $50,000;
(xi)Contracts providing for any offset, countertrade or barter arrangement with annual expenditures
after the date of this Agreement in excess of $100,000;
(xii)Contracts involving any distributor, sales representative, broker or advertising arrangement
which are not terminable by the Company upon thirty (30) days’ notice without payment of a fee or other
penalty;
(xiii)Contracts involving management services, consulting services, support services or any other
similar services, including service agreements under which the Company is required to provide services to
insurers, self insured employees or any governmental or private health plan, managed care plan or other
similar Person with annual expenditures after the date of this Agreement in excess of $100,000;
(xiv)Contracts involving the acquisition of any business enterprise whether via stock or asset
purchase or otherwise in excess of $100,000; or
(xv)any other material Contract with annual expenditures after the date of this Agreement in excess of
$100,000.
Contracts listed or required to be listed on Section 3.15(a) of the Company Disclosure Schedule are referred to
herein as the “ Listed Contracts ”.
29
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(b)Each Listed Contract is in full force and effect in all material respects and represents a legally valid
and binding obligation of the Company enforceable in accordance with its terms. The Company has performed,
in all material respects, all obligations required to be performed by it under each of the Listed Contracts to
which it is a party. There are no (with or without the lapse of time or the giving of notice or both) material
defaults or, to the Knowledge of the Company, threatened material defaults by the Company or, to the
Knowledge of the Company, by any other party thereto, and the Company has not waived any of its rights under
any Listed Contract.
Section 3.16Employee Benefit Matters.
(a)Section 3.16(a) of the Company Disclosure Schedule contains a true, correct and complete list of
each plan, program, policy, agreement or other arrangement providing for compensation, severance, deferred
compensation, performance awards, stock or stock-based awards, fringe, retirement, death, disability or medical
benefits or other employee benefits or remuneration of any kind, including each employment, severance,
retention, change in control or consulting plan, program arrangement or agreement, in each case whether written
or unwritten or otherwise, funded or unfunded, including any “employee benefit plan” as defined in
Section 3(3) of ERISA, whether or not subject to ERISA, maintained, sponsored, contributed to or required to
be contributed to by the Company and under which current or former employees and directors of the Company
benefit (each, a “ Company Benefit Plan ” and, collectively, the “ Company Benefit Plans ”). The Company has
made available to Buyer and its agents and representatives copies (or, if a plan is not written, a written
description) of (i) each Company Benefit Plan and any amendments thereto, including schedules and financial
statements attached thereto; (ii) the most recent annual report (Form 5500) filed with the IRS with respect to
each such Company Benefit Plan, if applicable; (iii) each trust agreement and any other material written
agreement relating to each such Company Benefit Plan, if applicable; (iv) the most recent summary plan
description for each such Company Benefit Plan for which a summary plan description is required, together
with any summary of material modifications thereto; (v) the most recent determination or opinion letter issued
by the IRS with respect to any such Company Benefit Plan intended to be qualified under Section 401(a) of the
Code, if applicable; and (vi) for the preceding three (3) plan years, all actuarial valuation reports related to any
Company Benefit Plan.
(b)(i) Each Company Benefit Plan has been established, administered and maintained in all material
respects in accordance with its terms and in compliance in all material respects with applicable Law, including
ERISA, the PPACA, the Code and federal securities Laws, (ii) the Company has timely made all material
contributions and other material payments required by and due under the terms of each Company Benefit Plan
and applicable Law, and all material benefits accrued under any unfunded Company Benefit Plan have been
paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with GAAP,
(iii) there are no audits, inquiries or proceedings pending or, to the Knowledge of the Company, threatened by
the IRS or any other Governmental Authority with respect to any Company Benefit Plan (other than routine
claims for benefits in the normal course), (iv) no “prohibited transaction,” within the meaning of Section 4975
of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any
30
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Company Benefit Plan, (v) there are no actions, suits or claims pending or, to the Knowledge of the Company,
threatened (other than routine claims for benefits) against any Company Benefit Plan or against the assets of
any Company Benefit Plan, (vi) neither the Company nor any ERISA Affiliate is subject to any penalty or Tax
with respect to any Company Benefit Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the
Code and (vii) except to the extent limited by applicable Law, each Company Benefit Plan can be amended,
terminated or otherwise discontinued after the Closing Date in accordance with its terms, without material
liability to the Company (other than ordinary administration expenses and in respect of accrued benefits
thereunder). Any Company Benefit Plan intended to be qualified under Section 401(a) of the Code has obtained
a favorable determination letter (or opinion letter, if applicable) as to its qualified status under the Code and, as
of the date hereof, to the Knowledge of the Company, no such determination letter has been revoked nor has
any such revocation been threatened in writing, and as of the date hereof, to the Knowledge of the Company, no
circumstance exists that would reasonably be expected to result in the loss of such qualified status under
Sections 401(a) and 501(a) of the Code.
(c)Neither the Company nor any ERISA Affiliate has since January 1, 2013 maintained, established,
sponsored, participated in, or contributed to, any “employee pension benefit plan,” within the meaning of
Section 3(2) of ERISA subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of
the Code.
(d)Neither the Company nor any ERISA Affiliate has contributed to or been obligated to contribute to
any multiemployer plan (as defined in Section 3(37) of ERISA). Neither the Company nor any ERISA Affiliate
has at any time since January 1, 2013 maintained, established, sponsored, participated in or contributed to any
multiple employer plan or to any plan described in Section 413 of the Code.
(e)There is no Contract or Company Benefit Plan covering any employee of the Company that would
result, separately or in the aggregate, in the payment of an “excess parachute payment” within the meaning of
Section 280G(b)(1) of the Code as a result of the transactions contemplated by this Agreement. There is no
Contract by which the Company is bound to compensate any employee of the Company for excise Taxes paid
pursuant to Section 4999 of the Code.
Section 3.17Labor Matters.
(a)The Company is not a party to any labor agreement, collective bargaining agreement or recognition
agreement with respect to its employees with any labor organization, group or association, nor, to the
Knowledge of the Company, have there been any attempts to organize the employees of the Company since
January 1, 2013.
(b)Since January 1, 2013, there have been no labor strikes, labor disturbances, walkouts, lockouts or
work stoppages pending, or, to the Knowledge of the Company, threatened, against the Company.
31
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(c)To the Knowledge of the Company, no union organizational campaign is in progress with respect to
Company Employees and no disputes or organizational efforts concerning representation exists with respect to
such employees.
(d)To the Knowledge of the Company, there is no unfair labor practice charge, complaint or grievance
against the Company pending or threatened in writing before the United States National Labor Relations Board
or any other Governmental Authority.
(e)To the Knowledge of the Company, there are no pending or threatened charges or recommendations
against the Company or any current or former employee of the Company or before the United States Equal
Employment Opportunity Commission or other Governmental Authority responsible for the prevention of
unlawful employment practices.
(f)Since January 1, 2013, the Company has not incurred any material Liability or obligation under the
Workers Adjustment and Retraining Notification Act or any other similar state or local law that remains
unsatisfied.
Section 3.18Environmental Matters. The Company has made available to Buyer prior to the date of
this Agreement, all material written environmental reports which are in the possession or control of the
Company that relate to operations at any of the facilities or properties of the Company, all of which reports are
listed on Section 3.18 of the Company Disclosure Schedule. Except as specifically set forth on Section 3.18
of the Company Disclosure Schedule:
(a)The Company is, and has been for the past five (5) years, in compliance in all material respects with
all applicable Environmental Laws and has obtained and is in compliance in all material respects with all
Permits required under any Environmental Law for the operation of its business as presently conducted. Such
Permits are valid and in full force and effect.
(b)The Company has not received any written claim, written notice, demand letter or request for
information alleging that the Company may be in material violation of, or have any unpaid material Liability
under, any Environmental Law, and, to the Knowledge of the Company, there are no facts or conditions which
would reasonably be expected to result in such Liability.
(c)The Company is not subject to any outstanding written Governmental Order, decree or injunction or
other arrangement with any Governmental Authority, or to any written indemnity or other written agreement
with any third party, pursuant to which the Company has any unpaid material Liability under any
Environmental Law or with respect to Hazardous Material.
(d)None of the Leased Real Property is listed or, to the Knowledge of the Company, proposed for
listing on the National Priorities List pursuant to CERCLA, or listed on the Comprehensive Environmental
Response Compensation Liability Information System List (as defined in CERCLA) or any similar federal, state
or foreign list of sites evidencing material levels of Hazardous Materials contamination of such Leased Real
Property requiring investigation or remediation.
32
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(e)No Encumbrance has been recorded against any of the Leased Real Property by any Governmental
Authority pursuant to any Environmental Law.
(f)There have been no Releases of Hazardous Materials by the Company on, into or from the Leased
Real Property or on, into or from any real property currently or formerly owned, leased or operated by the
Company, and to the Knowledge of the Company, during any other Persons’ use, ownership or operation of the
Leased Real Property, in an amount or manner that requires any reporting, investigation or remediation pursuant
to any Environmental Laws or which could reasonably be expected to result in a material Liability of the
Company under any Environmental Law. To the Knowledge of the Company, none of the Leased Real
Property contains any damaged friable asbestos-containing materials or underground storage tanks.
(g)The Company has no unpaid material Liability under any Environmental Law arising out of any
Hazardous Material contamination at any location to or at which any Hazardous Material has been transported
or disposed of by, or on behalf of, the Company, and, to the Knowledge of the Company, there are no facts or
conditions which would reasonably be expected to result in such Liability.
(h)There are no civil, criminal or administrative actions, suits, hearings or proceedings, and no written
notices of violation pending or, to the Knowledge of the Company, threatened against the Company under
Environmental Laws.
Section 3.19Related Party Transactions. To the Knowledge of the Company, as of the date of this
Agreement, no Related Party (a) has any direct or indirect interest in any material asset used in or otherwise
relating to the Company’s business, (b) has entered into any material Contract, transaction or business dealing
involving the Company, (c) is competing with the Company or (d) has any claim or right against the Company
(other than rights to receive compensation for services performed, or indemnification, as a member, board
member, officer or employee of the Company).
Section 3.20Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this Agreement based upon any
arrangements made by or on behalf of the Company.
Section 3.21Suppliers, Customers and Distributors.
(a)Section 3.21(a) of the Company Disclosure Schedule lists for each of the year ending December 31,
2014 and the period from January 1, 2015 through the Balance Sheet Date, the names of the respective suppliers
that were, in the aggregate, the ten (10) largest suppliers in terms of dollar value of products or services, or both,
to the Company (the “ Major Suppliers ”).
(b)Section 3.21(b) of the Company Disclosure Schedule lists for each of the year ending December 31,
2014 and the period from January 1, 2015 through the Balance Sheet Date, the names of the respective
customers that were, in the aggregate, the ten (10) largest customers of the Company’s products in terms of
dollar value (the “ Major Customers ”).
33
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(c)Since January 1, 2014, no Major Supplier or Major Customer has: (i) canceled, terminated or
otherwise materially altered its relationship with the Company under any Contract between such supplier,
customer or distributor and the Company, or (ii) notified in writing the Company of any intention to materially
alter its relationship with the Company, or (iii) sought in writing to materially modify the pricing policies for
goods or services provided by the Company under any Contract between such supplier, customer or distributor
and the Company, effective prior to or as of the Closing Date except in the ordinary course of business
consistent with past practice.
Section 3.22Product Standards. To the Knowledge of the Company, since January 1, 2013, no
product distributed or sold by the Company would have warranted legal action by any Governmental Authority
so that a product recall should have occurred or did, in fact occur.
Section 3.23No Other Representations or Warranties. Except for the representations and
warranties contained in this ARTICLE III (as modified by the Company Disclosure Schedule) and the
certificate to be delivered pursuant to Section 9.3(a) , neither the Company nor any other Person makes any
other express or implied representation or warranty with respect to the Company or the transactions
contemplated by this Agreement, and the Company disclaims any other representations or warranties, whether
made by the Company or any of its Affiliates, board members, officers, employees, agents or
representatives. Except for the representations and warranties contained in this ARTICLE III (as modified
by the Company Disclosure Schedule) and the certificate to be delivered pursuant to Section 9.3(a) , the
Company hereby disclaims all liability and responsibility for any representation, warranty, statement, or
information made, communicated, or furnished (orally or in writing) to Buyer or its Affiliates or representatives
(including any opinion, information, projection, or advice that may have been or may be provided to Buyer by
any board member, officer, employee, agent, consultant, or representative of the Company or any of its
Affiliates). The Company makes no representations or warranties to Buyer regarding any projection or forecast
regarding future results or activities or the probable success or profitability of the Company.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller hereby severally, and not jointly, represents and warrants to Buyer as follows:
Section 4.1Authority. Such Seller has the requisite individual or organizational power and authority,
as applicable, to enter into this Agreement, to perform its obligations hereunder and to consummate the
Purchase and Sale and the other transactions contemplated by this Agreement, including in the case of each
Seller who is individual, being of the age of consent. The execution and delivery of this Agreement by such
Seller, the performance by such Seller of its obligations hereunder, and the consummation by such Seller of the
Purchase and Sale and the other transactions contemplated by this Agreement, have been duly authorized by
such Seller, and no other individual or organizational action, as applicable, on the part of such
34
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Seller is necessary to authorize the execution and delivery of this Agreement by such Seller, the performance by
such Seller of its obligations hereunder or the consummation by such Seller of the Purchase and Sale and the
other transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
such Seller and, assuming due authorization, execution and delivery by the other parties to this Agreement, this
Agreement constitutes a legally valid and binding obligation of such Seller, enforceable against such Seller in
accordance with its terms, except as such enforceability may be subject to (a) the effect of any applicable Law
of general application relating to bankruptcy, reorganization, insolvency, moratorium or similar Laws affecting
creditors’ rights and relief of debtors generally and (b) the effect of rules of Law and general principles of
equity, including rules of Law and general principles of equity governing specific performance, injunctive relief
and other equitable remedies (regardless of whether such enforceability is considered in a proceeding in equity
or at Law).
Section 4.2Organization. Such Seller that is not an individual is a limited liability company, limited
partnership, other business organization or trust duly organized, validly existing and in good standing (to the
extent such concept is recognized) under the Laws of the jurisdiction of its organization and has the requisite
power and authority to own, operate or lease the properties and assets now owned, operated or leased by it, and
to carry on its business in all material respects.
Section 4.3Conflicts. The execution and delivery of this Agreement by such Seller, the performance
by such Seller of its obligations hereunder, and the consummation by such Seller of the Purchase and Sale and
the other transactions contemplated by this Agreement, does not and will not (a) in the case of a Seller that is
not an individual, conflict with or result in a violation of the organizational documents of such Seller; (b)
conflict with or result in a violation of any Governmental Order or Law applicable to such Seller or its assets or
properties, except for such conflicts or violations which would not prevent the consummation of the transactions
contemplated by this Agreement; or (c) result in a material breach of, or constitute a material default (or event
which with the giving of notice or lapse of time, or both, would become a material default) under, or give rise to
any rights of termination, amendment, modification, acceleration or cancellation of or loss of any benefit under,
or result in the creation of any Encumbrance on any of the assets or properties of such Seller pursuant to, any
Contract to which such Seller is a party, or by which any of the assets or properties of such Seller are bound or
affected, except for such breaches or defaults which would not prevent the consummation of the transactions
contemplated by this Agreement.
Section 4.4Consents, Approvals, Etc. No consent, waiver, approval, authorization, order or permit
of, or declaration, filing or registration with, or notification to, any Governmental Authority is required to be
made or obtained by such Seller in connection with the execution and delivery of this Agreement by such
Seller, the performance by such Seller of its obligations hereunder, or the consummation by such Seller of the
transactions contemplated by this Agreement, except: (a) applicable requirements, if any, under the Act, federal
or state securities or “blue sky” Laws; (b) such filings as may be required under the HSR Act; and (c) where the
failure to obtain such consent, waiver, approval, authorization, order or permit, or to make such
35
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
declaration, filing, registrations or notification would not, when taken together with all other such failures by
such Seller, have a material adverse effect on the ability of such Seller to perform its obligations under this
Agreement or consummate the transactions contemplated by this Agreement.
Section 4.5Ownership. Such Seller has good and valid title to the Shares set forth next to its name on
Schedule 2.1 , free and clear of all Encumbrances and any other restrictions on transfer (other than
Encumbrances set forth under the Company Organizational Documents, Encumbrances or restrictions that shall
be released, waived or otherwise terminated in connection with the Closing and any restrictions under the
Securities Act of 1933, as amended, and state securities laws). Such Seller is not a party to any option, warrant,
right, contract, call, pledge, put or other agreement or commitment providing for the disposition or acquisition
of such Seller’s Shares.
Section 4.6No Other Representations or Warranties. Except for the representations and warranties
contained in this ARTICLE IV and the certificate to be delivered pursuant to Section 9.3(a) , none of the
Sellers nor any other Person makes any other express or implied representation or warranty with respect to such
Seller or the transactions contemplated by this Agreement, and such Seller disclaims any other representations
or warranties, whether made by another Seller or any of its Affiliates, officers, board members, employees,
agents or representatives. Except for the representations and warranties contained in ARTICLE IV and the
certificate to be delivered pursuant to Section 9.3(a) , such Seller hereby disclaims all liability and
responsibility for any representation, warranty, statement, or information made, communicated, or furnished
(orally or in writing) to Buyer or its Affiliates or representatives (including any opinion, information, projection,
or advice that may have been or may be provided to Buyer by any board member, officer, employee, agent,
consultant, or representative of the Company or any of its Affiliates).
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR
Buyer hereby represents and warrants to the Company as follows:
Section 5.1Authority. Buyer and Guarantor have the requisite power and authority to enter into this
Agreement, to perform their obligations hereunder and to consummate the Purchase and Sale and the other
transactions contemplated by this Agreement. The execution and delivery of this Agreement by Buyer and
Guarantor, the performance by Buyer and Guarantor of their obligations hereunder, and the consummation by
Buyer and Guarantor of the Purchase and Sale and the other transactions contemplated by this Agreement, have
been duly authorized by the board of directors of Guarantor, and equivalent body of Buyer, and no other action
on the part of Buyer or Guarantor is necessary to authorize the execution and delivery of this Agreement by
Buyer and Guarantor, the performance by Buyer and Guarantor of their obligations hereunder or the
consummation by Buyer and Guarantor of the Purchase and Sale and the other transactions contemplated by this
Agreement. This Agreement has been duly
36
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
executed and delivered by Buyer and Guarantor and, assuming due authorization, execution and delivery by the
other parties to this Agreement, this Agreement constitutes a legally valid and binding obligation of Buyer and
Guarantor, enforceable against Buyer and Guarantor in accordance with its terms, except as such enforceability
may be subject to (a) the effect of any applicable Law of general application relating to bankruptcy,
reorganization, insolvency, moratorium or similar Laws affecting creditors’ rights and relief of debtors
generally and (b) the effect of rules of Law and general principles of equity, including rules of Law and general
principles of equity governing specific performance, injunctive relief and other equitable remedies (regardless
of whether such enforceability is considered in a proceeding in equity or at Law).
Section 5.2Organization. Buyer and Guarantor are duly organized, validly existing and in good
standing under the Laws of the jurisdictions in which they are organized, and have the requisite power and
authority to own, operate or lease the properties and assets now owned, operated or leased by them, and to carry
on their businesses in all material respects as currently conducted. Buyer and Guarantor are duly qualified to do
business and are in good standing (to the extent such concept is recognized), under the Laws of each jurisdiction
in which the character of their properties owned, operated or leased, or the nature of their activities, makes such
qualification necessary, except in those jurisdictions where the failure to be so qualified or in good standing,
when taken together with all other failures by Buyer or Guarantor, as applicable, to be so qualified or in good
standing, would not have a material adverse effect on the ability of Buyer and Guarantor to perform its
obligations under this Agreement or consummate the transactions contemplated by this Agreement.
