Exhibit 4.1
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STOCK PURCHASE AGREEMENT
among
GRAMET HOLDINGS CORP.,
DIAGEO PLC
and
DELAWARE CHAMPION
ACQUISITION CORPORATION
Dated as of July 25, 2002
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TABLE OF CONTENTS
ARTICLE I
Definitions
Page
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Section 1.1 Certain Definitions....................................................................1
Section 1.2 Other Terms...........................................................................12
Section 1.3 Other Definitional Provisions.........................................................12
ARTICLE II
Purchase and Sale of Shares
Section 2.1 Purchase and Sale of Shares...........................................................12
Section 2.2 Purchase Price........................................................................12
Section 2.3 Estimated Purchase Price..............................................................13
Section 2.4 Closing; Delivery and Payment.........................................................13
Section 2.5 Post-Closing Adjustment...............................................................14
ARTICLE III
Representations and Warranties of Seller
Section 3.1 Organization and Authority of Seller and Diageo.......................................16
Section 3.2 Organization and Qualification of the Company.........................................17
Section 3.3 Capitalization of the Company.........................................................18
Section 3.4 Subsidiaries of the Company...........................................................18
Section 3.5 Financial Accounts....................................................................19
Section 3.6 Absence of Certain Changes or Events..................................................20
Section 3.7 Licenses..............................................................................21
Section 3.8 Litigation............................................................................22
Section 3.9 Compliance with Law...................................................................22
Section 3.10 Contracts.............................................................................23
Section 3.11 Consents and Approvals................................................................24
Section 3.12 Tax Matters...........................................................................25
Section 3.13 Employee Benefits.....................................................................26
Section 3.14 Environmental Matters.................................................................29
Section 3.15 Brokers and Finders...................................................................29
Section 3.16 Undisclosed Liabilities...............................................................29
Section 3.17 Intellectual Property.................................................................30
Section 3.18 Real Property.........................................................................31
Section 3.19 Sufficiency of Assets.................................................................32
Section 3.20 Labor Matters.........................................................................32
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Section 3.21 Insurance.............................................................................33
Section 3.22 Affiliate Transactions................................................................33
Section 3.23 Franchisees...........................................................................34
Section 3.24 Franchisee Circulars..................................................................35
Section 3.25 Indebtedness..........................................................................35
Section 3.26 Franchisee Investments................................................................36
Section 3.27 Acknowledgement by Seller.............................................................36
Section 3.28 No Other Representations or Warranties................................................36
ARTICLE IV
Representations and Warranties of Buyer
Section 4.1 Organization and Authority of Buyer...................................................36
Section 4.2 Consents and Approvals................................................................37
Section 4.3 Brokers and Finders...................................................................37
Section 4.4 Financial Capability..................................................................37
Section 4.5 Securities Act........................................................................38
Section 4.6 Litigation............................................................................38
Section 4.7 Acknowledgment by Buyer...............................................................38
Section 4.8 No Other Representations or Warranties................................................38
ARTICLE V
Tax Matters
Section 5.1 Liability for Taxes and Related Matters...............................................38
Section 5.2 Information to be Provided by Buyer...................................................40
Section 5.3 Assistance and Cooperation............................................................41
Section 5.4 Miscellaneous.........................................................................41
ARTICLE VI
Certain Covenants and Agreements of Seller and Buyer
Section 6.1 Access and Information................................................................42
Section 6.2 Conduct of Business...................................................................44
Section 6.3 Registrations, Filings and Consents...................................................46
Section 6.4 Employee Compensation and Benefit Plans...............................................48
Section 6.5 Retention of Books and Records........................................................50
Section 6.6 Resignations/Directors................................................................51
Section 6.7 Diageo Arrangements and Other Guarantees..............................................51
Section 6.8 Intercompany Accounts.................................................................53
Section 6.9 Non-Company Related Assets............................................................53
Section 6.10 Certain Insurance Matters.............................................................54
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Section 6.11 Non-Solicitation.......................................................................54
