SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 16, 2005
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Tasty Baking Company
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(Exact Name of Registrant as Specified in Charter)
Pennsylvania 1-5084 23-1145880
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(State or Other Jurisdiction of (Commission (I.R.S. Employer
Incorporation or File Number) Identification No.)
Organization)
2801 Hunting Park Avenue, Philadelphia, Pennsylvania 19129
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 221-8500
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Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Agreement.
Purchase of the Hunting Park Production Facility
On December 20, 2005, Tasty Baking Company (the "Company") purchased the Hunting
Park production facility (the "Bakery") from the Company's pension plan for
$4,700,000 pursuant to an Agreement of Sale and Purchase of Real Estate dated
December 19, 2005 (the "Purchase Agreement"). The Bakery is located at 2801
Hunting Park Avenue, Philadelphia, Pennsylvania. Included in the purchase of the
Bakery is a five-story production facility and approximately 3 acres of land on
which the production facility is situated. Pursuant to a lease dated July 1,
1984 (the "Lease"), the Company previously leased the Bakery from Wachovia Bank,
N.A., Trustee of the Company's pension plan (successor trustee to Central Penn
National Bank of Philadelphia) (the "Trustee") . The Company and Trustee agreed
to terminate the Lease contemporaneously with the execution of the Purchase
Agreement. The purchase price of $4,700,000 for the Bakery was determined in
accordance with the terms of the Lease, which afforded the Company a right to
purchase the Bakery for the greater of the fair market value or the value in
use. An independent appraisal was conducted to determine the value in use price
of $4,700,000, which was greater than the fair market value of the Bakery.
Payment of the purchase price will result in a net contribution of $1,600,000 to
the pension plan.
Also on December 20, 2005, the Company entered into a mortgage loan with
Citizens Bank of Pennsylvania ("Lender") in the amount of $2,150,000 (the
"Mortgage Loan") and a secondary term loan in the amount of $2,550,000 (the
"Term Loan" and together with the Mortgage Loan, the "Loans"). The Mortgage Loan
and the Term Loan have terms of 10 years and 5 years, respectively. Interest
rates for the Loans are based on LIBOR plus an applicable margin as determined
by the Company's existing credit facility with Lender. The blended interest rate
for the Loans was approximately 6.45% as of December 20, 2005. Pursuant to the
Mortgage Loan, the Company executed and delivered to Lender a mortgage
encumbering the Bakery and creating a lien in the amount of $2,150,000 in order
to secure the Mortgage Loan. Lender's commitment to enter into the Loans was
previously disclosed by the Company in a Form 8-K, dated September 16, 2005.
Acceleration of Vesting of Stock Options
On December 16, 2005, the Company's Board of Directors and its Compensation
Committee approved the acceleration of vesting of all outstanding, unvested
stock options previously awarded to the Company's employees, officers (including
executive officers) and directors under the Company's 1994, 1997 and 2003 Long
Term Incentive Plans. All unvested stock options are "out-of-the-money" as of
the closing stock price of December 16, 2005, with a range of exercise prices
from $7.55 to $11.30 per share.
As a result of the acceleration, stock options to acquire approximately 173,167
shares of the Company's common stock will become exercisable on December 31,
2005, 85% of which were scheduled to vest during 2006. Of the total number of
shares underlying the accelerated stock option, approximately 27,998 are held by
directors and 114,394 are held by executive officers. All other terms and
conditions applicable to these stock options, including exercise prices and
holding period requirements, remain unchanged. The Company had previously
imposed a five-year holding period requirement on any shares obtained through
the exercise of options awarded on or after August 7, 2003. Only 35,000 of the
currently unvested options are not subject to this requirement, with the lowest
exercise price on those options set at $8.60 per share. Accordingly, this
holding period requirement is expected to prevent unintended benefits to the
holders of the majority of these stock options as a result of this accelerated
vesting.
The purpose of this accelerated vesting is to enable the company to avoid
recognizing compensation expense associated with these options in future periods
as required by Statement of Financial Accounting Standards (SFAS) No. 123R,
"Share Based Payment," which the company is required to adopt by January 1,
2006. As a result of the acceleration of vesting, the company expects to reduce
the non-cash, pre-tax compensation expense it would otherwise be required to
record by approximately $410,000 over the original option vesting period,
including approximately $360,000 in fiscal 2006.
Item 1.02. Termination of a Material Definitive Agreement.
In connection with the purchase of the Bakery, as more fully disclosed in the
section entitled "Purchase of Hunting Park Production Facility" in Item 1.01 of
this Current Report on Form 8-K, the Company entered into a Termination of
Lease, dated December 19, 2005, to terminate the Lease. Subject to the Company's
right to extend the Lease for the two (2) remaining renewal terms of three (3)
years each, the current term of the Lease was scheduled to expire on June 30,
2008. The Lease granted the Company an option to purchase the Bakery for the
greater of the fair market value or the value in use. The annual rent under the
Lease in 2005 was $564,000.
Item 2.03. Creation of Direct Financial Obligation or an Obligation
Under an Off-Balance Sheet Arrangement.
The material terms and conditions of the Loans are set forth in the second
paragraph of the section entitled "Purchase of Hunting Park Production Facility"
in Item 1.01 of this Current Report on Form 8-K and are incorporated by
reference into this Item 2.03. Upon a default of the Loans, including the
non-payment of principal or interest, the obligations of the Company under the
Loans may be accelerated and Lender may foreclose on the Bakery.
Item 7.01. Regulation FD Disclosure.
A copy of the press release, dated December 21, 2005, describing the events
disclosed herein is attached hereto as Exhibit 99.1 and incorporated by
reference herein.
Item 8.01. Other Events.
The Company previously announced in November 2005 in Forms 8-K and 10-Q that, in
conjunction with the implementation of Medicare Part D in January 2006, the
Company would no longer provide medical benefits for most of its post-65
retirees. In addition, incumbent retirees would pay age-based rates for life
insurance benefits in excess of $20,000. As a result of these benefit changes,
the projected benefit obligation was remeasured and the Company estimates there
will be a reduction in its other post-retirement benefits ("OPEB") liability of
approximately $10,000,000, which will be amortized over future periods. In 2006,
the Company estimates the amortization of this liability will result in a
reduction of pre-tax OPEB expense of approximately $1,200,000 compared to fiscal
year 2005. This will be primarily a non-cash benefit.
Item 9.01. Financial Statements and Exhibits.
(d) The following exhibit is filed herewith:
Exhibit 99.1 Press Release dated December 21, 2005
"SAFE HARBOR STATEMENT" UNDER THE PRIVATE SECURITIES LITIGA TION REFORM ACT OF
1995
Except for historical information contained herein, the matters discussed herein
are forward-looking statements (as such term is defined in the Securities Act of
1933, as amended) that are subject to risks and uncertainties that could cause
actual results to differ materially. There are a number of factors that may
cause actual results to differ from these forward-looking statements, including
the success of marketing and sales strategies and new product development, the
price and availability of raw materials and energy, actuarial estimates with
regard to employee benefit plans, and general economic and business conditions
including interest rate fluctuations. Other risks and uncertainties that may
materially affect the company are provided in the company's annual reports to
shareholders and the company's periodic reports filed with the Securities and
Exchange Commission from time to time, including reports on Forms 10-K and 10-Q.
Please refer to these documents for a more thorough description of these and
other risk factors.
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 hereunto duly authorized.
TASTY BAKING COMPANY
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(Registrant)
Date: December 21, 2005 /S/ David S. Marberger
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David S. Marberger
Senior Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit Description
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99.1 Press Release dated December 21, 2005