Section 5.3Conflicts. Assuming all consents, waivers, approvals, authorizations, orders, Permits,
declarations, filings, registrations and notifications and other actions set forth in Section 5.4 have been
obtained or made, the execution and delivery of this Agreement by Buyer and Guarantor, the performance by
Buyer and Guarantor of their obligations hereunder, and the consummation by Buyer and Guarantor of the
Purchase and Sale and the other transactions contemplated by this Agreement, does not and will not (a) conflict
with or result in a violation of the organizational documents of Buyer or Guarantor; (b) conflict with or result in
a violation of any Governmental Order or Law applicable to Buyer or Guarantor or their assets or properties; or
(c) result in a material breach of, or constitute a material default (or event which with the giving of notice or
lapse of time, or both, would become a material default) under, or give rise to any rights of termination,
amendment, modification, acceleration or cancellation of or loss of any material benefit under, or result in the
creation of any Encumbrance on any of the assets or properties of Buyer or Guarantor pursuant to, any Contract
to which Buyer or Guarantor is a party, or by which any of the assets or properties of Buyer or Guarantor is
bound or affected, except, in the case of clauses (b) and (c) of this Section 5.3 , as would not have a material
adverse effect on the ability of Buyer or Guarantor to perform its obligations under this Agreement or
consummate the transactions contemplated by this Agreement.
37
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 5.4Consents, Approvals, Etc. No consent, waiver, approval, authorization, order or Permit
of, or declaration, filing or registration with, or notification to, any Governmental Authority or third party is
required to be made or obtained by Buyer or Guarantor in connection with the execution and delivery of this
Agreement by Buyer and Guarantor, the performance by Buyer and Guarantor of their obligations hereunder, or
the consummation by Buyer and Guarantor of the Purchase and Sale and the other transactions contemplated by
this Agreement, except (a) applicable requirements, if any, under the Act, federal or state securities or “blue
sky” Laws; (b) such filings as may be required under the HSR Act; and (c) where the failure to obtain such
consent, approval, authorization or action, or to make such filing or notification would not, when taken together
with all other such failures by Buyer and Guarantor, have a material adverse effect on the ability of Buyer or
Guarantor to perform its obligations under this Agreement or consummate the transactions contemplated by this
Agreement.
Section 5.5Litigation and Governmental Orders. There are no Actions pending against Buyer,
Guarantor or any Subsidiaries of Buyer (“ Buyer Subsidiaries ”), or any of the assets or properties of Buyer,
Guarantor or any Buyer Subsidiaries, or any of the board members, managers or officers of Buyer, Guarantor or
any Buyer Subsidiaries in their capacity as board members, managers or officers of Buyer, Guarantor or any
Buyer Subsidiaries that would have a material adverse effect on the ability of Buyer or Guarantor to perform its
obligations under this Agreement or consummate the transactions contemplated by this Agreement. Buyer,
Guarantor and the Buyer Subsidiaries and their respective assets and properties are not subject to any material
Governmental Order that would prevent Buyer or Guarantor from performing its obligations under this
Agreement or consummating the Purchase and Sale and the other transactions contemplated by this Agreement.
Section 5.6Adequate Funds. Buyer and Guarantor will have currently available funds on hand as of
the Closing sufficient to satisfy its obligations set forth in this Agreement, including payment in full of the
Purchase Price and any amounts required to be paid by them or on their behalf pursuant to this Agreement.
Section 5.7Due Diligence Investigation. Buyer and Guarantor have had an opportunity to discuss the
business, management, operations and finances of the Company with their board members, managers, members,
officers, employees, agents, representatives and affiliates, and have had an opportunity to inspect the facilities
of the Company. Buyer and Guarantor have conducted their own independent investigation of the
Company. In making the decision to execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement, Buyer and Guarantor have relied solely upon the representations and
warranties of the Company set forth in ARTICLE III and of the Sellers set forth in ARTICLE IV (and
acknowledge that such representations and warranties are the only representations and warranties made by the
Company and any Seller, as the case may be) and have not relied upon any other information provided by, for
or on behalf of the Company or any Seller, or their respective agents or representatives, to Buyer or Guarantor
in connection with the transactions contemplated by this Agreement. Buyer and Guarantor have entered into
the transactions contemplated by this Agreement with the understanding, acknowledgement and agreement that
no representations or warranties, express or implied, are made with respect to any projection or forecast
regarding future results or activities or the probable success or profitability of the Company.
38
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 5.8Brokers. Except for Deutsche Bank Securities, Inc. (the fees and expenses of which shall
be paid in full by Buyer), no broker, finder or investment banker is entitled to any brokerage, finder’s or other
fee or commission in connection with the transactions contemplated by this Agreement based upon any
arrangements made by or on behalf of Buyer, Guarantor or any of their respective Affiliates.
Section 5.9Investment Intent. Buyer is acquiring the Shares hereunder for its own account for
investment, without a view to resale or distribution thereof in violation of federal or state securities Laws and
with no present intention of distributing or reselling any part thereof. Buyer will not so distribute or resell any
such Share in violation of any such Law.
Section 5.10No Other Representations or Warranties. Except for the representations and
warranties contained in this ARTICLE V and the certificate to be delivered pursuant to Section 9.2(a) ,
neither Buyer nor Guarantor nor any other Person makes any other express or implied representation or
warranty with respect to Buyer or Guarantor or the transactions contemplated by this Agreement, and Buyer and
Guarantor disclaim any other representations or warranties, whether made by Buyer, Guarantor or any of their
Affiliates, board members, officers, employees, agents or representatives. Except for the representations and
warranties contained in this ARTICLE V and the certificate to be delivered pursuant to Section 9.2(a) , Buyer
and Guarantor hereby disclaim all liability and responsibility for any representation, warranty, statement, or
information made, communicated, or furnished (orally or in writing) to the Company, the Sellers or their
Affiliates or representatives (including any opinion, information, projection, or advice that may have been or
may be provided to the Company or the Sellers by any board member, officer, employee, agent, consultant, or
representative of Buyer, Guarantor or any of their Affiliates).
ARTICLE VI.
COVENANTS OF THE COMPANY AND THE SELLERS
Section 6.1No Solicitation. During the period commencing with the execution and delivery of this
Agreement and terminating upon the earlier to occur of the Closing and the termination of this Agreement
pursuant to and in accordance with Section 10.1 (the “ Pre-Closing Period ”), the Sellers and the Company
shall not, and shall direct each of the board members, officers, affiliates, shareholders and employees of the
Company and any investment banker, attorney or other advisor or representative retained by the Company (all
of the foregoing collectively being the “ Company Representatives ”) not to, directly or indirectly, (a) solicit,
initiate, seek, encourage, facilitate, support or induce the making, submission or announcement of any inquiry,
expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an
Acquisition Proposal, (b) enter into, participate in, maintain or continue any negotiations regarding, or deliver
or make available to any Person any non-public information with respect to, or take any other action regarding,
any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead
to, an Acquisition Proposal, (c) agree to, accept, approve, endorse or recommend any Acquisition Proposal; or
(d) enter into any letter of intent or any other Contract contemplating or otherwise
39
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
relating to any Acquisition Proposal. The Sellers and the Company shall immediately cease and cause to be
terminated any and all existing activities, discussions or negotiations with any Persons conducted prior to or on
the date of this Agreement with respect to any Acquisition Proposal.
Section 6.2Conduct of the Company Prior to the Closing.
(a)Conduct of the Company Generally. Unless Buyer otherwise consents in writing (which consent
shall not be unreasonably withheld, conditioned or delayed) and except as otherwise contemplated or permitted
by this Agreement, required by applicable Law or as set forth on Schedule 6.2(a) attached hereto, during the
Pre-Closing Period, the Company (i) shall conduct its business in the ordinary course consistent with past
practice, (ii) shall use commercially reasonable efforts to preserve intact its business and keep available the
services of its current officers and its workforce and (iii) shall use commercially reasonable efforts to maintain
its relationships with customers, suppliers, licensors, licensees and distributors; provided, however, neither
Sellers nor the Company shall be in breach of this subsection (iii) to the extent that such relationships are
harmed, disrupted or otherwise affected by the execution, delivery, public announcement or pendency of this
Agreement or any of the transactions contemplated herein.
(b)Specific Limitations on the Conduct of the Company. Except as otherwise contemplated or
permitted by this Agreement, required by applicable Law or as set forth on Schedule 6.2(b) attached hereto,
during the Pre-Closing Period, the Company shall not do or cause to be done any of the following without the
prior written consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed):
(i)issue, deliver, sell or grant (A) any shares of capital stock or other equity interests of the Company,
except upon the exercise of warrants, options, rights, agreements, convertible or exchangeable securities or
other commitments outstanding on the date of this Agreement, (B) any warrants, options, rights, convertible or
exchangeable securities (C) any “phantom” stock, “phantom” stock rights, stock appreciation rights or
stock-based performance units or (D) other commitments obligating the Company to issue, sell, purchase,
return or redeem any shares of capital stock or other equity interests of the Company;
(ii)except in the ordinary course of business consistent with past practice, create any Encumbrance on
any assets or properties (whether tangible or intangible) of the Company, other than (A) Permitted
Encumbrances; and (B) Encumbrances on assets or properties having an aggregate value not in excess of
$100,000;
(iii)sell, assign, transfer, lease, license or otherwise dispose of, or agree to sell, assign, transfer, lease,
license or otherwise dispose of, any of the assets of the Company, except for sales of inventory, components
or supplies in the ordinary course of business consistent with past practice;
40
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(iv)license, grant any rights to or transfer any of the Company Owned IP, other than non-exclusive
grants of licenses in the ordinary course of business consistent with past practice;
(v)abandon, cancel, let lapse, fail to renew, fail to continue to prosecute, protect or defend or
otherwise dispose of any of the Company Registered IP other than in the ordinary course of business
consistent with past practice;
(vi)acquire (by merger, consolidation or combination, or acquisition of stock or assets) any Person or
division, or business of or equity interest in any Person, except for purchases of inventory, components or
supplies in the ordinary course of business consistent with past practice;
(vii)(A) grant to any Company Employee or director of the Company any increase in compensation,
including, without limitation, bonus opportunity, except to the extent required under employment agreements
in effect as of the date hereof or applicable Law, other than in the ordinary course of business consistent with
past practice and excluding any Closing Employee Payments, (B) grant to any Company Employee or director
of the Company any increase in severance or termination pay, except to the extent required under any
agreement in effect as of the date hereof or applicable Law, (C) enter into or amend any employment,
consulting, indemnification, severance or termination agreement with any Person, (D) establish, adopt, enter
into or amend in any material respect any collective bargaining agreement or Company Benefit Plan other
than renewals and extensions of existing benefits in the ordinary course of business solely with respect to
Company Benefit Plans, or (E) take any action to accelerate any rights or benefits, or make any determinations
not in the ordinary course of business consistent with past practice, under any collective bargaining agreement
or Company Benefit Plan;
(viii)except as set forth on Schedule 6.2(b) attached hereto, make, authorize or enter into
commitments to make capital expenditures in an amount that, when added to all other capital expenditures
made during the Pre-Closing Period on behalf of the Company and not identified on Schedule 6.2(b) attached
hereto, would exceed $200,000;
(ix)adopt or materially change any method of financial or Tax accounting or financial or Tax
accounting practice used by the Company, other than as required by GAAP or Tax Law, as applicable, or
make or change any material Tax election;
(x)make, change or rescind any election in respect of Taxes, file any Income Tax Return (without
prior opportunity for Buyer to review and approve which approval shall not be unreasonably witheld,
conditioned or delayed) or any amendment to an Income Tax Return (without prior opportunity for Buyer to
review and approve which approval shall not be unreasonably witheld, conditioned or delayed), enter into any
“closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of Income
Tax Law), settle any claim or assessment in respect of any amount of Taxes, or consent to any extension or
waiver of the limitation period applicable to any
41
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
claim or assessment in respect of Taxes, in each case, to the extent any such action would increase Buyer’s or
any Affiliate of Buyer’s liability for Taxes in Post-Closing Tax Periods;
(xi)amend the Company Organizational Documents;
(xii)declare, set aside or pay any dividend or other distribution or capital return in respect of any
shares of capital stock or other equity interests of the Company, or redeem, repurchase or otherwise acquire
any shares of capital stock or other equity interests of the Company;
(xiii)(A) incur any Debt, issue or sell any debt securities or warrants or other rights to acquire any
debt securities of the Company, guarantee any debt securities of another Person, enter into any “keep well” or
other agreement to maintain any financial statement condition of another Person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice or (B) make any loans, advances or capital contributions to, or
investments in, any other Person;
(xiv)(A) cancel any material Debt (individually or in the aggregate) or waive any claims or rights or
(B) waive any material benefits of, or agree to modify in any material manner, any confidentiality, standstill or
similar agreement to which the Company is a party;
(xv)enter into any non-compete, exclusivity or similar agreement that would restrict or limit the
operations of the Company, or, after the Closing, of Buyer and its Affiliates;
(xvi)settle or compromise any material litigation, or waive, release or assign any material claims;
(xvii)engage in (A) any forward selling or acceleration of customer orders or Contracts, (B) any
deferral in paying payables, (C) any deferral in making capital expenditures that are necessary to maintain the
fixed assets of the Company in the ordinary course of business consistent with past practice, (D) any delay in
capital projects that are necessary to maintain the fixed assets of the Company in the ordinary course of
business consistent with past practice, (E) any grant of any discount to customers or any other change in the
terms of conditions of sale or purchase (including, without limitation, payment and delivery terms) or (F) any
other changes not covered by (A) through (E) above which are intended to materially increase the current
income and cash collection of the Company prior to the Closing Date, except in each of (A) through (E) any
actions in the ordinary course of business consistent with past practice;
(xviii)fail to maintain insurance coverage at commercially reasonable levels; or
42
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(xix)enter into any agreement to take, or cause to be taken, any of the actions set forth in this
Section 6.2(b) .
Section 6.3Access to Information. Subject to the terms of the Confidentiality Agreement, during the
Pre-Closing Period, upon reasonable notice and during normal business hours, the Company shall, and shall
cause each Company Representative to, (a) afford the officers, employees and authorized agents and
representatives of Buyer reasonable access to the offices, properties, books and records of the Company and (b)
furnish to the officers, employees and authorized agents and representatives of Buyer such additional financial
and operating data and other information regarding the assets, properties and business of the Company as Buyer
may from time to time reasonably request in order to assist Buyer in fulfilling its obligations under this
Agreement and to facilitate the consummation of the transactions contemplated by this Agreement; provided ,
however , that such access and requests do not unreasonably interfere with any of the operations or business
activities of the Company. Notwithstanding the foregoing, the Company shall not be required to provide access
to or disclose information where such access or disclosure would waive the attorney-client, work product or any
similar legal privilege of the Company or contravene any Law or binding agreement entered into prior to the
date of this Agreement; provided that the Company shall (i) notify Buyer that the information is reasonably
likely to violate the Company’s obligations under any such Law or agreement or is reasonably likely to cause
such privilege to be undermined and (ii) the Company shall cooperate with Buyer in seeking to find a way to
allow disclosure of such information (including by entering into a joint-defense or similar agreement) including
through the use of customer “clean-room” arrangements pursuant to which appropriately designated
representatives of Buyer shall be provided access to such information. Any information furnished to or
otherwise obtained by Buyer or its officers, employees and authorized agents and representatives pursuant to
this Section 6.3 shall be subject to the terms of the Confidentiality Agreement.
Section 6.4Stock Options.
(a)Not later than thirty (30) days after the date hereof, and no less than two (2) Business Days before
the Closing Date, the Company shall use its commercially reasonable efforts to enter into, and provide Buyer a
true, correct and complete copy of, a Contract with each Optionholder in substantially the form attached hereto
as Exhibit B (the “ Optionholder Pay-Off Agreements ”).
(b)By not later than the Closing, the Company shall terminate all Stock Options pursuant to the
Optionholder Pay-Off Agreements and/or the applicable Company Benefit Plan.
Section 6.5Termination of Certain Agreements. Prior to the Closing Date, the Company shall take
all actions necessary to terminate as of the Closing Date, and shall cause to be terminated as of the Closing
Date, the Contracts listed on Schedule 9.3(g) attached hereto.
Section 6.6Parachute Payments. The Company shall seek to obtain shareholder approval pursuant to
Code Section 280G(b)(5) and the Treasury Regulations thereunder of any payment that would otherwise be an
“excess parachute payment.”
43
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 6.7Update to Schedule. At least two (2) Business Days prior to the Closing Date, the
Company shall provide to Buyer an updated Schedule 1.1(c) (Company Transaction Expenses Tax Benefit),
which shall take into account any amounts that are determined not to be deductible by the Company under Code
Section 280G(a) due to any failure of the shareholders to approve such amounts in accordance with Code
Section 280G(b)(5).
Section 6.8Directors’ and Officers’ Insurance. At or prior to the Closing, the Company shall
purchase (as a Company Transaction Expense) a prepaid directors’ and officers’ liability insurance policy or
policies ( i.e. , “tail coverage”) which policy or policies provide those persons who are currently covered by the
Company’s directors’ and officers’ liability insurance policy.
ARTICLE VII.
COVENANTS OF BUYER AND GUARANTOR
Section 7.1Indemnification.
(a)Indemnification of Directors and Officers. For a period of six (6) years after the Closing, Buyer
shall, and shall cause the Company to, (i) indemnify and hold harmless each present and former board member
and officer of the Company (collectively, the “ Company Indemnified Parties ”), against any and all Losses
incurred or suffered by any of the Company Indemnified Parties in connection with any Liabilities or any
Action, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or
occurring at or prior to the Closing, whether asserted or claimed prior to, at or after the Closing, to the fullest
extent that the Company would have been permitted under applicable Law and under the Company
Organizational Documents or any individual indemnity agreements, as the case may be, in each case as in effect
on the date of this Agreement, to indemnify such Company Indemnified Parties and (ii) advance expenses as
incurred by any Company Indemnified Party in connection with any matters for which such Company
Indemnified Party is entitled to indemnification from Buyer pursuant to this Section 7.1(a) to the fullest
extent permitted under applicable Law or, if greater, under the Company Organizational Documents or any
individual indemnity agreements; provided , however , that the Company Indemnified Party to whom
expenses are advanced provides an undertaking to repay such advances if it is ultimately and finally determined
by a court of competent jurisdiction and all rights of appeal have lapsed that such Company Indemnified Party
is not entitled to indemnification under applicable Law, the Company Organizational Documents, and pursuant
to this Section 7.1(a) .
(b)Third-Party Beneficiaries. The terms and provisions of this Section 7.1 are intended to be in
addition to the rights otherwise available to the Company Indemnified Parties by applicable Law, charter, bylaw
or agreement, and shall operate for the benefit of, and shall be enforceable by, the Company Indemnified Parties
and their respective heirs and representatives, each of whom is an intended third party beneficiary of this
Section 7.1 .
44
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(c)Successors and Assigns. In the event Buyer 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, Buyer shall cause such successors and assigns to
assume the obligations set forth in this Section 7.1 .
Section 7.2Confidentiality. Each of Buyer and Guarantor hereby agrees to be bound by and comply
with the terms of the Confidentiality Agreement, which are hereby incorporated into this Agreement by
reference and shall continue in full force and effect until the Closing, such that the information obtained by
Buyer, or its respective officers, employees, agents or representatives, during any investigation conducted
pursuant to Section 6.3 , or in connection with the negotiation and execution of this Agreement or the
consummation of the transactions contemplated by this Agreement, or otherwise, shall be governed by the terms
of the Confidentiality Agreement.
Section 7.3R&W Insurance. Buyer agrees to not seek to make, enter into or consent to, any
amendment to the R&W Insurance following the Closing without the Shareholders’ Representative’s prior
written consent, which consent shall not be unreasonably withheld, conditioned or delayed, except for ordinary
course amendments that do not adversely affect Sellers’ rights under this Agreement.
ARTICLE VIII.
COVENANTS OF THE COMPANY, THE SELLERS AND BUYER
Section 8.1Efforts; Consents; Regulatory and Other Authorizations.
(a)Each party to this Agreement shall use its commercially reasonable efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to promptly satisfy the conditions set forth in ARTICLE IX and to consummate
and make effective the Purchase and Sale and the other transactions contemplated by this Agreement; (ii) obtain
all authorizations, consents, orders and approvals of, and give all notices to and make all filings with, all
Governmental Authorities and other third parties that may be or become necessary for the performance of its
obligations under this Agreement and the consummation of the transactions contemplated by this Agreement;
and (iii) fulfill all conditions to such party’s obligations under this Agreement. Each party to this Agreement
shall cooperate fully with the other parties to this Agreement in promptly seeking to obtain all such
authorizations, consents, orders and approvals, giving such notices, and making such filings. Each party shall
use its commercially reasonable efforts to oppose any Governmental Order contemplated by this Section
8.1(a) or to have any Governmental Order contemplated by this Section 8.1(a) vacated or made inapplicable
to the transactions contemplated by this Agreement. Notwithstanding the foregoing or anything to the contrary
set forth in this Agreement (except as set forth in subsection (b) below), in connection with obtaining such
consents from third parties, no party to this Agreement shall be required to
45
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
make payments, commence litigation or agree to modifications of the terms and conditions of any agreements
with third parties. The parties to this Agreement shall not take any action that is reasonably likely to have the
effect of unreasonably delaying, impairing or impeding the receipt of any required authorizations, consents,
orders or approvals.