Section 6.12 Acquisition Proposals..................................................................55
Section 6.13 Financial Statements and Reports.......................................................55
Section 6.14 Bank Accounts of the Business..........................................................58
Section 6.15 Financing..............................................................................58
Section 6.16 Cash Undertaking.......................................................................58
Section 6.17 Hedging Instruments....................................................................58
Section 6.18 Notifications..........................................................................58
Section 6.19 Transition Arrangements................................................................59
Section 6.20 Further Assurances.....................................................................60
ARTICLE VII
Conditions to Closing
Section 7.1 Conditions to Each Party's Obligation to Effect the Transaction........................60
Section 7.2 Conditions to Obligations of Buyer.....................................................60
Section 7.3 Conditions to Obligations of Seller....................................................62
ARTICLE VIII
Termination
Section 8.1 Termination............................................................................62
Section 8.2 Additional Termination Rights..........................................................63
Section 8.3 Effect of Termination..................................................................63
ARTICLE IX
Survival and Indemnification
Section 9.1 Survival of Representations, Warranties, Covenants and Agreements; Knowledge of Breach 64
Section 9.2 Indemnification by Buyer...............................................................65
Section 9.3 Indemnification by Seller..............................................................65
Section 9.4 Indemnification as Sole Remedy.........................................................66
Section 9.5 Mitigation of Losses...................................................................66
Section 9.6 Method of Asserting Claims, Etc........................................................66
Section 9.7 Calculation of Losses..................................................................67
Section 9.8 Assignment of Claims...................................................................68
Section 9.9 No Recourse............................................................................68
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ARTICLE X
Miscellaneous
Page
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Section 10.1 Amendment and Waiver..................................................................68
Section 10.2 Expenses..............................................................................68
Section 10.3 Public Disclosure.....................................................................69
Section 10.4 Assignment............................................................................69
Section 10.5 Entire Agreement......................................................................69
Section 10.6 Fulfillment of Obligations............................................................69
Section 10.7 Parties in Interest; No Third Party Beneficiaries.....................................69
Section 10.8 Schedules.............................................................................69
Section 10.9 Counterparts..........................................................................70
Section 10.10 Section Headings......................................................................70
Section 10.11 Notices...............................................................................70
Section 10.12 Governing Law; Submission to Jurisdiction; Selection of Forum.........................71
Section 10.13 Waiver of Jury Trial..................................................................72
Section 10.14 Severability..........................................................................72
Section 10.15 Guarantee.............................................................................72
Section 10.16 Construction..........................................................................73
Section 10.17 Company's Fiscal Year.................................................................73
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STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of July
25, 2002, among Gramet Holdings Corp., a Delaware corporation ("Seller"); solely
for the purposes of Section 10.15, Diageo plc, a company organized under the
laws of England and Wales ("Diageo"); and Delaware Champion Acquisition
Corporation, a Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding shares
of common stock, par value $0.01 per share, of Burger King Corporation (the
"Common Stock"), a Florida corporation (the "Company"); and
WHEREAS, Seller desires to sell and transfer to Buyer, and
Buyer desires to purchase from Seller, all of the issued and outstanding shares
of the Common Stock (the "Shares"), as more specifically provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Certain Definitions. As used in this
Agreement, the following terms shall have the meanings set forth or referenced
below:
"Acquisition Proposal" shall have the meaning set forth in
Section 6.12(a).
"Affiliate", as applied to any Person, means any other Person
directly or indirectly Controlling, Controlled by or under common Control with
such Person.
"Agreement" shall mean this Agreement and all Schedules and
Annexes hereto, as amended, supplemented or otherwise modified from time to time
in accordance with the terms hereof.
"Amended Commitments" shall have the meaning set forth in
Section 8.2.
"Applicable Rate" shall mean the sum of (i) the three-month
London InterBank Offered Rate, as published in the Wall Street Journal, New York
City edition, on the Closing Date and (ii) 200 basis points; provided that the
Applicable Rate shall be deemed to be 20% if the Post-Closing Adjustment has not
been paid when due.
"Base Purchase Price" shall have the meaning set forth in
Section 2.1.
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"Benefit Plans" shall have the meaning set forth in Section
3.13(a).
"BKL Lease" shall have the meaning set forth in Section
3.23(b).
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banks in the City of New York are authorized or
obligated by Law to close.
"Buyer" shall have the meaning set forth in the Preamble.
"Buyer Indemnified Parties" shall have the meaning set forth
in Section 9.3(a).
"Calculation" shall have the meaning set forth in Section
2.5(a).
