EFTA01381272.pdf

Form S-I Table of Contrail poultry by-product meals, artificial preservatives or corn and we deny that any of our grain-free products contain grains. We also assert that Nestle Purina's statements falsely imply that our products are not made in the United States and arc subject to quality control issues. We allege that Nestle Purina's conduct as described in this lawsuit is aimed at destroying the reputation and goodwill of the 13LUE brand and may induce consumers to make purchasing decisions based on Nestle Purina's false and misleading representations about the composition and sourcing of BLUE products. Our complaint in this lawsuit seeks, among other things, a preliminary and permanent injunction prohibiting Nestle Purina from disseminating such false information. as well as damages (including punitive damages). restitution and disgorgement of all profits attributable to their false and deceptive advertising. On June 4, 2014, this lawsuit was consolidated with the Nestle Purina lawsuit. We have since amended our pleading to name as additional defendants the two advertising and public relations agencies that assisted Nestle Purina with its advertising campaign. In the course of pretrial discovery in the consolidate) Nestle Purina lawsuit, beginning in September 2014 documents and information were revealed that indicate that a facility owned by a major supplier of ingredients to the pet food industry, including Blue Buffalo. for a period of time, had mislabeled as "chicken meal- or "turkey meal' ingredients that contained other poultry-based ingredients that were inappropriate for inclusion in "chicken meal" or "turkey meal- under industry standards, and it appears that this mislabeling was deliberate. This conduct was undertaken by the supplier without our knowledge. and we have since retaced purchasing ingredients from this supplier. This supplier was one of our primary sources of chicken meal and turkey meal. As a result of the supplier's conduct, our advertising claims of "no chicken or poultry by- product meals" were inaccurate as to products containing the mislabeled ingredients. Therefore, we may be exposed to false advertising liability to Nestle Purina and others to the extent a claimant can prove they were injured by our actions. Such liability may be material. We have brought third- party indemnity and damages claims, with respect to the Nestle Purina lawsuit. against the supplier that mislabeled the ingredients. as well as the broker for such mislabeled ingredients. and also have insurance coverage for some of the Nestle Purina lawsuit claims. However, we may not be able to fully recover from such supplier. broker or from our insurance the full amount of any damages we might incur in these matters. We are vigorously defending ourselves against the Nestle Purina and related class action lawsuits. However. Nestle Purina's allegations. whether made in their lawsuit or through press releases, social media or other public announcements. may result in a loss of consumer confidence in our brand and products and a reduction in our sale; if consumers perceive us as being untruthful in our marketing and advertising and may materially adversely affect our brand. reputation. business, financial condition and regilts of operations. regardless of the outcome of the litigation and any damages we may recover from Nestle Purina. In addition, if we do not prevail in our defense of these claims, we may be required to pay substantial damages and may not be able to fully recover those damages from either our insvrance, the ingredient supplier, the ingredient broker or any other responsible parties. In addition, we may be enjoined from continuing certain marketing and advertising practices, which have been an important driver of the growth of our brand and business. If the relief sought in the Nestle Purina lawsuit or any related lawsuit is granted, the impact on the Company could be material. We expect these legal proceedings will be costly and time consuming and will require a commitment of management and personnel resources that will be diverted from our normal business operations. In addition, during the course of this litigation, we anticipate announcements of the court's decisions in connection with hearings, motions and other matters, as well as other interim developments related to the litigation. If securities analysts or investors regard these announcements as being unfavorable to us, the market price of our common stock may decline. We may not successfully ramp up operations at our Heartlandfacility or our Heartlandfacility may not operate in accordance with our expectations. In September 2014, we commenced manufacturing operations at our Heartland facility in Joplin, Missouri and expect to ramp up the facility to full production by the third quarter of 2015. Any substantial delay in bringing this facility up to full production on our current schedule may hinder our ability to produce all of the product needed to meet orders and/or to achieve our expected financial performance. Opening this facility has 24 httplAntw.see.gov/Arehivestedgar/data/I609989/000119312515218883/d734898c61.htm(7/20/2015 10:30:13 AM) CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0080111 CONFIDENTIAL SDNY GM_00226295 EFTA01381272