(b)In furtherance and not in limitation of the terms of Section 8.1(a), to the extent required by
applicable Law, each of Buyer and the Company shall file, or cause to be filed, a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated by this Agreement within ten (10)
Business Days of the date of this Agreement (including, in the case of Buyer, a request for early termination of
the applicable waiting period under the HSR Act), shall supply promptly any additional information and
documentary material that may be requested by any Governmental Authority (including the Antitrust Division
of the United States Department of Justice and the United States Federal Trade Commission) pursuant to the
HSR Act, and shall cooperate in connection with any filing under applicable antitrust Laws and in connection
with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement
commenced by any Governmental Authority, including the United States Federal Trade Commission, the
Antitrust Division of the United States Department of Justice, or the office of any U.S. state attorney
general. Each Party will, and will cause its Affiliates to, use their commercially reasonable efforts to cause the
waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of such
filings. In furtherance and not in limitation of the foregoing, Buyer and the Company shall use commercially
reasonable efforts to obtain the necessary regulatory approvals as soon as practicable and will cooperate fully
with the other parties hereto in promptly seeking all regulatory approvals necessary to close the transactions
contemplated by this Agreement, including but not limited to responding to or otherwise providing information
in response to a Request for Additional Information and Documentary Material issued under the HSR Act;
provided that Buyer will not be required to agree, and the Sellers and the Company will not agree without
Buyer’s consent, to waive any rights to or accept any limitation on its operations that would reasonably be
expected to have an adverse effect on the business, assets, results of operations or financial condition of the
Company, Buyer or any Affiliate of Buyer or to dispose of any assets in connection with obtaining any such
consent or authorization.
(c)Subject to applicable Laws (i) the parties shall keep one another promptly apprised of the status of
any proceeding under the HSR Act or other Antitrust Law relating to the Agreement, including any discussion
or decision by Buyer to pull and refile the HSR; (ii) each party shall promptly notify each other of all
communications, inquiries or requests for additional information received from a Governmental Authority
(including the Antitrust Division of the United States Department of Justice and the United States Federal Trade
Commission) relating to the Agreement; (iii) to the extent practicable each party shall give all other parties
advance notice of, and a meaningful opportunity to review, to the extent lawfully permitted, all
communications, filings, or other submissions to a Governmental Authority (including the Antitrust Division of
the United States Department of Justice and the United States Federal Trade Commission) under the HSR Act
or any other applicable Antitrust Law; and (iv) no party to this Agreement shall agree to participate in any
meeting or conference with any Governmental Authority (including the Antitrust Division of the United States
Department of Justice and the United States Federal
46
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Trade Commission) in respect of any filings, investigation or other inquiry unless it consults with the other
parties in advance and, to the extent permitted by such Governmental Authority, gives the other parties the
opportunity to attend and participate at such meeting or conference.
Section 8.2Further Action. Subject to the terms and conditions provided in this Agreement, each of
the parties to this Agreement shall use its commercially reasonable efforts to deliver, or cause to be delivered,
such further certificates, instruments and other documents, and to take, or cause to be taken, such further
actions, as may be necessary, proper or advisable under applicable Law to consummate and make effective the
transactions contemplated by this Agreement.
ARTICLE IX.
CONDITIONS TO CLOSING
Section 9.1Conditions to Obligations of All Parties. The obligations of the Company, the Sellers
and Buyer to consummate the Purchase and Sale and the other transactions contemplated by this Agreement
shall be subject to the satisfaction, fulfillment or written waiver by each such Party, at or prior to the Closing, of
each of the following conditions:
(a)No Governmental Order. No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Governmental Order which is in effect and has the effect of making illegal or otherwise
restraining or prohibiting the consummation of the Purchase and Sale or the other transactions contemplated by
this Agreement.
(b)HSR Act. The waiting period under the HSR Act, if applicable, shall have expired or been
terminated.
Section 9.2Conditions to Obligations of the Sellers. The obligations of the Sellers to consummate
the Purchase and Sale and the other transactions contemplated by this Agreement shall be subject to the
satisfaction, fulfillment or written waiver by the Shareholders’ Representative, at or prior to the Closing, of each
of the following conditions:
(a)Representations and Warranties; Covenants. (i) The representations and warranties of Buyer and
Guarantor set forth in ARTICLE V shall be true and correct in all respects (giving effect to any limitation as
to “materiality” or “material adverse effect” set forth therein), in each case at and as of the date of this
Agreement and as of the Closing Date (except that those representations and warranties that are made as of a
specific date need only be so true and correct as of such date), in each case, except where the failure of such
representations and warranties to be true and correct has not had, individually or in the aggregate, a material
adverse effect on the ability of Buyer to consummate the transactions contemplated hereby; (ii) the covenants
and agreements set forth in this Agreement to be performed or complied with by Buyer at or prior to the Closing
shall have been performed or complied with in all material respects; and (iii) the Sellers shall have received an
officer’s certificate of Buyer, dated as of the Closing Date, certifying as to the matters set forth in clauses (i) and
(ii) of this Section 9.2(a) .
47
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(b)Closing Date Payment. Buyer shall have delivered the Closing Date Payments in accordance with
Section 2.3 .
(c)Escrow Agreement. Buyer and the Escrow Agent shall have executed and delivered the Escrow
Agreement.
Section 9.3Conditions to Obligations of Buyer. The obligations of Buyer to consummate the
Purchase and Sale and the other transactions contemplated by this Agreement shall be subject to the
satisfaction, fulfillment or written waiver by Buyer, at or prior to the Closing, of each of the following
conditions:
(a)Representations and Warranties; Covenants. (i) The representations and warranties of the Company
set forth in ARTICLE III and the Sellers set forth in ARTICLE IV shall be true and correct in all respects
at and as of the date of this Agreement and as of the Closing Date (except that those representations and
warranties that are made as of a specific date need only be so true and correct in all respects as of such date),
except where the failure of such representations and warranties to be true and correct (without giving effect to
any limitation as to “materiality” or “Material Adverse Effect” set forth therein) has not had, individually or in
the aggregate, a Material Adverse Effect; (ii) the covenants and agreements set forth in this Agreement to be
performed or complied with by the Company and the Sellers at or prior to the Closing shall have been
performed or complied with in all material respects; and (iii) Buyer shall have received an officer’s certificate
of the Company, dated as of the Closing Date, certifying as to the matters set forth in clauses (i) and (ii) of this
Section 9.3(a) .
(b)Stock Certificates. Each Seller shall have delivered a stock power or assignment separate from the
certificate for such Seller’s Shares, executed by such Seller.
(c)Resignations. The Company shall have delivered a resignation from each director and each officer
of the Company set forth on Schedule 9.3(c) attached hereto.
(d)Escrow Agreement. The Shareholders’ Representative and the Escrow Agent shall have executed
and delivered the Escrow Agreement.
(e)Payoff Letter. The Company shall provide to Buyer a duly executed payoff letter with respect to
the Closing Debt set forth in Schedule 1.1(a) .
(f)FIRPTA Certificates. Each Seller shall deliver to Buyer a certification of non-foreign status, dated
as of the Closing Date and in form and substance required under Treasury Regulations Section 1.1445-2(b)(2)
so that Buyer is exempt from withholding any portion of the Purchase Price thereunder.
(g)Termination of Certain Agreements. The Company shall provide to Buyer a duly executed
termination agreement for each of the Contracts listed on Schedule 9.3(g) .
48
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(h)Termination of all Options. The Company shall provide to Buyer evidence of the termination of all
outstanding stock options in accordance with the applicable Company Benefit Plan.
(i)Consents. The Company shall provide to Buyer a duly executed written consent to the
consummation of the transactions contemplated by this Agreement from each of the counterparties to the
Contracts set forth on Schedule 9.3(i) .
(j)No Material Adverse Effect. There shall not have been or occurred any change or effect that,
individually or in the aggregate with any other change or fact, has or which could reasonably be expected to
have, a Material Adverse Effect.
(k)IRS Form W-9. Each Seller shall deliver to Buyer a duly executed IRS Form W‑9.
ARTICLE X.
TERMINATION
Section 10.1Termination. This Agreement may be terminated at any time prior to the Closing:
(a)by the mutual written consent of the Company, Buyer and the Sellers;
(b)by either Buyer or the Company by written notice to the other party if any Governmental Authority
with jurisdiction over such matters shall have issued a final, non-appealable Governmental Order permanently
restraining, enjoining or otherwise prohibiting the consummation of the Purchase and Sale or any of the other
transactions contemplated by this Agreement;
(c)by either Buyer or the Company by written notice to the other party if the transactions contemplated
by this Agreement shall not have been consummated on or before the close of business on (i) the date that is
ninety (90) days from the Effective Date or (ii) December 31, 2015, upon the request by either Buyer or the
Company, provided that all conditions to Closing in ARTICLE IX of the party requesting the extension
are satisfied other than (A) the condition set forth in Section 9.1(b) (HSR) and (B) those conditions that by
their nature can only be satisfied at Closing (the “ Outside Date ”), unless the failure to consummate the
transactions contemplated by this Agreement on or prior to the Outside Date is the result of any material breach
of this Agreement by the party seeking to terminate;
(d)by the Company, upon a breach of any representation, warranty, covenant or agreement on the part
of Buyer set forth in this Agreement, or if any representation or warranty of Buyer shall have become untrue, in
either case such that the conditions set forth in Section 9.2(a) would not be satisfied as of the time of such
breach or as of the time such representation or warranty shall have become untrue, provided that prior to any
termination of this Agreement under this Section 10.1(d) , Buyer shall be entitled to cure any such breach
49
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
capable of being cured during a thirty (30) day period following receipt of written notice from the Company to
Buyer of such breach (it being understood that the Company may not terminate this Agreement pursuant to this
Section 10.1(d) if the Sellers or the Company shall have materially breached this Agreement or if such breach
by Buyer is cured during such thirty (30) day period so that such conditions would then be satisfied); or
(e)by Buyer, upon a breach of any representation, warranty, covenant or agreement on the part of the
Company or the Sellers set forth in this Agreement, or if any representation or warranty of the Company or the
Sellers shall have become untrue, in either case such that the conditions set forth in Section 9.3(a) would not
be satisfied as of the time of such breach or as of the time such representation or warranty shall have become
untrue, provided that prior to any termination of this Agreement under this Section 10.1(e) , the Company
and the Sellers shall be entitled to cure any such breach capable of being cured during a thirty (30) day period
following receipt of written notice from Buyer to the Company and the Sellers of such breach (it being
understood that Buyer may not terminate this Agreement pursuant to this Section 10.1(e) if it shall have
materially breached this Agreement or if such breach by the Company or the Sellers is cured during such thirty
(30) day period so that such conditions would then be satisfied).
Section 10.2Buyer Termination Fee. If this Agreement is terminated pursuant to (a) Section
10.1(b) unless such Governmental Order in effect has been initiated by a third party pursuant to claims (i)
wholly unrelated to antitrust or other anti-competitive issues and not as a result of Buyer’s breach of this
Agreement or (ii) resulting from the Company’s breach of this Agreement, (b) Section 10.1(b) due to the
failure of the satisfaction of the condition set forth in Section 9.1(b) , (c) Section 10.1(c) due to the failure of
the satisfaction of the condition set forth in Section 9.1(b) , or (d) Section 10.1(d) , the parties agree that the
Company and the Sellers shall have suffered a loss and value to the Company of an incalculable nature and
amount, unrecoverable in law, and Buyer shall pay to Sellers a fee of $***** (the “ Buyer Termination Fee ”),
it being understood that in no event shall Buyer be required to pay the Buyer Termination Fee on more than one
occasion. The Buyer Termination Fee shall be paid in immediately available funds by wire transfer to the
Sellers no later than five (5) Business Days after such termination, with each Seller to receive an amount equal
to such Seller’s Pro Rata Portion of the Buyer Termination Fee.
Section 10.3Effect of Termination. In the event of termination of this Agreement and abandonment
of the transactions contemplated by this Agreement pursuant to and in accordance with Section 10.1 , this
Agreement shall forthwith become void and of no further force or effect whatsoever and there shall be no
liability on the part of any party to this Agreement; provided , however , that notwithstanding the foregoing,
nothing contained in this Agreement shall relieve any party to this Agreement from any liability resulting from
or arising out of any knowing, intentional and willful material breach of any agreement or covenant hereunder;
and provided , further , that notwithstanding the foregoing, (a) the terms of Section 7.2 , Section 10.2 , this
Section 10.3 and Article XIII shall remain in full force and effect and shall survive any termination of this
Agreement, whether in accordance with Section 10.1 or otherwise and (b) nothing herein shall relieve Buyer
from liability for any intentional breach of any provision of this Agreement which results in a termination by the
Company pursuant to Section 10.1 .
50
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
ARTICLE XI.
TAX MATTERS
Section 11.1Tax Returns. Buyer shall prepare, or cause to be prepared, and timely file or cause to be
timely filed, taking into account any applicable extensions, all Tax Returns of the Company required to be filed
after the Closing Date and Buyer shall timely pay or cause to be timely paid to the applicable Governmental
Authority all Taxes shown as due and owing on such Tax Returns. The Shareholders’ Representative, on behalf
of the Sellers, shall pay to Buyer an amount equal to any such Taxes that are attributable to a Pre-Closing Tax
Period (determined in the manner set forth in Section 11.2 ) within fifteen (15) days after receiving notice
from Buyer that such Taxes are due. Each such Tax Return shall, to the extent it relates to a Pre-Closing Tax
Period, be prepared in a manner consistent with past custom and practice. Buyer shall provide a copy of each
such Tax Return that relates in whole or in part to a Pre-Closing Tax Period, together with all supporting
documentation and workpapers, to the Shareholders’ Representative for review and approval at least thirty (30)
days prior to the due date (taking into account all applicable extensions) for filing such Tax Return, and Buyer
shall incorporate such comments and make such revisions to such Tax Returns as are reasonably requested by
the Shareholders’ Representative in writing at least fifteen (15) days prior to the due date (taking into account
all applicable extensions) for filing such Tax Return. For the avoidance of doubt, all deductions arising from
Company Transaction Expenses, the exercise of any Stock Option, the payment of the Special Employee
Bonuses, or from any other bonus or other compensation paid to any employee or independent contractor of the
Company in connection with the transactions contemplated by this Agreement shall be allocable to the
Pre-Closing Tax Period and shall not be allocable to any taxable period beginning after the Closing Date
pursuant to the “next day” rule under Treasury Regulations Section 1.1502-76(b)(1)(ii)(B) or pursuant to the
ratable allocation method under Treasury Regulations Section 1.1502-76(b)(2)(ii) or 1.1502-76(b)(2)(iii).
Section 11.2Straddle Period Allocation. In the case of any Straddle Period, the portion of Taxes
attributable to the Pre-Closing Tax Period of such Straddle Period shall be determined as follows: (a) the
amount of any Taxes based on or measured by income, gains, or receipts, or any Taxes other than Property
Taxes, attributable to the Pre-Closing Tax Period portion of such Straddle Period will be determined based on
an interim closing of the books as of the close of business on the Closing Date; and (b) the amount of any real
property, personal property, ad valorem or similar Taxes (“ Property Taxes ”) attributable to the Pre-Closing
Tax Period portion of such Straddle Period will be the total amount of such Property Taxes for the entire
Straddle Period multiplied by a fraction, (i) the numerator of which is the number of days in the Straddle Period
up to and including the Closing Date, and (ii) the denominator of which is the total number of days in such
Straddle Period.
51
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 11.3Amended Tax Returns. Notwithstanding any other provision in this Agreement, Buyer
shall not, and shall not cause or permit any of its Affiliates or the Company or any of the Company’s Affiliates
to, (a) amend any Tax Return of the Company that covers a Pre-Closing Tax Period or Straddle Period or (b)
make any Tax election with respect to the Company that has retroactive effect to any Pre-Closing Tax Period or
Straddle Period, in each case without the prior written consent of the Shareholders’ Representative, which
consent shall not be unreasonably withheld, conditioned or delayed.
Section 11.4Tax Refunds. The amount or economic benefit of any refund (whether in cash or as a
credit against or offset of Tax) of Taxes of or with respect to the Company in respect of a Pre-Closing Tax
Period or attributable to the Pre-Closing Tax Period portion of any Straddle Period shall be for the account of
the Sellers. Any such refund received by Buyer, the Company or any of their respective Affiliates (including
any interest received thereon) to the extent not taken into account as a Company Transaction Expense Tax
Benefit as set forth on Schedule 1.1(c) shall be paid by Buyer to the Shareholders’ Representative on behalf
of the Sellers within fifteen (15) days after any such refund is received, credited or applied as an offset, as the
case may be.
Section 11.5Audits. Buyer, at its expense, shall control all examinations, audits or other proceedings
with respect to the Taxes of the Company by any Governmental Authority; provided that the Shareholders’
Representative (on behalf of and at the expense of the Sellers) shall be entitled to participate in the conduct of
any such examination, audit or other proceeding and Buyer shall not settle or compromise any such
examination, audit or other proceeding without the prior written consent of the Shareholders’ Representative,
such consent not to be unreasonably withheld or delayed, to the extent that such audit, examination or other
proceeding relates to a Pre-Closing Tax Period or Straddle Period. The fees and expenses of the Shareholders’
Representative with respect to such examinations, audits or other proceedings provided for in this Section 11.5
on behalf of the Sellers shall be paid from the Shareholders’ Representative Expense Fund.
Section 11.6Cooperation; Tax Records. Buyer and the Sellers shall cooperate as and to the extent
reasonably requested by the other party in connection with the filing of Tax Returns and any examination, audit,
litigation or other proceeding with respect to Taxes. Buyer and the Sellers agree, upon request, to use their best
efforts to obtain any certificate or other document from any Governmental Authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby). The Company shall retain all books and records with
respect to Taxes attributable to any period (or portion thereof) on or prior to the Closing Date required to be
retained by it under Section 6001 of the Code and the Treasury Regulations thereunder or any comparable or
similar statute, law or regulation under federal, state, local or non-U.S. law until sixty (60) days after the
expiration of any applicable statute of limitations. The Company shall provide any Seller with access to any
such books and records reasonably required by such party for Tax purposes.
52
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
ARTICLE XII.
INDEMNIFICATION
Section 12.1Indemnification by the Sellers. Subject to the limitations set forth in this ARTICLE XII
, each Seller hereby covenants and agrees that to the fullest extent permitted by Law, such Seller will defend,
indemnify and hold harmless Buyer and its officers, directors, managers, employees, agents and Affiliates and
successors and assigns of the foregoing (collectively, the “ Buyer Indemnified Parties ”) for, from and against
any and all Losses actually sustained by any of such Persons following the Closing resulting from:
(a)any breach of a representation or warranty made by the Company in ARTICLE III;
(b)any breach of a representation or warranty made by such Seller in ARTICLE IV;
(c)(i) any Loss attributable to any breach of any covenant, agreement, undertaking or obligation in
ARTICLE XI ; (ii) all Taxes of the Company for all Pre-Closing Tax Periods; (iii) all Taxes of any member of
an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the
Company) is or was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation
Section 1.1502-6 or any comparable or similar Law; and (iv) any and all Taxes of any Person imposed on the
Company arising under the principles of transferee or successor liability or by Contract, relating to any event or
transaction occurring before the Closing Date. Notwithstanding anything herein to the contrary, any Loss in
respect of Taxes shall be limited to Taxes attributable to Pre-Closing Tax Periods;
(d)any breach by the Company or such Seller of any agreement or covenant made by the Company or
such Seller contained in this Agreement; and/or
(e)any claim by any Person for any brokerage or finder’s fee, commission or similar payment based
upon any agreement or understanding alleged to have been made by such Person with the Company or the
Sellers or representatives thereof in connection with this Agreement or any of the transactions contemplated
hereby.