"Capex" shall mean the sum of all amounts incurred and paid
(it being understood that all such payments shall be actual cash expenditures,
except for relevant internal costs not to exceed $7,000,000 per annum for the
Company's 2002 fiscal year and $5,000,000 per annum for the Company's 2003
fiscal year by the Company and its Subsidiaries) during the period from July 1,
2001 through the Closing that are capital expenditures (including relevant
internal costs) as such term was used by the Company in connection with the
preparation of the materials underlying Annex 2.5(f) for the Company's 2002 and
2003 fiscal year, provided that Capex shall not include any amount if it gives
rise to an asset that is reflected in the Closing Working Capital or if it is
included in the Franchisee Adjustment Amount.
"Capex Adjustment" shall mean the amount (positive or
negative) equal to (A) minus (B); where (A) shall be equal to the sum of (i) the
amount set forth on Annex 2.5(f) hereto for the Company's 2002 fiscal year plus
(ii) the sum of the amounts set forth on Annex 2.5(f) with respect to the
Company's 2003 fiscal year for each completed fiscal quarter of the Company plus
an amount in respect of the fiscal quarter of the Company in which the Closing
Date occurs prorated from the first day of such quarter through the Closing
Date; and where (B) shall be equal to the amount of Capex from July 1, 2001
through the Closing Date; provided that if the Capex Adjustment results in a
negative amount, the absolute value of the Capex Adjustment shall not exceed an
amount equal to the sum of (1) the product of 0.05 and the sum of (I) the amount
set forth on Annex 2.5(f) with respect to the Company's 2003 fiscal year for
each completed fiscal quarter of the Company and (II) an amount in respect of
the fiscal quarter of the Company in which the Closing Date occurs prorated from
the first day of such quarter through the Closing Date and (2) any additional
amounts approved by Buyer in writing after the date hereof and before the
Closing; provided, further that any Capex from July 1, 2002 through the Closing
in any of the four subcategories in Annex 2.5(f) ((i) Company Operations, (ii)
Property income/BKL, (iii) Strategic and New Restaurant Acquisitions and (iv)
MIS/Corporate) in excess of 115% of such subcategory's amount of Capex set forth
on such Annex for the period of calculation shall be disregarded for purposes of
this calculation, except such exception shall not apply in respect of cash paid
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in the Company's 2003 fiscal year for the amount set forth on Annex 2.5(f)
hereto for the Company's 2002 fiscal year and any additional amounts approved by
Buyer in writing.
"Capex Statement" shall have the meaning set forth in Section
2.5(a).
"Chosen Courts" shall have the meaning set forth in Section
10.12.
"Claim Notice" shall have the meaning set forth in Section
9.6.
"Closing" shall have the meaning set forth in Section 2.4(a).
"Closing Date" shall have the meaning set forth in Section
2.4(a).
"Closing Date Financial Statements" shall have the meaning set
forth in Section 2.5(a).
"Closing Net Indebtedness" shall mean the Net Indebtedness as
of the Closing.
"Closing Net Indebtedness Statement" shall have the meaning
set forth in Section 2.5(a).
"Closing EBITDA" shall mean the EBITDA of the Company and its
Subsidiaries calculated in accordance with Annex 2.5(e) for the twelve-month
period ending on the last day of the month immediately preceding the Closing or,
if the Closing shall occur prior to the nineteenth day of the month in which it
occurs, the last month of the Closing EBITDA shall be the month that precedes
the month ending immediately prior to the Closing.
"Closing Working Capital" shall mean the amount as of the
Closing determined in accordance with the provisions set forth in Annex 2.5(a).
"Closing Working Capital Statement" shall have the meaning set
forth in Section 2.5(a).
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall have the meaning set forth in the
Recitals.
"Company" shall have the meaning set forth in the Recitals.
"Company Financial Accounts" shall mean the U.S. GAAP Company
Financial Statements and the U.K. GAAP Company Financial Statements.
"Company Licenses" shall have the meaning set forth in Section
3.7.
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"Confidentiality Agreement" shall have the meaning set forth
in Section 6.1(b).
"Contracts" shall have the meaning set forth in Section 3.1.
"Control", and its correlative meanings, "Controlling" and
"Controlled", shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"CPA Firm" shall have the meaning set forth in Section 2.5(d).
"Diageo" shall have the meaning set forth in the Preamble.
"Diageo Guarantees" shall have the meaning set forth in
Section 6.7.
"Deductible" shall have the meaning set forth in Section
9.1(a).
"De Minimis Claim" shall have the meaning set forth in Section
9.1(a).
"EBITDA" shall mean earnings before interest, taxes,
depreciation and amortization calculated from time to time as specified in
accordance with the terms hereof.
"EBITDA Adjustment Amount" shall mean the amount equal to (A)
plus (B); where (A) shall be equal to the product of (i) the amount (in no event
less than zero) by which $340,000,000 exceeds the sum of the June 30 EBITDA
plus, to the extent included in the June 30 EBITDA, the FY02 Bonuses and (ii)
5.0 (but in no event shall this clause (A) exceed $85,000,000) and (B) shall be
the product of (i) to the extent included as an expense in respect of the FY02
Bonuses in any of the June 30 EBITDA, FY02 U.K. GAAP Company Financial
Statements or the FY02 U.S. GAAP Company Financial Statements, the amount of the
FY02 Bonuses (without duplication), if any, and (ii) 5.0, it being understood
that both (A) and (B) may only be positive numbers.
"EBITDA Adjustment Amount Statement" shall have the meaning
set forth in Section 2.5(a).
"EBITDA Adjustment True-Up Amount" shall mean the difference,
positive or negative, between the EBITDA Adjustment Amount as finally determined
pursuant to Section 2.5 and the Reference EBITDA Adjustment Amount.
"Employees" shall mean all employees of the Company or any of
its Subsidiaries.
"Encumbrances" shall have the meaning set forth in Section
3.1.
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"Environmental Law" shall mean any Law, permit or approval
granted by a Government Entity concerning: (i) pollution or the investigation,
restoration, preservation or protection of the environment (including air,
surface water, groundwater, soil and natural resources) or the presence, use,
storage, handling, Release, control, cleanup or disposal of any Hazardous
Substance, or (ii) health and safety as it relates to Hazardous Substances.
"Equity Commitments" shall have the meaning set forth in
Section 4.4(b).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section
3.13(c).
"ERISA Plans" shall have the meaning set forth in Section
3.13(a).
"Estimated Capex Adjustment" shall have the meaning set forth
in Section 2.3.
"Estimated Closing Working Capital" shall have the meaning set
forth in Section 2.3.
"Estimated Franchisee Adjustment Amount" shall have the
meaning set forth in Section 2.3.
"Estimated Net Indebtedness" shall have the meaning set forth
in Section 2.3.
"Estimated Purchase Price" shall mean the amount equal to (A)
minus (B); where (A) is equal to the sum of (i) the Base Purchase Price and (ii)
the amount, if any, by which the Estimated Closing Working Capital exceeds
negative $69,300,000 and (B) is equal to the sum of (i) the amount, if any, by
which negative $84,400,000 exceeds the Estimated Closing Working Capital; (ii)
the amount (positive or negative) of the Estimated Closing Net Indebtedness;
(iii) the amount (positive or negative) of the Estimated Franchisee Adjustment
Amount; and (iv) the amount (positive or negative), if any, of the Estimated
Capex Adjustment.
"Executive Employment Agreements" shall mean those Contracts
identified as executive employment agreements and set forth on Schedule 3.13(a)
of the Seller Disclosure Schedule.
"Executive Officers" shall mean the Employees who are
counterparties to the Executive Employment Agreements and any Employees who are
senior or executive vice presidents or senior thereto.
"Existing UK DB Plan" shall have the meaning set forth in
Section 6.4(d).
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"Financing Commitments" shall have the meaning set forth in
Section 4.4(a).
"Foreign Plans" shall have the meaning set forth in Section
3.13(h).
"Franchised Restaurant" shall have the meaning set forth in
Section 3.23(a).