Section 12.2Indemnification by Buyer. Subject to the limitations set forth in this ARTICLE XII,
Buyer hereby covenants and agrees that, to the fullest extent permitted by Law, it will defend, indemnify and
hold harmless the Company and the Sellers, and their respective officers, directors, managers, employees,
agents and Affiliates and successors and assigns of the foregoing (collectively, the “ Seller Indemnified Parties
”) for, from and against any and all Losses actually sustained by any of such Persons following the Closing
resulting from:
(a)any breach of a representation or warranty made by Buyer or Guarantor in ARTICLE V;
53
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(b)any breach by Buyer of any agreement or covenant made by Buyer contained in this Agreement;
(c)any claim by any Person for any brokerage or finder’s fee, commission or similar payment based
upon any agreement or understanding alleged to have been made by such Person with Buyer or any Affiliate or
representative thereof in connection with this Agreement or any of the transactions contemplated hereby; and/or
(d)(i) any Loss attributable to any breach of any covenant, agreement, undertaking or obligation in
ARTICLE XI ; (ii) all Taxes of the Company for all Post-Closing Tax Periods; (iii) all Taxes of any member of
an affiliated, consolidated, combined or unitary group of which the Company is a member after the Closing
Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable or similar Law; (iv)
any and all Taxes of any Person imposed on the Company arising by Contract relating to any event or
transaction occurring on or after the Closing Date; and (v) any transaction occurring on the Closing Date after
the Closing outside the ordinary course of business.
Section 12.3Notice and Opportunity to Defend.
(a)Notice of Asserted Liability. As soon as is reasonably practicable after a Buyer Indemnified Party
or Seller Indemnified Party (as applicable under the circumstances, the Buyer Indemnified Party or Seller
Indemnified Party, the “ Indemnified Party ”) becomes aware of any claim that it has under Section 12.1 or
Section 12.2 that may result in a Loss (a “ Liability Claim ”), it will give written notice thereof (a “ Claims
Notice ”) to either the Sellers through the Shareholders’ Representative or Buyer as may be applicable under the
circumstances (as applicable under the circumstances, the Sellers or Buyer, the “ Indemnifying Party ”). A
Claims Notice will describe the Liability Claim in reasonable detail, and will indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be suffered by the Indemnified Party. No
delay in or failure to give a Claims Notice by the Indemnified Party to the Indemnifying Party pursuant to this
Section 12.3(a) will adversely affect any of the other rights or remedies that the Indemnified Party has under
this Agreement, or alter or relieve the Indemnifying Party of its obligation to indemnify the Indemnified Party
to the extent that such delay or failure has not materially prejudiced the Indemnifying Party.
(b)Opportunity to Defend. The Indemnifying Party will have the right, exercisable by written notice to
the Indemnified Party within thirty (30) days of receipt of a Claims Notice from the Indemnified Party of the
commencement or assertion of any Liability Claim in respect of which indemnity may be sought hereunder, to
assume and conduct the defense of such Liability Claim in accordance with the limits set forth in this
Agreement with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified
Party; provided , however , that (i) the Liability Claim solely seeks (and continues to seek) monetary
damages and (ii) the Indemnifying Party expressly agrees in writing that as between the Indemnifying Party and
the Indemnified Party, the Indemnifying Party will be solely obligated to satisfy and discharge the Liability
Claim (as finally determined pursuant to the provisions of this Article XII ) in accordance with the limits set
forth in this Agreement (the conditions set forth in clauses (i) and
54
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(ii) are collectively referred to as the “Litigation Conditions”). If the Indemnifying Party does not assume the
defense of a Liability Claim in accordance with this Section 12.3(b) , the Indemnified Party may continue to
defend the Liability Claim. If the Indemnifying Party has assumed the defense of a Liability Claim as provided
in this Section 12.3(b) , the Indemnifying Party will not be liable for any legal expenses subsequently incurred
by the Indemnified Party in connection with the defense thereof; provided , however , that if (i) any of the
Litigation Conditions cease to be met, or (ii) the Indemnifying Party fails to take reasonable steps necessary to
defend diligently such Liability Claim, the Indemnified Party may assume its own defense, and the
Indemnifying Party will be liable for all reasonable costs or expenses paid or incurred in connection
therewith. The Indemnifying Party or the Indemnified Party, as the case may be, will have the right to
participate in (but not control), at its own expense, the defense of any Liability Claim which the other is
defending as provided in this Agreement. The Indemnifying Party, if it will have assumed the defense of any
Liability Claim as provided in this Agreement, will not, without the prior written consent of the Indemnified
Party, which shall not be unreasonably withheld, conditioned or delayed, consent to a settlement of, or the entry
of any judgment arising from, any such Liability Claim that (i) does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified Party a complete release from all liability
in respect of such Liability Claim or (ii) grants any injunctive or equitable relief. The Indemnified Party will
have the right to settle any Liability Claim, the defense of which has not been assumed by the Indemnifying
Party, in its discretion exercised in good faith and upon advice of counsel, either before or after the initiation of
litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided
that (x) at least ten (10) days prior to any such settlement, the Indemnifying Party has given its written consent
to such settlement and (y) the Liability Claim to be settled solely seeks monetary damages.
Section 12.4Survivability; Limitations.
(a)The representations and warranties of the Company and the Sellers contained in this Agreement
will survive for a period ending eighteen (18) months after the Closing Date and the obligations of Sellers to
indemnify the Buyer Indemnified Parties hereunder shall expire on the date that is eighteen (18) months after
the Closing Date except (i) the Fundamental Representations, the representations and warranties set forth in
Section 3.8 (Taxes), and Sellers’ obligations to indemnify the Buyer Indemnified Parties under Section
12.1(c) (Pre-Closing Taxes) and Section 12.1(e) (Brokers), shall expire sixty (60) days after the expiration
of the applicable statute of limitations, and (ii) a breach or violation of any representation and warranty of the
Company or Sellers contained in this Agreement as a result of actual fraud or willful misconduct by the
Company or the Sellers (“ Fraud Claims ”) shall not expire (each, an “ Expiration Date ”). Notwithstanding the
foregoing, any Liability Claim pending on any applicable Expiration Date for which a Claims Notice has been
given in accordance with Section 12.3 on or before such applicable Expiration Date may continue to be
asserted and indemnified against until finally resolved. All covenants and agreements contained herein which
by their terms are to be performed subsequent to the Closing Date shall survive the Closing in accordance with
their terms. All other covenants and agreements contained herein shall not survive the Closing and shall
thereupon terminate, and no Action for any breach thereof, or failure to perform any such covenant or
agreement, or to recover damages or losses in respect thereof, shall survive, or be available after, the Closing.
55
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(b)The Sellers will not have any liability for an individual claim or group of related claims with
respect to any Losses unless and until the amount of Losses that otherwise would be payable pursuant to Section
12.1(a) or Section 12.1(b) with respect to such claim or group of related claims exceeds $10,000 (the “ Mini
Basket ”) and then the Sellers will be liable only for the excess over the Mini-Basket, it being understood that
any such individual claims or group of related claims for amounts less than the Mini-Basket shall be ignored in
determining whether the Threshold Amount (as defined below) has been exceeded. The Sellers will not have
any liability for Losses arising under Section 12.1(a) , Section 12.1(b) or Section 12.1(c) unless and until
the aggregate of all such Losses for which indemnification is sought under Section 12.1(a) , Section 12.1(b)
and Section 12.1(c) exceeds $1,375,000 (the “ Threshold Amount ”), after which Buyer will be entitled to be
fully indemnified for all Losses under Section 12.1(a) , Section 12.1(b) and Section 12.1(c) exceeding the
Threshold Amount. Losses arising pursuant to (i) Section 12.1(a) with respect to a breach or violation of the
Fundamental Representations, (ii) Section 12.1(e) (Brokers), or (iii) any Fraud Claims (collectively, “
Excluded Claims ”) will not be subject to the Mini Basket or the Threshold Amount.
(c)Notwithstanding anything to the contrary contained in this ARTICLE XII, the Sellers will not have
any liability for any Losses to the extent that Losses for which indemnification is sought exceeds the amount
remaining in the Indemnity Escrow Fund and the Buyer Indemnified Parties’ sole and exclusive source of
indemnification shall be the Indemnity Escrow Fund, in each case except with respect to Losses arising
pursuant to (i) the Excluded Claims for which Sellers’ aggregate liability and obligation to indemnify the Buyer
Indemnified Parties shall be limited to the Purchase Price and (ii) ***** for which Sellers’ aggregate liability
and obligation
to indemnify the Buyer Indemnified Parties shall be limited to an amount equal to $***** minus the amount
remaining under the R&W Insurance for all claims thereunder (e.g. the insurance limit minus claims paid to
Buyer).
(d)Notwithstanding anything to the contrary contained in this ARTICLE XII, the Buyer Indemnified
Parties shall not be entitled to seek indemnification directly from any Seller, and no Seller shall have any
Liability to any Buyer Indemnified Party:
(i)unless and until (A) the Indemnity Escrow Fund has been depleted, and (B) such Buyer
Indemnified Party has exhausted its, or its Affiliate’s, rights and remedies to recover under the R&W
Insurance and for which Buyer shall have delivered to the Shareholders’ Representative copies of all notices
submitted and received by or on behalf of such Buyer Indemnified Party regarding any such claim submitted
under the R&W Insurance, including any final determinations regarding coverage for such claim, in each case
to be delivered promptly upon submission or receipt of such notice, as the case may be; provided , however
, that Buyer shall not be required to make claims for matters which are exclusions under the R&W Insurance,
and (C) with respect to *****, the aggregate insurance limit under the R&W Insurance has been reached for
all claims and the Buyer Indemnified Parties are not entitled to recover any amounts under such R&W
Insurance;
56
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(ii)in excess of such Seller’s Pro Rata Portion of the Losses subject to indemnification hereunder; or
(iii)for the indemnification obligations of any other Seller pursuant to Section 12.1(b).
(e)Each Indemnified Party will take and will cause their respective Affiliates to take all reasonable
steps to mitigate and otherwise minimize any Loss to the maximum extent reasonably possible upon and after
becoming aware of any event which would reasonably be expected to give rise to any Loss. The Indemnified
Party will use its commercially reasonable efforts to recover under any available insurance policies.
(f)For the purposes of calculating Losses, any materiality or Material Adverse Effect qualifications in
the representations, warranties, covenants and agreements will be disregarded.
Section 12.5Exclusive Remedy. Except (a) as may be required to enforce covenants or other
agreements contained in this Agreement through specific performance or injunctive relief, or (b) Fraud Claims,
the indemnification rights provided in this ARTICLE XII will be the sole and exclusive remedy available to
the parties hereto for any and all Losses related to a breach of any of the terms, conditions, covenants,
agreements, representations or warranties contained herein, or any right, claim or action arising from the
transactions contemplated hereby (and each party hereby waives and releases, to the fullest extent that it may do
so, any other right or remedy that may arise under any Law).
Section 12.6Treatment of Indemnification Payments. All indemnification and similar payments
made pursuant to this Agreement shall be treated for tax purposes as an adjustment to the Purchase Price, to the
extent permissible under applicable Tax Law.
ARTICLE XIII.
GENERAL PROVISIONS
Section 13.1Shareholders’ Representative.
(a)By virtue of the execution of this Agreement by the Sellers, and without further action of any Seller,
each Seller shall be deemed to have irrevocably constituted and appointed GSH (and by execution of this
Agreement it hereby accepts such appointment) as agent and attorney-in-fact (“ Shareholders’ Representative ”)
for and on behalf of the Sellers (in their capacity as shareholders of the Company), with full power of
substitution, to act in the name, place and stead of each Seller with respect to Section 2.4 and the Escrow
Agreement and the taking by the Shareholders’ Representative of any and all actions and the making of any
decisions required or permitted to be taken by the Shareholders’ Representative under Section 2.4 and the
Escrow Agreement (it being understood that the Sellers shall have no right to pursue any claim on behalf of any
Company Indemnified Party in respect of the rights granted to Company Indemnified Parties under Section 7.1
). The power of attorney granted in this
57
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 13.1(a) is coupled with an interest and is irrevocable, may be delegated by the Shareholders’
Representative and shall survive the sale, transfer, merger, reorganization, bankruptcy, liquidation, dissolution,
death or incapacity of each Seller. Such agency may be changed by the holders of a majority in interest of the
Escrow Fund from time to time (including in the event of the death, disability or other incapacity of a
Shareholders’ Representative that is an individual), and any such successor shall succeed the Shareholders’
Representative as Shareholders’ Representative hereunder. No bond shall be required of the Shareholders’
Representative, and the Shareholders’ Representative shall receive no compensation for its services. At any
time from the Closing Date until payment of any remaining amounts in the Shareholders’ Representative
Expense Fund in accordance with Section 2.4(c)(i) , the amount of documented costs and expenses (including
all fees and disbursements of counsel, financial advisors and accountants) incurred by the Shareholders’
Representative in connection with the performance of its rights or obligations under this Agreement and the
taking of any and all actions in connection therewith, shall be paid to the Shareholders’ Representative from the
Shareholders’ Representative Expense Fund. In connection with the performance of its rights and obligations
under this Agreement and the Escrow Agreement and the taking of any and all actions in connection therewith,
the Shareholders’ Representative shall not be required to expend any of the amounts held in the Shareholders’
Representative Expense Fund (though, for the avoidance of doubt, it may do so at any time and from time to
time in its sole discretion) and in no event shall the Shareholders’ Representative be required to incur any costs
or expenses or expend any amount in excess of amounts held in the Shareholders’ Representative Expense
Fund. Notwithstanding the foregoing, (i) the Shareholders’ Representative may retain in the Shareholders’
Representative Expense Fund, in accordance with the terms of this Agreement, any amount that the
Shareholders’ Representative deems in its reasonable discretion to be necessary to satisfy any documented costs
and expenses (including all fees and disbursements of counsel, financial advisors and accountants) incurred or
to be incurred by the Shareholders’ Representative in connection with the performance of its rights or
obligations under this Agreement and the Escrow Agreement and the taking of any and all actions in connection
therewith and (ii) to the extent that funds are no longer available in the Shareholders’ Representative Expense
Fund, the Shareholders’ Representative shall have recourse against each Seller directly for such costs and
expenses (it being understood that and agreed that any such recourse shall be against each Seller, severally and
not jointly, in accordance with the percentage of the aggregate Purchase Price received by or attributable to such
Seller as of such date).
(b)The Shareholders’ Representative shall not be liable to any Person for any act of the Shareholders’
Representative arising out of or in connection with the acceptance or administration of its duties under this
Agreement and the Escrow Agreement (it being understood that any act done or omitted pursuant to the advice
of legal counsel shall be conclusive evidence of such good faith and reasonable judgment), except to the extent
any liability, loss, damage, penalty, fine, cost or expense is actually incurred by such Person as a proximate
result of the fraud or bad faith of the Shareholders’ Representative. The Shareholders’ Representative shall not
be liable for, and shall be indemnified by the Sellers for, any liability, loss, damage, penalty, or fine incurred by
the Shareholders’ Representative (and any cost or expense incurred by the Shareholders’ Representative in
connection therewith) arising out of or
58
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
in connection with the acceptance or administration of its duties under this Agreement and the Escrow
Agreement, except to the extent that any such liability, loss, damage, penalty, or fine, cost or expense is the
proximate result of the fraud or bad faith of the Shareholders’ Representative. The Shareholders’
Representative Expense Fund shall be available to indemnify and hold the Shareholders’ Representative
harmless against any liability, loss, damage, penalty, fine, cost or expense incurred by the Shareholders’
Representative arising out of or in connection with the acceptance or administration of its duties under this
Agreement and the Escrow Agreement, except to the extent that any such liability, loss, damage, penalty, fine,
cost or expense is the proximate result of the fraud or bad faith of the Shareholders’ Representative. The
Shareholders’ Representative shall be entitled to recover any out-of-pocket costs and expenses reasonably
incurred by the Shareholders’ Representative in connection with actions taken by the Shareholders’
Representative pursuant to the terms of Section 2.4 or the Escrow Agreement (including the hiring of legal
counsel and the incurring of legal fees and costs) from the Shareholders’ Representative Expense Fund.
(c)From and after the Closing, Buyer shall cause the Company to provide the Shareholders’
Representative with reasonable access to information about the Company and the reasonable assistance of the
officers and employees of Buyer and the Company for purposes of performing its duties and exercising its
rights under this Agreement, provided that the Shareholders’ Representative shall treat confidentially any
nonpublic information about the Company (except in connection with the performance by the Shareholders’
Representative of its duties or the exercise of its rights under this Agreement).
(d)From and after the Closing, a decision, act, consent or instruction of the Shareholders’
Representative shall constitute a decision of all the Sellers and shall be final, binding and conclusive upon each
Seller, and the Escrow Agent and Buyer may rely upon any decision, act, consent or instruction of the
Shareholders’ Representative as being the decision, act, consent or instruction of each Seller. Buyer is hereby
relieved from any liability to any Person for any acts done by Buyer in accordance with any such decision, act,
consent or instruction of the Shareholders’ Representative.
Section 13.2Expenses. Except as otherwise expressly provided in this Agreement, all costs and
expenses (including all fees and disbursements of counsel, financial advisors and accountants) incurred in
connection with the negotiation and preparation of this Agreement, the performance of the terms of this
Agreement and the consummation of the transactions contemplated by this Agreement, shall be paid by the
respective party incurring such costs and expenses, whether or not the Closing shall have occurred.
Section 13.3Costs and Attorneys’ Fees. Subject to the limitations set forth herein, in the event that
any action, suit or other proceeding is instituted by any party hereto against any other party hereto concerning or
arising out of this Agreement, the prevailing party or parties shall recover all of such prevailing party’s or
parties’ costs and reasonable attorneys’ fees incurred in connection with each and every such action, suit or
other proceeding, including any and all appeals and petitions therefrom, from the non-prevailing party or
parties.
59
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 13.4Notices. All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given or made as follows: (a) if sent by registered or
certified mail in the United States return receipt requested, upon receipt; (b) if sent by nationally recognized
overnight air courier, one (1) Business Day after mailing; (c) if sent by facsimile transmission or by electronic
mail, when transmitted and receipt is confirmed; and (d) if otherwise actually personally delivered, when
delivered, provided that such notices, requests, demands and other communications are delivered to the
address set forth below, or to such other address as any party shall provide by like notice to the other parties to
this Agreement:
(a)if to the Company (prior to the Closing), to:
AVB Inc., c/o Goode Seed Holdings, LLC
767 Third Avenue, 22nd Floor
New York, NY 10017
Facsimile: (212) 317-2827
Attn: Daniel Bonoff
Email: [email protected]
with a copy (which shall not constitute notice) to:
Davis Wright Tremaine LLP
1300 SW 5 th Avenue, Suite 2400
Portland, Oregon 97201
Facsimile: (503) 778-5299
Attention: Jesse Lyon
Email: [email protected]
(b)if to the Sellers, to the address below each Seller’s name on Exhibit C attached hereto, with a copy
(which shall not constitute notice) to:
Davis Wright Tremaine LLP
1300 SW 5th Avenue, Suite 2400
Portland, Oregon 97201
Facsimile: (503) 778-5299
Attention: Jesse Lyon
Email: [email protected]
60
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(c)if to Buyer or Guarantor or, if after the Closing, to the Company, to:
Flowers Foods, Inc.
1919 Flowers Circle
Thomasville, Georgia 31757
Facsimile: (229) 225-5426
Attention: A. Ryals McMullian, Jr.
Email: [email protected]
with a copy (which shall not constitute notice) to:
Jones Day
1420 Peachtree Street, N.E. Suite 800
Atlanta, Georgia 30309-3053
Facsimile: (404) 581-8330
Attention: Sterling A. Spainhour, Jr.
Email: [email protected]
(d)if to the Shareholders’ Representative, to:
Goode Seed Holdings, LLC
767 Third Avenue, 22nd Floor
New York, NY 10017
Facsimile: (212) 317-2827
Attn: Daniel Bonoff
Email: [email protected]
with a copy (which shall not constitute notice) to:
Davis Wright Tremaine LLP
1300 SW 5th Avenue, Suite 2400
Portland, Oregon 97201
Facsimile: (503) 778-5299
Attention: Jesse Lyon
Email: [email protected]
Section 13.5Public Announcements. Unless otherwise required by applicable Law or applicable
stock exchange rules and regulations, no party to this Agreement shall make any public announcements in
respect of this Agreement or the transactions contemplated by this Agreement, or otherwise communicate with
any news media regarding this Agreement or the transactions contemplated by this Agreement, without the prior
written consent of the other parties to this Agreement. If a public statement is required to be made pursuant to
applicable Law or applicable stock exchange rules and regulations, the parties shall consult with each other, to
the extent reasonably practicable, in advance as to the contents and timing thereof.
61
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 13.6Provision Respecting Legal Representation. Each of the parties to this Agreement
hereby agrees, on its own behalf and on behalf of its board members, members, partners, officers, employees
and Affiliates, that Davis Wright Tremaine LLP may serve as counsel to each and any holder of Shares and
their respective Affiliates (individually and collectively, the “ Holder Group ”), on the one hand, and the
Company, on the other hand, in connection with the negotiation, preparation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and that, following consummation
of the transactions contemplated hereby, Davis Wright Tremaine LLP (or any successor) may serve as counsel
to the Holder Group, the Shareholders’ Representative or any board member, member, partner, officer,
employee or Affiliate of the Holder Group or the Shareholders’ Representative, in connection with any
litigation, claim or obligation arising out of or relating to this Agreement or the transactions contemplated by
this Agreement notwithstanding such representation, and each of the parties hereto hereby consents thereto and
waives any conflict of interest or duty of confidentiality arising therefrom, and each of such parties shall cause
any Affiliate thereof to consent to waive any conflict of interest or duty of confidentiality arising from such
representation.
Section 13.7Interpretation. The Article and Section headings in this Agreement are for convenience
of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision of this
Agreement. References to Articles, Sections, Schedules or Exhibits in this Agreement, unless otherwise
indicated, are references to Articles, Sections, Schedules and Exhibits of or to this Agreement. The parties to
this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises with respect to any term or provision of this Agreement,
this Agreement shall be construed as if drafted jointly by the parties to this Agreement, and no presumption or
burden of proof shall arise favoring or disfavoring any party to this Agreement by virtue of the authorship of
any of the terms or provisions of this Agreement. Any reference to any federal, state, county, local or foreign
statute or Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. For all purposes of and under this Agreement, (a) the word “including” shall be
deemed to be immediately followed by the words “without limitation;” (b) words (including defined terms) in
the singular shall be deemed to include the plural and vice versa; (c) words of one gender shall be deemed to
include the other gender as the context requires; (d) the terms “hereof,” “herein,” “hereto,” “herewith” and any
other words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole
(including all of the Schedules and Exhibits to this Agreement) and not to any particular term or provision of
this Agreement, unless otherwise specified; and (e) unless otherwise defined in this Agreement, accounting
terms shall have the respective meanings assigned to them in accordance with GAAP consistently applied with
the Company Financial Statements. Any amount to be paid hereunder shall be paid in United States dollars and
in immediately available funds.
62
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 13.8Severability. In the event that any one or more of the terms or provisions contained in
this Agreement or in any other certificate, instrument or other document referred to in this Agreement, shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other term or provision of this Agreement or any other such certificate,
instrument or other document referred to in this Agreement, and the parties to this Agreement shall use their
commercially reasonable efforts to substitute one or more valid, legal and enforceable terms or provisions into
this Agreement which, insofar as practicable, implement the purposes and intent of this Agreement. Any term
or provision of this Agreement held invalid or unenforceable only in part, degree or within certain jurisdictions
shall remain in full force and effect to the extent not held invalid or unenforceable to the extent consistent with
the intent of the parties as reflected by this Agreement. To the extent permitted by applicable Law, each party
waives any term or provision of Law which renders any term or provision of this Agreement to be invalid,
illegal or unenforceable in any respect.
Section 13.9Entire Agreement. This Agreement (including the Company Disclosure Schedule, the
other Schedules and the Exhibits to this Agreement) and the Confidentiality Agreement constitute the entire
agreement of the parties to this Agreement with respect to the subject matter of this Agreement and the
Confidentiality Agreement, and supersede all prior agreements and undertakings, both written and oral, among
the parties to this Agreement with respect to the subject matter of this Agreement and the Confidentiality
Agreement, except as otherwise expressly provided in this Agreement.
Section 13.10Assignment. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties to this Agreement (whether by operation of law or otherwise)
without the prior written consent of the other parties to this Agreement, and any purported assignment or other
transfer without such consent shall be void and unenforceable. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties to this Agreement
and their respective successors and assigns.
Section 13.11No Third-Party Beneficiaries. Except for Section 7.1, this Agreement is for the sole
benefit of the parties to this Agreement and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
Section 13.12Waivers and Amendments. This Agreement may be amended or modified only by a
written instrument executed by the Shareholders’ Representative (on behalf of the Sellers), the Company and
Buyer. Any failure of the parties to this Agreement to comply with any obligation, covenant, agreement or
condition in this Agreement may be waived by the party entitled to the benefits thereof only by a written
instrument signed by the party granting such waiver. No delay on the part of any party to this Agreement in
exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party to this Agreement of any right, power or privilege hereunder operate as a waiver of any other
right, power or privilege hereunder, nor shall any single or partial exercise of any right,
63
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right,
power or privilege hereunder. Unless otherwise provided, the rights and remedies provided for in this
Agreement are cumulative and are not exclusive of any rights or remedies which the parties to this Agreement
may otherwise have at law or in equity. Whenever this Agreement requires or permits consent by or on behalf
of a party, such consent shall be given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 13.12 .
Section 13.13Governing Law; Consent to Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be
performed entirely within such State. Each of the parties to this Agreement hereby irrevocably and
unconditionally submits, for itself and its assets and properties, to the exclusive jurisdiction of the U.S. District
Court for the District of Oregon, in any action or proceeding arising out of or relating to this Agreement, the
agreements delivered in connection with this Agreement, or the transactions contemplated hereby or thereby, or
for recognition or enforcement of any judgment relating thereto, and each of the parties to this Agreement
hereby irrevocably and unconditionally (a) agrees not to commence any such action or proceeding except in
such courts; (b) agrees that any claim in respect of any such action or proceeding may be heard and determined
in such Federal court; (c) waives, to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any such action or proceeding in such Federal court; and
(d) waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in such Federal court. Each of the parties to this Agreement hereby agrees that a final
judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by Law. Each of the parties to this Agreement hereby
irrevocably consents to service of process in the manner provided for notices in Section 13.4 . Nothing in this
Agreement shall affect the right of any party to this Agreement to serve process in any other manner permitted
by applicable Law.
Section 13.14Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE, IT HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (a) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (b) IT UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (c) IT MAKES SUCH WAIVERS
VOLUNTARILY AND (d) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.14 .
64
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 13.15Exclusivity of Representations and Warranties. It is the explicit intent and
understanding of each of the parties to this Agreement that no party to this Agreement, nor any of their
respective Affiliates, representatives or agents, is making any representation or warranty whatsoever, oral or
written, express or implied, other than those set forth in this Agreement (as qualified by the Company
Disclosure Schedule), and none of the parties to this Agreement is relying on any statement, representation or
warranty, oral or written, express or implied, made by another party to this Agreement or such other party’s
Affiliates, representatives or agents, except for the representations and warranties set forth in this Agreement.
Section 13.16Equitable Remedies. Each of the parties to this Agreement acknowledges and agrees
that the other parties to this Agreement would be irreparably damaged in the event that any of the terms or
provisions of this Agreement are not performed in accordance with their specific terms or otherwise are
breached. Therefore, notwithstanding anything to the contrary set forth in this Agreement, each of the parties to
this Agreement hereby agrees that the other parties to this Agreement shall be entitled to seek an injunction or
injunctions to prevent breaches of any of the terms or provisions of this Agreement, and to enforce specifically
the performance by such first party under this Agreement, and each party to this Agreement hereby agrees to
waive the defense in any such suit that the other parties to this Agreement have an adequate remedy at law and
to interpose no opposition, legal or otherwise, as to the propriety of injunction or specific performance as a
remedy, and hereby agrees to waive any requirement to post any bond in connection with obtaining such
relief. The equitable remedies described in this Section 13.16 shall be in addition to, and not in lieu of, any
other remedies at law or in equity that the parties to this Agreement may elect to pursue.
Section 13.17Counterparts. This Agreement may be executed in one or more counterparts (including
by facsimile or electronic signature and by electronic mail or PDF), each of which when executed shall be
deemed to be an original, but all of which taken together shall constitute one and the same agreement.
Section 13.18Time is of the Essence. Time is of the essence with respect to the performance of this
Agreement.
Section 13.19Guaranty. In consideration of, and as an inducement to the Sellers entering into this
Agreement, Guarantor hereby absolutely, unconditionally and irrevocably guarantees to the Sellers the due and
punctual payment and the full and complete performance and observance of all obligations of Buyer pursuant to
this Agreement. Any breach of, or other failure to perform, any representation, warranty, covenant, obligation,
agreement or undertaking of Buyer shall also be deemed to be a breach or failure to perform by the Guarantor,
and the Sellers and the Company shall have the right, exercisable in their sole discretion, to pursue any and all
available remedies they may have arising out of any such breach or nonperformance directly against either or
both of Buyer and Guarantor in the first instance. This guarantee is a guarantee of performance and not
exclusively of collection. The Guarantor acknowledges that it will receive substantial direct and indirect
benefits from the transactions contemplated by this Agreement.
[Remainder of Page Intentionally Left Blank]
65
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective
officers thereunto duly authorized, as of the date first above written.
BUYER:
FLOWERS BAKERIES, LLC,
a Georgia limited liability company
/s/ Ryals McMullian
Name: Ryals McMullian
Title: Assistant Secretary
Guarantor:
Flowers Foods, Inc.,
a Georgia corporation
/s/ Allen L. Shiver
Name: Allen L. Shiver
Title: President and Chief Executive Officer
Signature Page to Stock Purchase Agreement
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective
officers thereunto duly authorized, as of the date first above written.
SELLERS:
COMPANY:
Goode Seed Holdings, LLC,
a Delaware limited liability company
AVB, Inc.,
an Oregon corporation
By:
By:
/s/ Daniel R. Bonoff
Daniel R. Bonoff, President
GOODE SEED CO-INVEST, LLC,
a Delaware limited liability company
/s/ Daniel R. Bonoff
Daniel R. Bonoff, Secretary
SHAREHOLDERS’ REPRESENTATIVE:
GOODE SEED HOLDINGS, LLC,
a Delaware limited liability company
By:
/s/ Daniel R. Bonoff
Daniel R. Bonoff, President
By:
/s/ Daniel R. Bonoff
Daniel R. Bonoff, President
GLENN DAHL, TRUSTEE OF THE
GLENN DAHL FAMILY TRUST, U/A/D
NOVEMBER 28, 2012
By:
/s/ Glenn Dahl
Glenn Dahl, Trustee
DAVID J. DAHL, TRUSTEE OF THE
DAVID DAHL FAMILY TRUST, U/A/D
MAY 1, 2012
By:
/s/ David J. Dahl
David J. Dahl, Trustee
SHOBI L. DAHL, TRUSTEE OF THE
SHOBI L. DAHL FAMILY TRUST, U/A/D
DECEMBER 16, 2011
By:
/s/ Shobi L. Dahl
Shobi L. Dahl, Trustee
Signature Page to Stock Purchase Agreement
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit A
Form of Escrow Agreement
Exhibit A
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
FORM OF ESCROW AGREEMENT1
THIS ESCROW AGREEMENT dated as of [●], 2015 (this “Agreement”) by and among [BUYER] ,
a Georgia limited liability company (“ Buyer ”); [SHAREHOLDERS’ REPRESENTATIVE] , a Delaware
limited liability company , in its capacity as authorized representative of the Sellers (as defined in the Purchase
Agreement) (“ GSH ”); and MUFG Union Bank, N.A., a national banking association (“ Escrow Agent ”).
WHEREAS, Buyer and GSH (in its capacity as Shareholders’ Representative), have entered into that
certain Stock Purchase Agreement dated as of August 12, 2015 by and among Buyer, the Company, the Sellers,
Guarantor and GSH (the “ Purchase Agreement ”);
WHEREAS, the Purchase Agreement provides that a portion of the Purchase Price shall be deposited
by Buyer to be held and distributed by Escrow Agent in accordance with the terms and conditions of this
Agreement;
WHEREAS, the execution and delivery of this Agreement is a condition to Buyer’s and the Sellers’
respective obligations under the Purchase Agreement; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings ascribed
to them in the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and agree as
follows:
Section 1Appointment of Escrow Agent and Shareholders’ Representative.
(a)Buyer and GSH hereby appoint Escrow Agent to act as escrow agent in accordance with the terms
and conditions set forth herein, and Escrow Agent hereby accepts such appointment and upon receipt of the
Escrow Funds (as defined below) in accordance with Section 4 hereof, agrees to hold, invest and disburse the
Escrow Property (as defined below) in accordance with this Agreement.
(b)The Sellers have appointed GSH as the designated representative of the Sellers and have authorized
GSH to take or cause to be taken all action in furtherance of the Sellers’ rights and obligations with respect to
the Escrow Accounts (as defined below).
Section 2Establishment of Escrow Accounts. Escrow Agent will open and maintain (a) one (1) escrow
account to address Section 2.4 of the Purchase Agreement (the “ Working Capital Escrow Account ”) and (b)
one (1) escrow account to address Article XII of the Purchase Agreement (the “ Indemnity Escrow Account ”
and together with the Working Capital Escrow Account, each an “ Escrow Account ” and collectively, the “
Escrow Accounts ”), in each case on
1
Subject to final review of Escrow Agent.
1
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
the terms and conditions set forth herein. The Escrow Funds (as defined below) held in the Escrow Accounts
will not bear interest independently of the interest, dividends and other distributions and payments that may
arise from Permitted Investments (as defined below) made pursuant to Section 5 hereof. No Escrow Funds in
any one Escrow Account shall be used for the purposes of the other Escrow Account or for any other purposes
other than as set forth in this Agreement, including in the event that any Escrow Funds held in another Escrow
Account shall become exhausted or released.
Section 3Wire Instructions. Wire transfer instructions for sending the Escrow Funds, as hereinafter
defined, to Escrow Agent are set forth in Schedule III.
Section 4Deposits into the Escrow Accounts.
(a)On the date of this Agreement, Buyer will make a deposit with Escrow Agent in the sum of
$1,000,000 in immediately available funds (the “ Working Capital Escrow Funds ”), which Working Capital
Escrow Funds will be held by Escrow Agent under the terms and conditions set forth herein. The Working
Capital Escrow Funds, plus all interest, dividends and other distributions and payments thereon received by
Escrow Agent from time to time, less any property distributed and/or disbursed in accordance with this
Agreement, from time to time are collectively referred to hereinafter as the “ Working Capital Escrow Property
”. Escrow Agent will have no duty to solicit delivery of the Working Capital Escrow Funds. For purposes of
this Agreement “ Business Day ” will mean any day MUFG Union Bank, N.A. is open for business at the
address set forth herein, excluding Saturdays and Sundays.
(b)On the date of this Agreement, Buyer will make a deposit with Escrow Agent in the sum of
$1,375,000 in immediately available funds (the “ Indemnity Escrow Funds ” and together with the Working
Capital Escrow Funds, the “ Escrow Funds ”), which Indemnity Escrow Funds will be held by Escrow Agent
under the terms and conditions set forth herein. The Indemnity Escrow Funds, plus all interest, dividends and
other distributions and payments thereon received by Escrow Agent from time to time, less any property
distributed and/or disbursed in accordance with this Agreement, from time to time are collectively referred to
hereinafter as the “ Indemnity Escrow Property ” and together with the Working Capital Escrow Property, the “
Escrow Property ” . Escrow Agent will have no duty to solicit delivery of the Indemnity Escrow Funds.
(c)Each of the Escrow Funds shall be held subject to the terms and conditions set forth herein and shall
not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any party
hereto. Escrow Agent shall not distribute or release the Escrow Funds except in accordance with the express
terms and conditions of this Agreement.
2
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 5Investment of the Escrow Property.
(a)As soon as practicable after the receipt thereof, Escrow Agent will cause the Escrow Property to be
invested in such Permitted Investments as defined below. With the exception of this Agreement, the parties
hereto acknowledge receipt of prospectuses and/or disclosure materials associated with the selected investment
vehicle(s), either through means of hardcopy or via access to the website associated with the investment
selected. GSH may provide instructions changing the investment of the Escrow Property by furnishing a written
direction to the Escrow Agent, provided that such investments are Permitted Investments. as GSH may
specify in writing from time to time. During the term of this Agreement, GSH will bear and retain the sole
responsibility for the selection of the investments of the Escrow Property and all risks from any such
investments.
(b)“Permitted Investments” will be one or more of the following:
i.
Money market funds registered under the Investment Company Act of 1940 including
any fund for which Escrow Agent or an affiliate of Escrow Agent serves as an
investment advisor, administrator, shareholder servicing agent, custodian or
sub-custodian, notwithstanding that (A) Escrow Agent or an affiliate of Escrow Agent
charges and collects fees and expenses from such funds for services rendered (
provided that such charges, fees and expenses are reasonable and on terms consistent
with terms negotiated at arm’s length) and (B) Escrow Agent charges and collects fees
and expenses for services rendered, pursuant to this Agreement;
ii.
direct obligations of, or obligations fully guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof, provided such obligations are
backed by the full faith and credit of the United States; or
iii.
a certificate of deposit, deposit account or commercial paper of Escrow Agent.
(c)If Escrow Agent does not receive written instructions for the Escrow Property, the Escrow Property
shall remain uninvested with no liability for interest therein. Escrow Agent will have no obligation to cause the
Escrow Property to be invested on the day of deposit if the Escrow Property or instructions are not delivered to
Escrow Agent within a reasonable amount of time prior to the applicable cut-off time for any Permitted
Investment. In any event, instructions received after 10:30 a.m. Pacific Time /1:30 p.m. Eastern Time will be
treated as if received on the following Business Day and the Escrow Property will be invested on such
day. Escrow Agent will have no responsibility for any investment losses resulting from the investment,
reinvestment or liquidation of the Escrow Property. Any interest or other income received on such investment
and reinvestment of the Escrow Property will become part of the Escrow Property and losses incurred on such
investment and reinvestment of the Escrow Property will be
3
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
reflected in the value of the Escrow Property from time to time. Notwithstanding any other provision herein,
Escrow Agent will have the power to sell or liquidate the foregoing investments whenever Escrow Agent is
required to release all or any portion of the Escrow Property pursuant to this Agreement. In no event will
Escrow Agent be deemed an investment manager or adviser in respect of any selection of investments
hereunder.
Section 6Distribution of the Escrow Property; Release of Remaining Escrow Funds.
(a)Escrow Agent will hold the Escrow Property in its possession and disburse the Escrow Property or
any specified portion thereof only as follows:
i.
Working Capital Escrow Funds. In the event that any Negative Adjustment Amount is
required to be paid to Buyer in accordance with Section 2.4(d)(i) of the Purchase
Agreement by Sellers, Buyer and GSH will deliver joint written instructions signed by
an authorized person of each of Buyer and GSH as set forth on Schedule I attached
hereto (such instructions, “ Joint Written Instructions ”, and each such authorized
person, an “ Authorized Representative ”) to disburse all or a portion of the Working
Capital Escrow Property as set forth therein (the “ WC Disbursement Instruction ”),
and Escrow Agent shall disburse to Buyer such identified amount promptly upon, and
in any event within two (2) Business Days of, Escrow Agent’s receipt of the WC
Disbursement Instruction.
ii.
Indemnity Escrow Funds.