"Franchisee Adjustment Amount" shall mean the amount (positive
or negative) equal to (A) minus (B) minus (C); where
(A) is equal to the amount (in no event less
than zero), if any, by which the sum of amounts in respect of
the transactions with the Persons listed on Annex 2.5(c)
exceeds the amount actually advanced, invested or paid after
the date hereof and prior to the Closing by the Company or any
of its Subsidiaries in connection with such transactions;
(B) is equal to if, and only if, the amount
actually advanced, invested or paid after the date hereof and
prior to the Closing by the Company or any of its Subsidiaries
in connection with the second transaction listed on Annex
2.5(c) exceeds $15,000,000, the lesser of (i) $1,500,000 and
(ii) the aggregate amount of any amounts actually advanced,
invested or paid after the date hereof and prior to the Closing
by the Company or any of its Subsidiaries (1) in connection
with such second transaction in excess of $15,000,000 and (2)
in any other franchisees; and
(C) is equal to the amount approved in writing
by Buyer after the date hereof and advanced, invested or paid
by the Company or any of its Subsidiaries after the date hereof
and prior to the Closing in any franchisees to the extent not
otherwise included in (A) or (B) above, including any such
amount not included in this calculation as a result of clause
(B).
For the avoidance of doubt, references in this definition to
"advanced, invested or paid" do not include commitments in respect of which the
cash expenditure has not been made or escrowed.
"Franchisee Adjustment Amount Statement" shall have the
meaning set forth in Section 2.5(a).
"Franchisee Circulars" shall have the meaning set forth in
Section 3.24.
"FY02 Bonuses" shall mean the difference between (A) and (B)
where (A) is equal to the total amount of the expense related to the Company's
2002 fiscal year for annual incentive bonus plans for Employees (e.g., Executive
Incentive Plan, Management Incentive Plan, Share the Success and Restaurant
Management Profit Sharing Plan) in the
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United States and (B) equals the amount that would have been expensed under the
terms of such annual performance bonus plans if 100% (and not more) of the
target performance objectives had been met.
"FY02 U.K.GAAP Company Financial Statements" shall have the
meaning set forth in Section 6.13(a).
"FY02 U.S.GAAP Company Financial Statements" shall have the
meaning set forth in Section 6.13(a).
"Government Regulatory Entity" shall have the meaning set
forth in Section 6.3(b).
"Governmental Entity" shall mean any court, arbitration panel,
governmental or regulatory authority, agency, stock exchange, commission or
body.
"Hazardous Substance" shall mean any substance, material or
waste, listed, defined, designated, regulated or classified as hazardous, toxic
or as a pollutant, contaminant or radioactive under any applicable Environmental
Law, including petroleum and any derivative or by-products thereof,
polychlorinated biphenyls, asbestos and radioactive materials.
"Hedging Instruments" shall have the meaning set forth in
Section 6.17.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
"Identified Contract" shall have the meaning set forth in
Section 3.10(a).
"Income Tax" shall mean any Tax based upon, measured by, or
calculated with respect to income, profits or capital (including any capital
gains Tax, franchise Tax, minimum Tax and any Tax or items of Tax preference,
and capital Tax of a type that is imposed when the amount of such Tax exceeds
the amount of an otherwise applicable franchise Tax or Tax based upon, measured
by, or calculated with respect to income or profits, but not including sales,
use, real or personal property, gross receipts, employer, withholding, transfer
or similar Taxes).
"Indemnified Parties" shall have the meaning set forth in
Section 9.3(a).
"Indemnifying Party" shall have the meaning set forth in
Section 9.6.
"Insurance Policies" shall have the meaning set forth in
Section 3.21(a).
"Intellectual Property Rights" shall have the meaning set
forth in Section 3.17(a).
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"Intercompany Accounts" shall mean all balances related to
indebtedness, including any intercompany indebtedness, loans, guaranty,
receivable, payable or other account between Diageo and its Subsidiaries (other
than the Company and its Subsidiaries) on the one hand, and the Company and its
Subsidiaries, on the other hand.
"IRS" shall mean the Internal Revenue Service.
"June 30 EBITDA" shall have the meaning, in respect of the
twelve-month period of the Company ended June 30, 2002, as set forth in Annex
2.5(d).
"Knowledge", with respect to Seller, shall mean the actual
knowledge of the Persons whose names are set forth on Annex 1.1(a) hereto, and,
with respect to Buyer, shall mean the actual knowledge of the Persons whose
names are set forth on Annex 1.1(b) hereto.
"Law" shall have the meaning set forth in Section 3.1.
"Limit" shall have the meaning set forth in Section 9.1(a).
"Litigation" shall have the meaning set forth in Section 3.8.
"Losses" shall have the meaning set forth in Section 9.2(a).