(A) The period for making a Liability Claim against the Indemnity Escrow Fund with
respect to any claims made pursuant to Article XII of the Purchase Agreement
shall commence on the date hereof and shall terminate on the date that is eighteen
(18) months after the date of this Agreement (or the next succeeding Business Day
if such day is not a Business Day) (the “ Indemnification Claim Period ”). At any
time during the Indemnification Claim Period, if any Buyer Indemnified Party
makes a Liability Claim pursuant to the Purchase Agreement, Buyer (on behalf of
such Buyer Indemnified Party) shall deliver to Escrow Agent and GSH a written
notice (an “ Indemnity Escrow Notice ”) setting forth in reasonable detail the
Liability Claim, and the amount (estimated, if necessary and to the extent feasible)
of the Liability Claim by the Buyer Indemnified Party. If Escrow Agent has not
received a written objection to such Liability Claim or portion thereof or the
amount of such Liability Claim from GSH within thirty (30) calendar days
following Escrow Agent’s receipt of such Indemnity Escrow Notice, then on the
first (1 st ) Business Day immediately after the thirtieth (30 th ) day following such
receipt, Escrow Agent shall release, by wire transfer to Buyer, in accordance
4
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
with Schedule III, an amount of Indemnity Escrow Funds from the Indemnity
Escrow Account equal to the amount of such Liability Claim.
(B) If GSH delivers to Escrow Agent and Buyer a written objection (an “ Indemnity
Dispute Notice ”) to any Liability Claim or portion thereof or the amount of such
Liability Claim within thirty (30) calendar days following Escrow Agent’s receipt
of such Indemnity Escrow Notice, then Escrow Agent shall not distribute to Buyer
any portion of the Indemnity Escrow Funds in the Indemnity Escrow Account that
is the subject of the Indemnity Dispute Notice until Escrow Agent receives either
(x) Joint Written Instructions authorizing the release to Buyer of the portion of
the Indemnity Escrow Funds in the Indemnity Escrow Account that is agreed upon
as the amount recoverable in respect of the Indemnity Dispute Notice (“ Joint
Written Indemnity Instruction ”) or (y) a final and non-appealable order of any
court of competent jurisdiction directing the release to Buyer of the portion of the
Indemnity Escrow Funds in the Indemnity Escrow Account that is determined to
be the amount recoverable in respect of the Indemnity Dispute Notice. Upon
receipt of the Joint Written Indemnity Instruction or such final and non-appealable
order, as the case may be, Escrow Agent shall release to Buyer such amount of the
Indemnity Escrow Funds in the Indemnity Escrow Account in accordance with the
Joint Written Indemnity Instruction or final and non-appealable order. For
purposes of this Agreement, an “ Indemnity Disbursement Instruction ” shall be
either: (AA) an Indemnity Escrow Notice delivered to Escrow Agent for which
GSH does not timely deliver an Indemnity Dispute Notice or (BB) the Joint
Written Indemnity Instruction or final and non-appealable order delivered to
Escrow Agent subsequent to delivery of an Indemnity Escrow Notice and
Indemnity Dispute Notice by GSH. “Indemnity Disbursement Instruction” and
“WC Disbursement Instruction” are hereinafter also each referred to as a “
Disbursement Instruction ”.
(b)Release of Remaining Escrow Funds. Escrow Agent shall disburse the Working Capital Escrow
Funds and Indemnity Escrow Funds to GSH (solely for the benefit of the Sellers), as follows:
i.
In the case of the Working Capital Escrow Funds, no later than two Business Days
immediately following the payment of any Negative Adjustment Amount, if any, or
such earlier time that Buyer and GSH shall deliver Joint Written Instructions to Escrow
Agent, Escrow Agent shall transfer to GSH an amount equal to the Working Capital
Escrow Funds plus all interest, dividends and other distributions and payments
thereon received by Escrow Agent from time to time, less the Negative Adjustment
Amount, if any.
5
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
ii.
In the case of the Indemnity Escrow Funds, no later than the Business Day immediately
following the last calendar day of the Indemnification Claim Period (the “ Indemnity
Escrow Release Date ”), or such earlier time that Buyer and GSH shall deliver Joint
Written Instructions to Escrow Agent, Escrow Agent shall transfer to GSH an amount
equal to (A) one hundred percent (100%) of the remaining Indemnity Escrow Funds
plus all interest, dividends and other distributions and payments thereon received by
Escrow Agent from time to time, less (B) the aggregate dollar amount claimed to be
payable pursuant to any then unresolved Liability Claims for which an Indemnity
Escrow Notice was delivered in accordance with the terms of this Agreement prior to
the Indemnity Escrow Release Date. If any Liability Claims remain pending in whole
or in part on the Indemnity Escrow Release Date, then an amount of the Indemnity
Escrow Funds subject to the pending portion of the unresolved Liability Claim (but no
more than such amount(s)) shall continue to be held by Escrow Agent as part of the
Indemnity Escrow Funds under this Agreement.
(c)Escrow Agent will and is hereby authorized to withdraw and pay said disbursement as specified in a
Disbursement Instruction. Escrow Agent will act upon a Disbursement Instruction received pursuant to
Sections 6 and 11 hereunder and will rely upon the content in the Disbursement Instruction without making
further inquiry and will assume due execution thereof and the truth and correctness of any information or
statement contained therein. Further, Escrow Agent will rely upon the signature(s) thereon of an Authorized
Representative regardless of by whom or by what means the actual or purported signature(s) thereon may have
been affixed thereto if such signature(s) resemble the specimen on Schedule I attached hereto or as provided to
Escrow Agent from time to time. Escrow Agent will incur no liability to Buyer or GSH or otherwise for having
acted in good faith in accordance with instructions on which it is authorized to rely pursuant to the provisions
hereof.
(d)All payments of Escrow Property will be effected by wire transfer in immediately available funds in
accordance with the instructions set forth in Schedule III of this Agreement.
(e)Buyer shall have no right to any portion of an Escrow Fund that has been properly transferred to
GSH in accordance with this Section 6.
Section 7Compensation of Escrow Agent. Escrow Agent will be entitled to receive payment from
each of Buyer and GSH, fifty percent (50%) of fees, costs and expenses for all services rendered by Escrow
Agent hereunder in accordance with Schedule II to this Agreement. Except as otherwise set forth in this
Agreement, each of Buyer and GSH will reimburse Escrow Agent for fifty percent (50%) of all reasonable
losses, liabilities, damages, disbursements, advances or expenses paid or incurred by Escrow Agent in the
administration of its duties hereunder, including, but not limited to, all reasonable counsel, advisor and agent
fees and disbursements, in each case as supported by invoices or other similar documentation, copies of which
shall be delivered by Escrow Agent to Buyer and GSH. In the event that Escrow Agent delivers a written
demand to Buyer for payment of such amounts owed hereunder and such
6
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
payment has not been received by Escrow Agent within sixty (60) calendar days following the date of delivery
of such demand, then Escrow Agent will have a right of set off and first lien upon an Escrow Account for
payment of customary fees, costs and expenses and all such losses, liabilities, damages or expenses incurred by
Escrow Agent from time to time hereunder. Following such sixty (60) day period, such fees, costs and expenses
will be paid from the Escrow Property to the extent not otherwise paid hereunder and Escrow Agent may sell,
convey or otherwise dispose of any Escrow Property for such purpose.
Section 8Resignation or Removal.
(a)Escrow Agent may resign and be discharged from its duties hereunder at any time by giving written
notice sixty (60) calendar days prior to such resignation to Buyer and GSH as provided in this Section. Buyer
and GSH may remove Escrow Agent at any time (with or without cause) by giving written notice signed by the
proper party’s Authorized Representative at least thirty (30) calendar days prior to such removal to Escrow
Agent. Following such resignation or removal, a successor Escrow Agent will be appointed by Buyer and GSH,
who will provide written notice of such to the resigning or removed Escrow Agent. Such successor Escrow
Agent will become Escrow Agent hereunder, and all Escrow Property will be transferred to it upon the
resignation or removal date specified in such notice. If Buyer and GSH are unable to appoint a successor
Escrow Agent within thirty (30) calendar days after such notice, Escrow Agent may petition any court of
competent jurisdiction for the appointment of a successor Escrow Agent or for other appropriate relief. The
costs and expenses (including but not limited to its attorney fees and expenses) incurred by Escrow Agent in
connection with such proceeding will be paid jointly and severally by Buyer and GSH. On the
resignation/removal date and after receipt of the identity of the successor Escrow Agent, Escrow Agent will
either deliver and/or disburse the Escrow Property then held hereunder to the successor Escrow Agent, less
Escrow Agent’s fees, costs and expenses or other obligations owed to Escrow Agent. Upon its resignation or
removal and delivery and/or disbursement of the Escrow Property in its entirety as set forth in this Section,
Escrow Agent will be discharged of and from any and all future obligations arising in connection with the
Escrow Property or this Agreement.
(b)If GSH resigns or is removed in its capacity as Shareholders’ Representative for the Sellers, the
Sellers will notify Escrow Agent in writing of the successor.
Section 9Indemnification of Escrow Agent. Except with respect to Section 7, Buyer and GSH jointly
and severally agree to indemnify and hold Escrow Agent harmless against any and all liabilities, losses, claims,
damages or expenses, including reasonable attorney’s fees, that Escrow Agent may incur by reason of or based
upon its actions under this Agreement (“ Losses ”) other than as a result of the gross negligence or willful
misconduct of Escrow Agent.
Section 10Rights, Duties and Immunities of Escrow Agent. Acceptance by Escrow Agent of its duties
under this Agreement is subject to the following terms and conditions, which all parties to this Agreement
hereby agree will govern and control the rights, duties and immunities of Escrow Agent.
7
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(a)General Duties. The duties and obligations of Escrow Agent will be determined solely by the
express provisions of this Agreement and Escrow Agent will not be liable except for the performance of such
duties and obligations. Escrow Agent is not a party to, and is not bound by, or required to comply with any
agreement or other document out of which this Agreement may arise. Escrow Agent will not be required to
inquire as to the performance or observance of any duty, obligation, term or condition under any other
agreements or arrangements between Buyer and GSH, notwithstanding that references thereto may be made
herein and whether or not it has knowledge thereof. Escrow Agent will not be under any liability to either party
hereto by reason of any failure on the part of Buyer, GSH or any maker, guarantor, endorser or other signatory
of any document or any other third party to perform, such party’s obligations under any such document. Except
for amendments to this Agreement referred to herein, and except for notifications or instructions to Escrow
Agent under this Agreement and as otherwise stated herein, Escrow Agent will not be obliged to recognize or
be chargeable with knowledge of any of the terms or conditions of any agreement between Buyer and
GSH. Escrow Agent will not be liable for the accuracy of any calculations or the sufficiency of any funds for
any purpose. The Escrow Agent may establish additional accounts or subaccounts within the Escrow Fund as
the Escrow Agent shall deem necessary and prudent in furtherance of its duties under this Agreement upon
written notification to Buyer and GSH. Escrow Agent further agrees that all property held by Escrow Agent
under this Agreement shall be segregated from all other property held by Escrow Agent and shall be identified
as being held in connection with this Agreement. Segregation may be accomplished by appropriate
identification on the books and records of Escrow Agent. Escrow Agent agrees that its documents and records
with respect to the transactions contemplated by this Agreement shall be available for examination by
Authorized Representatives of Buyer and GSH.
(b)Escrow Agent Funds. Escrow Agent will not be required to expend or risk any of its own funds or
otherwise incur any liability, financial or otherwise, in the performance of any of its duties hereunder.
(c)Validity of Communications to Escrow Agent. Except for comparisons with the signature specimen
provided by the parties in Schedule I, Escrow Agent will not have any responsibility to determine the
authenticity or validity of any notice, direction, instruction, instrument, document or other items delivered to it
by any party, or for the identity, authority or rights of persons executing or delivering any such notice, direction,
instruction, instrument, document, or other items delivered to it by such party or parties. Escrow Agent is
authorized to comply with and rely upon any notice, direction, instruction or other communication believed by
it in good faith to have been sent or given by Buyer and/or GSH and will be fully protected in acting in
accordance with such written direction or instructions given to it under, or pursuant to, this Agreement, in each
case, absent actual knowledge that such notice, direction, instruction or other communication is not genuine or
so signed or sent or that such statements have been withdrawn, modified or superseded.
8
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(d)No Fiduciary Relationship. This Agreement will not be deemed to create a fiduciary relationship
among the parties hereto under state or federal law.
(e)Judicial, Regulatory or Governmental Acts. If at any time Escrow Agent is served with any judicial
or administrative order, judgment, decree, writ or other form of judicial or administrative process which in any
way affects the Escrow Property (including but not limited to orders of attachment or any other forms of levies
or injunctions or stays relating to the transfer of the Escrow Property), Escrow Agent is authorized to comply
therewith in any manner as it or its legal counsel of its own choosing deems appropriate; and if Escrow Agent
complies with any such judicial or administrative order, judgment, decree, writ or other form of judicial or
administrative process, Escrow Agent will not be liable to any of the parties hereto or to any other person or
entity even though such order, judgment, decree, writ or process may be subsequently modified or vacated or
otherwise determined to have been without legal force or effect.
(f)Liability. Escrow Agent will not be liable for any action taken or omitted or for any loss or damage
resulting from its actions or its performance of its duties hereunder in the absence of gross negligence or willful
misconduct on its part. In no event will Escrow Agent be liable (i) for acting in accordance with or relying
upon any instructions on which it is authorized to rely pursuant to the provisions hereof, (ii) for any
consequential, punitive or special damages, (iii) for the acts or omissions of its nominees, designees, subagents
or subcustodians who are appointed with due care, or (iv) for an amount in excess of the value of the Escrow
Property, valued as of the date of loss.
(g)Ambiguity or Disputes. In the event of any ambiguity or uncertainty hereunder or in any notice or
other communication received by Escrow Agent hereunder, Escrow Agent is hereby authorized by Buyer and
GSH to refrain from taking any action other than to retain possession of the Escrow Property, unless Escrow
Agent receives Joint Written Instructions which eliminates such ambiguity or uncertainty.
(h)Legal Counsel. Escrow Agent may consult with legal counsel of its own choosing, at the expense
of Buyer, as to any matter relating to this Agreement and Escrow Agent will incur no liability and will be fully
protected in respect of any action taken, omitted or suffered by it in accordance with the advice or opinion of
such counsel so long as Escrow Agent shall have acted in good faith and such act or omission does not
constitute gross negligence or willful misconduct.
(i)Conflicting Liability Claim. In the event of any dispute or conflicting claim with respect to the
payment, ownership or right of possession of an Escrow Account or Escrow Property, Escrow Agent will be
entitled, in its sole discretion, to refuse to comply with any and all claims, demands or instructions. Escrow
Agent is authorized and directed to retain in its possession, without liability to anyone, except for its own gross
negligence or willful misconduct, all or any part of the Escrow Property until such dispute will have been
settled either by mutual agreement of the parties concerned or by final order, decree or judgment of a court or
other tribunal of competent jurisdiction in the United States of America (as notified to Escrow
9
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Agent in writing by the parties to the dispute or their Authorized Representatives and setting forth the
resolution of the dispute). Escrow Agent will be under no duty whatsoever to institute, defend or partake in
such proceedings. The rights of Escrow Agent under this paragraph are in addition to all other rights which it
may have by law or otherwise including, without limitation, the right to file an action in interpleader.
(j)Force Majeure. Escrow Agent will not incur liability for not performing any act or not fulfilling any
duty, obligation or responsibility hereunder by reason of any occurrence beyond the reasonable control of
Escrow Agent (including but not limited to any act or provision of any present or future law or regulation or
governmental authority, natural catastrophes, civil or military disturbances, loss or malfunctions of utilities, any
act of God or war, terrorism or the unavailability of the Federal Reserve Bank or other wire or communication
facility); it being understood that Escrow Agent shall use commercially reasonable efforts to resume
performance as soon as reasonably practicable under the circumstances.
(k)Electronic Communication. When Escrow Agent acts on any communication (including, but not
limited to, communication with respect to the delivery of securities or the wire transfer of funds) sent by
electronic transmission, Escrow Agent, absent gross negligence or willful misconduct, will not be responsible
or liable in the event such communication is not an authorized or authentic communication of the party involved
or is not in the form the party involved sent or intended to send (whether due to fraud, distortion or
otherwise). Escrow Agent, absent gross negligence or willful misconduct, will not be liable for any losses,
costs or expenses arising directly or indirectly from Escrow Agent’s reliance upon and compliance with such
instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written
instruction. Buyer or GSH, as the case may be, agrees to assume all risks arising out of the use of such
electronic transmission to submit instructions and directions to Escrow Agent, absent Escrow Agent’s gross
negligence or willful misconduct, including without limitation the risk of Escrow Agent acting on unauthorized
instructions, and the risk of interception and misuse by third parties.
(l)Statements. Escrow Agent will furnish Buyer and GSH monthly cash transaction statements which
include detail for all investment transactions effected by Escrow Agent or brokers selected by GSH or any
investment advisor. Upon GSH’s election, such statements will be delivered via Escrow Agent’s Online Trust
and Custody service, provided that GSH delivers written notice to Buyer of such election, and upon electing
such service, paper statements will be provided only upon request. Statements will be deemed to be correct and
final upon receipt thereof by Buyer and GSH unless Buyer or GSH notifies Escrow Agent in writing to the
contrary within thirty (30) Business Days of the date of such statement. Buyer and GSH agree and
acknowledge that they will be deemed to have been “furnished”, “delivered” and/or “in receipt” of a statement
at the earlier of the time that: (a) Escrow Agent makes it available for pick-up by Buyer or GSH; (b) five (5)
calendar days after it is mailed to Buyer or GSH via U.S. Postal Service; (c) Buyer or GSH actually receives it;
or (d) Escrow Agent makes it available via electronic means. Also, for purposes of this Agreement, the words
“available for pick-up” includes, but is not limited to, statements returned to the Escrow Agent as a result of a
bad mailing address. In the event of returned statements due to error outside of Escrow Agent, Buyer
10
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
and GSH agree that: (a) Escrow Agent may print and hold all future statements for pick up until the mailing
address is properly updated in the records of Escrow Agent; (b) returned and held statements will be held by
the Escrow Agent for pick-up for thirty (30) calendar days from the date of receipt by Escrow Agent of the
returned statement and/or date the statement was generated by Escrow Agent; and (c) Escrow Agent is
authorized to destroy returned and held paper statements after sixty (60) calendar days have elapsed from the
date of receipt by Escrow Agent of the returned statement and/or date the statement was generated by Escrow
Agent. Buyer and GSH agree that their obligation to review statements within the required time frame is not
excused in the event Escrow Agent holds and/or destroys any returned or held paper statement pursuant to this
Agreement. Buyer and GSH waive the right to receive brokerage confirmations of security transactions effected
by Escrow Agent as they occur, to the extent permitted by applicable law. Buyer and GSH further understand
that trade confirmations for securities transactions effected by Escrow Agent will be available upon request and
at no additional cost and other trade confirmations may be obtained from the applicable broker.
(m)Degree of Care. Escrow Agent will not be under any duty to give the Escrow Property held by it
hereunder any greater degree of care than (but shall give at least the same degree of care that) it gives property
held by it in similar transactions.
(n)Confidentiality. All non-public information and advice furnished by any party to Escrow Agent
shall be treated as confidential and will not be disclosed to third parties unless required by applicable law,
except that Escrow Agent may disclose any information required to be disclosed to any government regulator of
Escrow Agent or its affiliates.
Section 11Notices. All notices, consents, requests, instructions, approvals and other communications
provided for in this Agreement must be in writing, signed by the proper party’s Authorized Representative and
shall be deemed to have been given when: (i) by personal delivery, (ii) by overnight delivery by a recognized
courier or delivery service, one (1) calendar day after deposit, (iii) mailed by registered or certified mail, return
receipt requested, postage prepaid, three (3) calendar days after being mailed or (iv) by electronic transmission,
which includes fax machine, email with an imaged or scanned attachment (such as a .pdf) or other similar
electronic transmission, upon confirmation of receipt; and become effective when delivered to the addresses
noted below or such other address as may be substituted therefor by written notification by the proper party’s
Authorized Representative.
If to Buyer, to:
Company Name:
Address
City, State
Facsimile:
Attention:
Email:
11
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
with a copy (which shall not constitute notice) to:
Jones Day
1420 Peachtree Street, N.E. Suite 800
Atlanta, Georgia 30309-3053
Facsimile: (404) 581-8330
Attention: Sterling A. Spainhour, Jr.
Email:
[email protected]
If to GSH, to:
Company Name:
Address
City, State
Facsimile:
Attention:
Email:
with a copy (which shall not constitute notice) to:
Davis Wright Tremaine LLP
1300 SW 5 th Avenue, Suite 2400
Portland, Oregon 97201
Facsimile: (503) 778-5299
Attention: Jesse Lyon
Email:
[email protected]
If to Escrow Agent, to:
MUFG Union Bank, N.A.
Company Name:
Address
City, State
Attention: Corporate Trust Dept.
Email:
Phone:
Facsimile:
With a copy (which shall not constitute notice) to:
[email protected] and
[email protected]
In the event Escrow Agent receives notices or information other than as required by this Agreement, Escrow
Agent will disregard such information.
12
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 12Wiring Instructions. In the event fund transfer instructions are given other than as set forth
on Schedule III attached hereto, such instructions must be communicated to Escrow Agent in a writing
delivered pursuant to Section 11. Escrow Agent will seek confirmation of such instructions by same-day
telephone call-back to an Authorized Representative when the wire instructions are not listed on Schedule III,
and Escrow Agent will rely upon the confirmations of anyone purporting to be the Authorized Representative so
designated. Escrow Agent and the beneficiary’s bank with respect to any funds transfer will rely solely upon
any account numbers or similar identifying numbers provided by Buyer and GSH to identify (i) the beneficiary,
(ii) the beneficiary’s bank, or (iii) an intermediary bank. Escrow Agent may apply any of the Escrow Funds for
any payment order it executes using any such identifying number, even when its use may result in a person
other than the beneficiary being paid, or the transfer of funds to a bank other than the beneficiary’s bank or an
intermediary bank designated. The parties to this Agreement acknowledge that such security procedure is
commercially reasonable.
Should either or both of Buyer or GSH propose to direct or direct Escrow Agent to make a payment to any other
party, including a foreign financial institution (as defined in section 1471(d)(4) of the Internal Revenue Code)
or a non-financial foreign entity (as defined in section 1472(d) of the Internal Revenue Code), then Buyer or
GSH shall provide Escrow Agent with each certification described in subparagraph (ii) of Section 21(a).
Without assuming any responsibility to make any such determination, if Escrow Agent determines that any
withholding (as provided in Section 21) applies to any fund transfer based on the withholding certificates (or
lack thereof) or other information that Escrow Agent obtains or has in its possession, Escrow Agent shall
withhold the taxes as applicable and shall not be obligated to increase any amount transferred or otherwise
compensate the transfer’s recipient for any amounts withheld.
Section 13Termination. This Agreement will terminate on the earlier of the date on which all the
Escrow Property has been disbursed or returned pursuant to Section 6 or Section 8 of this Agreement or Joint
Written Instructions.
Section 14Continuing Obligations. The obligations under Sections 6, 7, 8, 9, 10, 15, 18, 19, 20, 21, 22
and 23 hereof will survive the resignation or removal of Escrow Agent, the termination of this Agreement and
the payment of all amounts hereunder.
Section 15Inconsistent Provisions. Buyer and GSH agree that to the extent that the provisions of any
other agreement relating to the Escrow Property are inconsistent with the terms of this Agreement, the terms of
this Agreement will control.
13
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Section 16Counterparts. This Agreement and any amendments hereto may be executed in any number
of counterparts each of which will be deemed to be an original, and all of which together will constitute but one
and the same instrument. Executed copies of this Agreement and any amendments hereto delivered pursuant to
Section 11 above will be as effective as an original to bind the parties.
Section 17Severability. The invalidity, illegality or unenforceability of any provision of this
Agreement will in no way affect the validity, legality or enforceability of any other provision; and if any
provision is held to be unenforceable as a matter of law, the other provisions will not be affected thereby and
will remain in full force and effect.
Section 18Authorized Representative. Buyer and GSH hereby identify to Escrow Agent the officers,
employees or agents designated on Schedule I attached hereto as an Authorized Representative with respect to
any notice, certificate, instrument, demand, request, direction, instruction, waiver, receipt, consent or other
document or communication required or permitted to be furnished to Escrow Agent. Such Schedule I may be
amended and updated by written notice to Escrow Agent with a copy to the other party to this Agreement,
provided that failure to furnish such copy to any other party will not affect the validity of such notice to
Escrow Agent. Escrow Agent will be entitled to rely on such original or amended Schedule I with respect to
any party until a new Schedule I is furnished by such party to Escrow Agent.
Section 19Governing Law. This Agreement will be governed by and construed in accordance with the
laws of the State of Delaware. Escrow Agent will not be deemed to be transacting banking or trust businesses
or otherwise doing business in the State of Delaware for any purpose whatsoever solely by virtue of the choice
of Delaware law to govern the terms of this Agreement.
Section 20Jurisdiction. Each of the parties hereto hereby irrevocably agrees that any action, suit or
proceedings against any of them by any of the other aforementioned parties with respect to this Agreement will
be brought before the jurisdiction of the U.S. District Court for the District of Oregon. Each party hereto further
irrevocably consents to the service of any complaint, summons, notice or other process relating to any such
action or proceeding by delivery thereof to it by hand or by registered or certified mail, return receipt requested,
in the manner provided for herein. Each party hereto hereby expressly and irrevocably waives any claim or
defense in any such action or proceeding based on improper venue or forum non conveniens or any similar
basis. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT.
Section 21Tax Matters.
(a)Withholding Forms. (i) Escrow Agent does not have any interest in the Escrow Property deposited
hereunder but is serving as escrow holder only and having only possession thereof. Buyer will pay or reimburse
Escrow Agent upon request for any transfer taxes or other taxes relating to the Escrow Property incurred in
connection herewith and will indemnify and hold harmless Escrow Agent from any amounts that it is obligated
to pay in the way of such
14
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
taxes. The Escrow Agent shall be entitled to deduct and withhold from any payments of income from the
Escrow Accounts such amounts as are required to be deducted and withheld from such payments under the
Internal Revenue Code of 1986, as amended (the “ Code ”) and the Treasury Regulations thereunder. Buyer and
GSH each agrees to provide, and GSH agrees to provide on behalf of each Seller listed on Schedule III, the
appropriate IRS Forms W-8 or W-9 to Escrow Agent, duly completed and signed by each such person or its
Authorized Representative. Buyer and GSH acknowledge that failure to provide such forms may prevent or
delay disbursement of the Escrow Property hereunder. Each of Buyer and GSH agrees to submit or provide a
new IRS Form W-8 or W-9 (as the case may be) should the jurisdiction of the relevant person’s domicile or
residence change or any other change in circumstances make the originally provided form inaccurate during the
term of this Agreement.
(ii)Additionally, if either or both of Buyer or GSH propose to direct or direct Escrow Agent to make a
payment to any person other than such party or a Seller listed on Schedule III, including a “foreign financial
institution” (as defined in Code section 1471(d)(4)) or a “non-financial foreign entity” (as defined in Code
section 1472(d)) then Buyer or GSH shall provide Escrow Agent with a certification in form and substance
reasonably satisfactory to Escrow Agent that it has obtained valid documentation sufficient to determine the
status of the payee for purposes of Chapter 3 (Code sections 1441-1464) and Chapter 4 (Code sections
1471-1474 (“ FATCA ”)) of the Code and that any payment to the payee is not subject to Chapter 3 or Chapter
4 (FATCA) withholding.
(iii)If Escrow Agent does not receive either an IRS Form W-8 or Form W-9 required by subparagraph
(i) of this Section 21(a) or each certification required by subparagraph (ii) of this Section 21(a) from Buyer
and/or GSH regarding the payee of any payment made hereunder, then Escrow Agent shall treat the payee as a
foreign financial institution.
(b)Tax Reporting. Escrow Agent will report payments of income from the Escrow Accounts to Buyer,
GSH and the Sellers as required by the Code and the Treasury Regulations thereunder, by providing the
applicable IRS Form 1099 or Form 1042-S. Escrow Agent will not provide IRS Forms 1099 or Forms 1042-S
to any payee other than Buyer, GSH and the Sellers listed on Schedule III.
(c)Tax Owner(s) of Income. For U.S. federal and applicable state income tax purposes, during the
period in which the Escrow Property is held by Escrow Agent, Buyer shall be treated as the owner of the
Escrow Accounts and all interest accrued to the Escrow Accounts, or income otherwise earned with respect to
the Escrow Property, will be treated as earned by Buyer.
(d)Withholding. Escrow Agent will withhold any taxes as and to the extent required by Chapter 3 or
Chapter 4 (FATCA) or any other applicable provision of the Code and the Treasury Regulations
thereunder. Any transfer of funds or payment to any person pursuant to this Agreement, will be made net of
any taxes required to be withheld pursuant to Chapter 3, Chapter 4 (FATCA), or other applicable U.S.
withholding taxes. Escrow Agent will not be required to increase any payment in respect of which it withholds
U.S. taxes or otherwise
15
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
compensate the recipient of the payment for any amount so withheld. Each of Buyer and GSH agrees to provide
Escrow Agent with information sufficient to identify the type of payment, the portion of such payment allocated
to each payee and a certification of the Chapter 3 and Chapter 4 (FATCA) status of each payee and whether any
U.S. withholding taxes (including but not limited to Chapter 3 and Chapter 4 (FATCA) withholding taxes)
apply to payments being made to any such payee. Buyer and GSH have the primary responsibility to determine
the validity of IRS Forms W-8 and W-9 obtained from each payee and any applicable withholding tax
consequence thereto. Notwithstanding any identification by Buyer or GSH of the type of payment or the rate of
withholding applicable thereto, if Escrow Agent determines in its reasonable discretion that the payment is
subject to U.S. withholding taxes, Escrow Agent will withhold the applicable tax.
Section 22USA PATRIOT Act. Buyer and GSH will provide to Escrow Agent such information as
Escrow Agent may reasonably require to permit Escrow Agent to comply with its obligations under the federal
USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001) and any other law, statute, regulation or regulation relating to prohibited
practices. Escrow Agent will not credit any amount of the Escrow Fund or any interest or investment proceeds
earned thereon, or make any payment of all or a portion of the Escrow Fund or any interest or investment
proceeds earned thereon, to any person unless and until such person has provided to Escrow Agent such
documents as Escrow Agent may require to permit Escrow Agent to comply with its obligations under such Act
or any other such law, statute, regulation or regulation.
Section 23Miscellaneous.
(a)The rights and remedies conferred upon the parties hereto shall be cumulative, and the exercise or
waiver of any such right or remedy will not preclude or inhibit the exercise of any additional rights or
remedies. The waiver of any right or remedy hereunder will not preclude the subsequent exercise of such right
or remedy.
(b)This Agreement is for the exclusive benefit of the parties hereto and their respective successors
hereunder, and will not be deemed to give, either express or implied, any legal or equitable right, remedy, or
claim to any other entity or person whatsoever.
(c)Each party hereby represents and warrants (i) that this Agreement has been duly authorized,
executed and delivered on its behalf and constitutes its legal, valid and binding obligation and (ii) that the
execution, delivery and performance of this Agreement by the parties hereto does not and will not violate any
applicable law or regulation.
(d)The headings contained in this Agreement are for convenience of reference only and will have no
effect on the interpretation or operation hereof.
16
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(e)Except as otherwise permitted herein, this Agreement may be modified only by a written
amendment signed by the proper party’s Authorized Representative and Escrow Agent, and no waiver of any
provision hereof will be effective unless expressed in a writing signed by the proper party’s Authorized
Representative and Escrow Agent.
(f)No party may assign any of its rights or obligations under this Agreement without the written
consent of the other parties.
(g)Any entity into which Escrow Agent may be merged or converted or with which it may be
consolidated, or any entity resulting from any merger, conversion or consolidation to which Escrow Agent will
be a party, or any entity succeeding to all or substantially all of the corporate trust business of Escrow Agent
will be the successor of Escrow Agent hereunder without the execution or filing of any paper with any party
hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the contrary notwithstanding.
[Signature Page to Follow]
17
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
Buyer:
By:
Name:
Title:
GSH
By:
Name:
Title:
MUFG UNION BANK, N.A.
as Escrow Agent
By:
Name:
Title:
[Signature Page to Escrow Agreement]
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SCHEDULE I
Escrow Account Signing Authority
Authorized Representative(s) of Buyer2
Signature:
Print:
Title:
Phone:
Fax:
Email:
Signature:
Print:
Title:
Phone:
Fax:
Email:
Certification: The undersigned certifies that each of the individuals listed above is an authorized representative
of Buyer with respect to any instruction or other action to be taken in connection with the Escrow Agreement
and MUFG Union Bank, N.A. will be entitled to rely on such list until a new list is furnished to MUFG Union
Bank, N.A. The undersigned further certifies that he or she is duly authorized to sign this Escrow Account
Signing Authority.
Signature:
Name:
Its:
Date:
**
** To be signed by corporate secretary/assistant secretary or other authorized officer, manager or authorized
officer of manager not named above. When the secretary, or other authorized officer, manager or authorized
officer of manager, is among those authorized above, there must be an additional verifying signature space
provided below. For entities other than corporations, an authorized signatory not signing above should sign this
Escrow Account Signing Authority.
(Additional signature, if required)
Signature:
Name:
Its:
Date:
2
Signature specimen must be on the same page as the certification signatures. Counterparts will not be accepted.
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Escrow Account Signing Authority (continued)
Authorized Representative(s) of GSH
Signature:
Print:
Title:
Phone:
Fax:
Email:
Signature:
Print:
Title:
Phone:
Fax:
Email:
Certification: The undersigned certifies that each of the individuals listed above is an authorized representative
of GSH with respect to any instruction or other action to be taken in connection with the Escrow Agreement and
MUFG Union Bank, N.A. will be entitled to rely on such list until a new list is furnished to MUFG Union Bank,
N.A. The undersigned further certifies that he or she is duly authorized to sign this Escrow Account Signing
Authority.
Signature:
Name:
Its:
Date:
**
** To be signed by corporate secretary/assistant secretary or other authorized officer, manager or authorized
officer of manager not named above. When the secretary, or other authorized officer, manager or authorized
officer of manager, is among those authorized above, there must be an additional verifying signature space
provided below. For entities other than corporations, an authorized signatory not signing above should sign this
Escrow Account Signing Authority.
(Additional signature, if required)
Signature:
Name:
Its:
Date:
**
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Schedule II
ESCROW AGENT COMPENSATION
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SCHEDULE III
Wire Instructions:
If to Buyer:
ABA No.:
Bank Name:
Account No.:
Account Name:
Reference:
If to GSH:
Seller:
ABA No.:
Bank Name:
Account No.:
Account Name:
Reference:
Percentage of aggregate funds wired to GSH to be delivered to Seller:
Seller:
ABA No.:
Bank Name:
Account No.:
Account Name:
Reference:
Percentage of aggregate funds wired to GSH to be delivered to Seller:
Seller:
ABA No.:
Bank Name:
Account No.:
Account Name:
Reference:
Percentage of aggregate funds wired to GSH to be delivered to Seller:
Seller:
ABA No.:
Bank Name:
Account No.:
Account Name:
Reference:
Percentage of aggregate funds wired to GSH to be delivered to Seller:
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Seller:
ABA No.:
Bank Name:
Account No.:
Account Name:
Reference:
Percentage of aggregate funds wired to GSH to be delivered to Seller:
If to Escrow Agent:
ABA:122000496
Bank Name:MUFG Union Bank, N.A.
Account No.:37130196431
Account Name:TRUSDG
For Further Credit:[to be provided]
Attention:[________________]
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit B
Form of Optionholder Pay-Off Agreement
Exhibit B
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
FORM OF OPTIONHOLDER PAY-OFF AGREEMENT
This Optionholder Pay-Off Agreement (this “Agreement”) is made and entered into as of [●], 2015 by
and between AVB, Inc., an Oregon corporation (the “ Company ”), and the undersigned holder of options to
purchase common stock of the Company (“ Optionholder ”). The Company and Optionholder are sometimes
referred to herein individually as a “ Party ” or collectively as the “ Parties .” Capitalized terms used but not
defined in this Agreement will have the meanings assigned to them in that certain Stock Purchase Agreement
dated as of August 12, 2015 by and among the Company, Flowers Bakeries, LLC, Flowers Foods, Inc., and the
other parties thereto (the “ Purchase Agreement ”).
BACKGROUND
A. Optionholder has previously received stock options under the Company Benefit Plan (the “ Plan ”),
and as of the date of this Agreement holds options to purchase that certain number of shares (the “ Shares ”) of
the Company’s common stock (the “ Options ”), as set forth in Exhibit A attached hereto.
B. In connection with the Company entering into the Purchase Agreement, the Company will be
accelerating the vesting of the Options (to the extent not yet fully vested), and immediately prior to the Closing
of the transaction contemplated by the Purchase Agreement (the “ Sale Transaction ”), cancel the Options in
exchange for a payment to Optionholder representing the amount that Optionholder would have received upon
complete exercise of the Options followed by a sale of the resulting Shares in the Sale Transaction.
C. The Parties desire to enter into this Agreement to acknowledge and confirm the cancellation of the
Options in consideration for the payment described in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective commitments contained in
this Agreement, the Parties agree as follows:
1.
Termination of Options.
Subject to the terms and conditions of this Agreement, Optionholder hereby irrevocably agrees that he
or she will not exercise any Options prior to the Closing, and the Options possessed by Optionholder, effective
as of the Closing Date, will be cancelled and terminated in exchange for the right to receive from the Company
the payment described in Section 2.1 .
2.
Payments.
2.1.Payments. As of the Closing Date, each of the Options will be irrevocably cancelled and
terminated (without issuance of any Shares on account of such Options) and the Company will pay
Optionholder an amount equal to: (a) the aggregate fair market value of a Share (using the value utilized for
purposes of the Sale Transaction) multiplied by the number of Shares covered by the Options, less (b) the
aggregate exercise price associated with the Options, less (c) applicable withholding taxes (the aggregate
amount to be paid for all of the Options is referred to as the “ Payment Amount ”) and as further set forth in
Exhibit A attached hereto.
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
2.2.Payment Date. The Payment Amount will be paid to Optionholder in cash, in a
lump-sum, no later than the Closing Date.
2.3.Tax Withholding. At the time Optionholder is paid the Payment Amount, Optionholder
acknowledges that Company will withhold from the Payment Amount any amounts required by Law and
otherwise authorizes tax withholding (from payroll, if applicable) and any other amounts payable to
Optionholder, and Optionholder otherwise agrees to make adequate provision for any sums required to satisfy
the federal, state, local and foreign tax withholding obligations of the Company which arise in connection with
the Payment Amount.
3.
Termination.
This Agreement will automatically terminate and be of no further force or effect in the event the
Purchase Agreement is terminated prior to the Closing pursuant to Section 10.1 thereof.
4.
Representations and Warranties of Optionholder.
Optionholder hereby represents and warrants to Company as of the date of this Agreement and as of
the Closing Date, as follows:
4.1.No Other Equity Rights; Waiver. Optionholder acknowledges and agrees that receipt of
the Payment Amount in accordance with the terms and conditions of this Agreement fully satisfies any and all
obligations to Optionholder with respect to the Options, and Optionholder holds no other options or rights to
purchase capital stock or other equity interests in the Company or under any plan, award, grant, agreement or
understanding.
4.2.Enforceability. Optionholder has the authority to enter into this Agreement and to carry
out his or her obligations hereunder, and this Agreement has been duly executed by Optionholder and
(assuming the due authorization, execution and delivery of this Agreement by the Company) constitutes his or
her valid and binding obligation, enforceable against Optionholder in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and subject to general principles of equity (regardless of whether such
enforcement is considered in a proceeding at law or at equity).
4.3.No Conflicts. The execution, delivery and performance of this Agreement by
Optionholder do not, and will not: (a) to the best of his or her knowledge, violate any provision of law, or any
order, judgment or decree of any court or other governmental or regulatory authority; or (b) violate or result in a
breach of or constitute (with due notice or lapse of time or both) a default under any material contract, lease,
loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which
Optionholder is a party or by which he or she is bound.
-2CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
4.4.Transfer. The Options have not been transferred, encumbered or assigned by
Optionholder to any person and Optionholder has not entered into any agreement to transfer, encumber or
assign such Options to any person.
5.Prohibition on Transfer.
Optionholder hereby covenants and agrees that he or she will not sell, assign, transfer, pledge,
hypothecate or otherwise encumber any of the Options and/or Optionholder’s rights under this Agreement. Any
sale, assignment, transfer, pledge, hypothecation or other encumbrance in violation of this Section 5 will be
void.
6.Release.
6.1.General Release. If the Closing occurs, effective as of the Closing Date, Optionholder
hereby releases the Company and its past, present and future predecessors, successors, assignees, officers,
directors, members, managers, employees, attorneys, agents, and other affiliates (collectively, the “ Releasees
”), from any claims, actions or liabilities arising from or which may hereafter arise from acts or omissions
occurring prior to the Closing Date, including, without limitation, any claims arising from or with respect to
Optionholder’s ownership or purported ownership of any securities of the Company or from Optionholder’s
employment by or, if applicable, termination from the Company (collectively, the “ Claims ”), provided that
the Claims specifically exclude: (a) Optionholder’s rights and remedies with respect to this Agreement; (b)
claims, actions or liabilities related to the right of Optionholder to receive current earned and accrued but unpaid
compensation, or un-reimbursed business expenses or other employment benefits payable under the terms of a
written Company policy, plan or arrangement; and (c) Optionholder’s rights relating to any and all issued and
outstanding Shares held by Optionholder immediately prior to the Closing, excluding Shares on account of
Options exercised prior to the date of this Agreement, if any. It is Optionholder’s intention that this release will
be effective as a full and final accord and satisfaction and release of each and every Claim. Optionholder
acknowledges that he or she may hereafter discover facts in addition to or different from those which
Optionholder now knows or believes to be true with respect to the release contained in this Section 6.1 .
Nevertheless, Optionholder agrees that he or she intends by this release to fully, finally and forever settle and
release the Claims, and this release will be and remain in effect as a full and complete release of the Claims
notwithstanding the discovery or existence of any such additional or different fact or facts. Optionholder
represents and warrants that Optionholder has not assigned or otherwise transferred any interest in any Claim
that Optionholder may have against the Releasees and agrees to indemnify and hold harmless the Releasees
from any liability, claims, demands, damages, costs, expenses and attorneys’ fees incurred as a result of any
person asserting any such assignment or transfer of any Claims.
-3CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
6.2.Payment Amount. Upon acceptance of the Payment Amount, Optionholder will be
deemed to have accepted all aspects of the calculation of the Payment Amount and any other matter associated
therewith and unconditionally released and discharged the Company, its affiliates, any and all of its and their
respective past and present shareholders, directors, officers, employees, agents and representatives and any and
all of its and their respective successors and assigns from any and all claims in connection with, or in any
manner related to or arising under, the Payment Amount.
6.3.California Civil Code Section 1542 Notice. In connection with Sections 6.1 and 6.2, the
undersigned: (a) represents, warrants and acknowledges that the undersigned has been fully advised of the
contents of Section 1542 of the Civil Code of the State of California; and (b) hereby expressly waives the
benefits thereof and any rights that the undersigned may have thereunder. Section 1542 of the Civil Code of the
State of California provides as follows:
A general release does not extend to claims which the creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by him must have materially affected his settlement with
the debtor.
7.Third Party Beneficiaries.
Nothing expressed or implied in this Agreement is intended, or will be construed, to confer upon or
give any person or entity other than the Parties and their successors or permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, or result in such person or entity being deemed a
third party beneficiary of this Agreement. Notwithstanding the foregoing, each Releasee is an express third
party beneficiary of Section 6.
8.Tax Matters
Optionholder acknowledges and represents that: (a) the Company has not made any representations
regarding the income tax treatment of the Payment Amount described above in Section 2.1; and (b) except for
withholding, reporting and payment of FICA taxes and federal, state and local income tax withholdings,
Optionholder is responsible for reporting and paying any taxes associated with those payments under relevant
law. Optionholder agrees to indemnify and hold the Company harmless for any taxes, penalties, interest and
legal fees incurred by the Company as a result of not withholding federal, state and local income taxes and/or
FICA taxes on the Payment Amount. Optionholder agrees and acknowledges that he or she has been advised
by the Company to consult his or her own tax advisor regarding the federal, state, local and foreign tax
consequences of the receipt of the Payment Amount .
-4CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
9.General Provisions.
9.1.Notices. All notices and other communications hereunder will be in writing and will be
deemed duly given: (a) on the date of delivery if delivered personally and/or by messenger service; (b) on the
date of confirmation of receipt (or, the first business day following such receipt if the date is not a business day)
of transmission by facsimile; or (c) on the date of confirmation of receipt (or, the first business day following
such receipt if the date is not a business day) if delivered by a nationally recognized courier service. All notices
hereunder will be delivered as set forth below or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
If to the Company:
AVB, Inc. c/o Goode Seed Holdings, LLC
767 Third Avenue, 22nd Floor
New York, NY 10017
Attention: Daniel Bonoff
Facsimile: (212) 317-2827
If to Optionholder, to the address set forth alongside Optionholder’s signature below
or to such other representative or at such other address of a Party as such Party may furnish to the other Party in
writing.
9.2.Amendments; Waivers. This Agreement may be amended or modified, and any of the
terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument
executed by the Company and Optionholder or in the case of a waiver, by the Party waiving compliance. Any
waiver by any Party of any condition, or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, in any one or more instances, will not be deemed to be nor construed as a
further or continuing waiver of any such condition, or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
9.3.Assignment; Successors in Interest. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the Parties, whether by operation of law or
otherwise, unless the Parties provide written consent to such assignment. Any assignment in violation of the
foregoing will be null and void. This Agreement will be binding on and will inure to the benefit of the
successors and permitted assigns of the Parties.
9.4.Interpretation; Construction. The section headings contained in this Agreement are for
convenience of reference only and will not affect the meaning or interpretation of this Agreement. References
herein to a party or other person include their respective successors and assigns. The words “include,”
“includes” and “including” when used herein will be deemed to be followed by the phrase “without limitation”
unless such phrase
-5CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
otherwise appears. Unless the context otherwise requires, references herein to Sections will be deemed
references to Sections of this Agreement. The Parties agree that they have been represented by counsel during
the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or other document will be construed
against the Party drafting such agreement or document.
9.5.Governing Law; Jurisdiction. This Agreement will be governed by and construed in
accordance with the laws of the State of Oregon, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law thereof. Each of the Parties irrevocably consents to the jurisdiction and
venue of any Oregon state court or any court of the United States located in Portland, Oregon in the event any
dispute arises out of this Agreement or any of the transactions contemplated hereby and consents to service
being made through the notice procedures set forth in Section 9.1 .
9.6.Waiver of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT HEREOF.
9.7.Severability. In the event that any provision of this Agreement or the application thereof,
becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the Parties. The Parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will
achieve, to the greatest extent possible, the economic, business and other purposes of such void or
unenforceable provision.
9.8.Counterparts. This Agreement may be signed in any number of counterparts with the
same effect as if the signature on each such counterpart were on the same instrument. Facsimiles, or other
electronic transmissions (e.g., PDFs), of signatures will be deemed to be originals.
9.9.Integration. This Agreement (and any additional documents executed pursuant to this
Agreement) supersedes all negotiations, agreements and understandings between the Parties with respect to the
subject matter of this Agreement and constitutes the entire agreement between the Parties.
-6CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
9.10.Remedies Cumulative. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy. The Parties hereby acknowledge and agree that the failure of any
Party to perform its agreements and covenants hereunder will cause irreparable injury to the other Party.
9.11.Capacity in which Agreement is Executed. Optionholder acknowledges and agrees that,
by executing this Agreement, Optionholder is agreeing to the terms and conditions of this Agreement with
respect to all the Options held by Optionholder.
9.12.Further Assurances. At any time and from time to time, at the reasonable request of the
Company and without further consideration, Optionholder will execute and deliver such documents and take
such actions as necessary to effectuate the transactions contemplated hereby.
-7CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
IN WITNESS WHEREOF, the Parties have caused this Optionholder Pay-Off Agreement to be duly
executed, as of the date first written above.
COMPANY:
AVB, INC.
By:
Name:
Title:
OPTIONHOLDER:
Address:
Signature:
Printed Name:
SIGNATURE OF SPOUSE (IF OPTIONHOLDER RESIDES IN ANY COMMUNITY PROPERTY STATE,
INCLUDING WASHINGTON OR CALIFORNIA)
Signature:
Printed Name:
Date:
{Signature Page to Equity Rights Termination Agreement}
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
EXHIBIT A
Date of Option
Agreement(s)
Number of
Options
Granted for
Shares
Exercise Number of Options Number of
Price
Previously
Outstanding
Exercised
Options
Total Number
of Vested
Outstanding
Options
Aggregate
Payment
Amount in
Exchange for
Options
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit C
Seller Notice Information
GOODE SEED HOLDINGS, LLC
767 Third Avenue, 22nd Floor
New York, NY 10017
Facsimile: (212) 317-2827
Attention: Daniel Bonoff
GOODE SEED CO-INVEST, LLC
767 Third Avenue, 22nd Floor
New York, NY 10017
Facsimile: (212) 317-2827
Attention: Daniel Bonoff
GLENN DAHL FAMILY TRUST, U/A/D NOVEMBER 28, 2012
5100 NW 137th Ave
Portland OR 97229
Facsimile: N/A
Attention: Glenn Dahl
DAVID DAHL FAMILY TRUST, U/A/D MAY 1, 2012
SE Premier Ct
Milwaukie, OR 97267
Facsimile: N/A
Attention: David Dahl
SHOBI L. DAHL FAMILY TRUST, U/A/D DECEMBER 16, 2011
1682 SE Waverly Dr.
Milwaukie, OR 97222
Facsimile: N/A
Attention: Shobi Dahl
Exhibit C
CONFIDENTIAL TREATMENT REQUESTED BY FLOWERS FOODS, INC. – CONFIDENTIAL PORTIONS OF THIS DOCUMENT, MARKED BY
*****, HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit 10.11
EXECUTION VERSION
THIRD AMENDMENT AND WAIVER TO
RECEIVABLES LOAN, SECURITY AND SERVICING AGREEMENT
THIS THIRD AMENDMENT AND WAIVER TO RECEIVABLES LOAN, SECURITY
AND SERVICING AGREEMENT dated as of August 20, 2015 (this “ Amendment ”) is entered into among
FLOWERS FINANCE II, LLC, a Delaware limited liability company (the “ Borrower ”), FLOWERS FOODS,
INC., a Georgia corporation (the “ Servicer ”), NIEUW AMSTERDAM RECEIVABLES CORPORATION
B.V., COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK”, as Facility
Agent for the Nieuw Amsterdam Lender Group and as a Committed Lender, PNC BANK, NATIONAL
ASSOCIATION, as Facility Agent for the PNC Bank Lender Group and as a Committed Lender, and
COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK”, NEW YORK
BRANCH, as administrative agent (the “ Administrative Agent ”) for each of the Lenders.
RECITALS
WHEREAS, reference is made to that certain Receivables Loan, Security and Servicing
Agreement dated as of July 17, 2013, as amended by First Amendment to Receivables Loan, Security and
Servicing Agreement dated as of August 7, 2014 and by Second Amendment to Receivables Loan, Security and
Servicing Agreement dated as of December 17, 2014 (as so amended, the “ Existing Loan Agreement ” and, as
amended by this Amendment and as otherwise amended, supplemented or modified from time to time, the “
Loan Agreement ”) among the parties to this Amendment. Unless otherwise provided elsewhere herein,
capitalized terms used herein shall have the respective meanings assigned thereto in the Loan Agreement; and
WHEREAS, the parties to this Amendment have agreed to (i) amend the Existing Loan
Agreement and (ii) waive the Specified Events (as defined below) under the Existing Loan Agreement, all on
the terms and subject to the conditions set forth in this Amendment;
NOW, THEREFORE, the parties to this Amendment hereby agree as follows:
SECTION 1.Amendments to Existing Loan Agreement. Effective as of the Effective Date
(as defined below), subject to the satisfaction of the conditions precedent set forth in Section 3 below, the
Existing Loan Agreement is hereby amended as follows:
(a)each of the definitions of “Facility Termination Date” and “LIBO Rate” appearing in
Annex I to the Existing Loan Agreement is hereby amended and restated as follows:
“Facility Termination Date” means the earlier to occur of August 11, 2017 and the Early
Termination Date.
"LIBO Rate" means, with respect to an Accrual Period and an Advance, the greater of (i) 0.00% and
(ii) (a) the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London
time) on the date that is 2 Business Days prior to the commencement of such Accrual Period by reference to
the Reuters Screen LIBOR01 for deposits in Dollars (or such other comparable page as may, in the opinion
of the Administrative Agent, replace such page for the purpose of
displaying such rates) for a period equal to such Interest Period; provided that to the extent that an interest
rate is not ascertainable pursuant to the foregoing provisions of this definition, the “LIBO Rate” shall be the
interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at
which deposits in Dollars are offered for such relevant Accrual Period to major banks in the London
interbank market in London, England by the Administrative Agent at approximately 11:00 a.m. (London
time) on the date that is 2 Business Days prior to the beginning of such Accrual Period, divided by (b) a
percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any
member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation
D (or any successor category of liabilities under Regulation D).
(b)the following definition is added to Annex I to the Existing Loan Agreement in the
appropriate alphabetical order:
“Volcker Rule” means Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and
the applicable rules and regulations thereunder.
(c)Section 4.01(n) of the Existing Loan Agreement is hereby amended by adding the
following at the end thereof:
The Borrower is not a “covered fund” under the Volcker Rule and in determining that the Borrower
is not a covered fund, the Borrower, among other things, either does not rely solely on the exemption from
the definition of “investment company” set forth in Section 3(c)(1) and/or Section 3(c)(7) of the Investment
Company Act of 1940 or is entitled to the benefit of the exclusion for loan securitizations in the Volcker
Rule under 17 C.F.R. 75.10(c)(8).
SECTION 2.Waiver to Existing Loan Agreement. Pursuant to Section 5.02(c) of the
Originator Sale Agreement (Bakeries), no Originator may change its name unless it has given the
Administrative Agent at least 30 days’ prior written notice thereof and prior to such change it has caused the
financing statement filed in connection with such agreement to be amended or a new financing statement to be
filed. On February 4, 2015, Flowers Baking Co. of Lenexa, LLC, a Kansas limited liability company merged
with and into Flowers Baking Co. of Kansas City, LLC, a Kansas limited liability company (the “ Surviving
Company ”) and the Surviving Company changed its name to Flowers Baking Co. of Lenexa, LLC without
providing prior written notice of the name change to the Administrative Agent or causing to be filed a new or
amended financing statement (the “ Specified Breach ”). The Specified Breach, without giving effect to the
waiver and agreements requested herein by the Borrower, would constitute an Event of Default under Section
8.02(e) of the Receivables Loan Agreement and an Amortization Event under Sections 8.01(b) and (h) of the
Receivables Loan Agreement (collectively, the “ Specified Events ”).
Subject to the satisfaction of the conditions precedent set forth in Section 3 below, the Facility Agents
and the Administrative Agent waive the Specified Events and any other Event of Default and Amortization
Event relating to the Specified Breach. Each Lender hereby directs the
related Facility Agent and the Administrative Agent to grant such waiver and enter into this Amendment.
SECTION 3.Conditions Precedent. The amendments set forth in Section 1 and the waiver
set forth in Section 2 above shall become effective as of the date hereof (the “ Effective Date ”) upon (a) the
receipt by the Administrative Agent of counterpart signature pages to this Amendment executed by each of the
parties to this Amendment, (b) the receipt by the Administrative Agent of counterpart signature pages to the
Second Amended and Restated Fee Letter dated as of the date hereof (the “ Amended Fee Letter ”) between the
Borrower and the Administrative Agent executed by each of the parties thereto, (c) the receipt by each
Committed Lender of the amendment fee as set forth in the Amended Fee Letter, (d) the receipt by the
Administrative Agent of evidence of the name change of Flowers Baking Co. of Kansas City, LLC’s to Flowers
Baking Co. of Lenexa, LLC and (e) the filing by the Administrative Agent of the financing statement
amendment attached hereto as Exhibit A. Each Lender hereby consents to the amendment and restatement of
the Fee Letter pursuant to the Amended Fee Letter.
SECTION 4.Representations and Warranties of the Borrower. Each of the Borrower and the
Servicer hereby represents and warrants to each Lender, each Facility Agent and the Administrative Agent that,
on and as of the date hereof:
(a)this Amendment has been duly executed and delivered by it, and this Amendment and the
Existing Loan Agreement as amended hereby constitute, the legal, valid and binding obligations of it
enforceable against it in accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors generally and to general equitable
principles (regardless of whether considered in a proceeding in equity or at law); and
(b)the representations and warranties of it contained in the Loan Agreement or in the other
Transaction Documents to which it is a party are true and correct in all material respects as of the date hereof,
with the same effect as though made on such date (after giving effect to this Amendment), except to the extent
such representation or warranty expressly relates only to a prior date; and
(c)immediately after giving effect to this Amendment, no Amortization Event or Event of
Default shall have occurred and be continuing.
SECTION 5.Miscellaneous.
(a)This Amendment may be amended, modified, terminated or waived only as provided in
Section 10.05 of the Loan Agreement.
(b)Except as expressly modified as contemplated hereby, the Loan Agreement is hereby
confirmed to be in full force and effect in accordance with its terms and is hereby ratified and confirmed. This
Amendment is intended by the parties to constitute an amendment and modification to, and otherwise to
constitute a continuation of, the Loan Agreement, and is not intended by any party and shall not be construed to
constitute a novation thereof or of any obligation of any party thereunder. This Amendment shall constitute a
Transaction Document.
(c)The Borrower and the Servicer each acknowledge that the grant by the Facility Agents
and the Administrative Agent of the waiver requested herein does not mean that they or any of them will grant
any other waiver or agreement (whether of the same or similar nature), and no inference to that effect will be
drawn or asserted by the Borrower or the Servicer.
(d)This Amendment shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns under the Loan Agreement.
(e)This Amendment may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement. Delivery of an executed signature
page to this Amendment by facsimile transmission or other electronic image scan transmission shall be effective
as delivery of a manually signed counterpart of this Amendment.
(f)The provisions of this Amendment are intended to be severable. If any provision of this
Amendment shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall,
as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
(g)THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Each party hereto hereby irrevocably
submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in
any action or proceeding arising out of or relating to this Amendment, and each party hereto hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and determined in such New York
State court or, to the extent permitted by law, in such Federal court. The parties hereto hereby irrevocably
waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding. The parties hereto agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(h)EACH OF THE BORROWER, THE SERVICER, THE ADMINISTRATIVE AGENT,
THE FACILITY AGENTS AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT OR
ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE ACTIONS OF THE ADMINISTRATIVE
AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT HEREOF OR THEREOF.
[Signature pages follow]
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK”, NEW
YORK BRANCH, as Administrative Agent
By:
Name:
Title:
By:
Name:
Title:
COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK”, as
Committed Lender and Nieuw Amsterdam Facility Agent
By:
Name:
Title:
By:
Name:
Title:
NIEUW AMSTERDAM RECEIVABLES CORPORATION B.V.
By:
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION, as Committed Lender and PNC Bank Facility Agent
By:
Name:
Title:
FLOWERS FINANCE II, LLC,
as Borrower
By:
Name:
Title:
FLOWERS FOODS, INC.,
as Servicer
By:
Name:
Title:
CERTIFICATIONS — EXHIBIT 31.1
I, Allen L. Shiver, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Flowers Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 12, 2015
/s/ ALLEN L. SHIVER
Allen L. Shiver
President and Chief Executive Officer
CERTIFICATIONS — EXHIBIT 31.2
I, R. Steve Kinsey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Flowers Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 12, 2015
/S/ R. STEVE KINSEY
R. Steve Kinsey
Executive Vice President and
Chief Financial Officer
CERTIFICATIONS — EXHIBIT 31.3
I, Karyl H. Lauder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Flowers Foods, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 12, 2015
/s/ KARYL H. LAUDER
Karyl H. Lauder
Senior Vice President and
Chief Accounting Officer
CERTIFICATIONS — EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Flowers Foods, Inc. (the “company”) on Form 10-Q for the period ended October
10, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of
the company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to such officer’s knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the company as of the dates and for the periods expressed in the Report.
/s/ ALLEN L. SHIVER
Allen L. Shiver
President and
Chief Executive Officer
/s/ R. STEVE KINSEY
R. Steve Kinsey
Executive Vice President and
Chief Financial Officer
/s/ KARYL H. LAUDER
Karyl H. Lauder
Senior Vice President and
Chief Accounting Officer
Date: November 12, 2015
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or
as a separate disclosure document.