"Material Adverse Effect" shall mean an effect that is
materially adverse to the business or financial condition, assets, properties or
results of operations of the Company and its Subsidiaries, taken as a whole, but
shall exclude any change or development resulting from (i) any change in general
economic conditions (unless such change has a materially disproportionate effect
on the Company or the industry in which it operates) or (ii) any adverse effect
from the announcement that Buyer is the anticipated acquiror of the Company.
"Most Recent Financial Statements" shall have the meaning set
forth in Section 3.5(c).
"Net Indebtedness" shall mean, as of any date, the amount
equal to (i) the sum of the following obligations (whether or not then due and
payable) to the extent they are of the Company or any of its Subsidiaries (A)
all outstanding indebtedness for borrowed money owed to third parties, (B)
accrued interest payable with respect to indebtedness referred to in Clause (A),
(C) all obligations included in leases of the types of capitalized leases in the
U.K. GAAP Company Financial Statements, (D) all Intercompany Accounts payable to
Diageo and its Subsidiaries (other than to the Company and its Subsidiaries),
and (E) to the extent a liability, (i.e., a negative amount on a balance sheet)
deferred income resulting from the MAA fund of the Company (expressed here as a
positive number) minus (ii) the difference between (A) the sum of (I) the
aggregate cash and any cash equivalents (net of all overdrafts) of the Company
and its Subsidiaries (other than cash held in escrow for the benefit of Sydran
Services
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LLC and other cash held in escrow or otherwise held for the benefit of a Person
who is not the Company or any of its Subsidiaries (for the avoidance of doubt,
as of the date hereof, the cash held on behalf of the replacement franchisee in
Hawaii and cash provided by a third party for use by the franchisee in Puerto
Rico shall be deemed cash held for the benefit of a Person who is not the
Company or any of its Subsidiaries) and (II) the lesser of (1) Intercompany
Accounts payable by Diageo and its Subsidiaries (other than by the Company and
its Subsidiaries) and (2) the amount in clause (i)(D) and (B) the sum of (I) all
cash amounts received by the Company or its Subsidiaries from sales of
restaurants or real property after the date hereof and prior to the Closing
(other than those set forth on Annex 2.5(b)), net of any related out of pocket
expenses, in each case calculated by applying the accounting treatments,
practices, methodologies, policies and bases used to prepare the U.K. GAAP
Company Financial Statements and to the extent not covered thereby otherwise in
accordance with U.K. GAAP consistently applied and (II) the W/C Cash Amount;
provided that in no event shall Net Indebtedness include any amount which is
included in the Closing Working Capital and; provided further that no individual
item shall be included more than once in clause (i) and (ii).
"New UK DB Plan" shall have the meaning set forth in Section
6.4(d).
"Notice Period" shall have the meaning set forth in Section
9.6.
"Order" shall have the meaning set forth in Section 7.1(b).
"Ordinary Course of Business" shall mean the ordinary course
of business of the Company and its Subsidiaries, taken as a whole consistent
with past practice under the current management team.
"Owned Intellectual Property Rights" shall have the meaning
set forth in Section 3.17(c).
"Owned Real Property" shall have the meaning set forth in
Section 3.18(a).
"Pension Plan" shall have the meaning set forth in Section
3.13(b).
"Permitted Encumbrances" shall mean (i) Encumbrances for Taxes
(and assessments and other governmental charges) not yet due and payable or due,
but not delinquent or being contested in good faith by appropriate proceedings,
(ii) mechanics', workmen's, repairmen's, warehousemen's, landlord's, carriers'
or other like Encumbrances (including Encumbrances created by operation of Law),
(iii) Encumbrances in respect of easements, permits, licenses, rights-of-way,
restrictive covenants, reservations or encroachments or irregularities in, and
other similar exceptions to title and any conditions with respect to real
property that would be disclosed by a physical inspection of the property or a
current survey or title report or other public record, in each case that do not
have a material adverse effect on the value, transferability or current use of
the underlying asset, (iv) Encumbrances in respect of pledges or
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deposits under workers' compensation laws or similar legislation, unemployment
insurance or other types of social security or to secure the performance of
statutory obligations, surety and appeal, bonds, bids, leases, government
Contracts and similar obligations in each case in the Ordinary Course of
Business, (v) municipal by-laws, development restrictions or regulations,
facility cost sharing and servicing Contracts and zoning, building or planning
restrictions or regulations, (vi) Encumbrances and defects or irregularities in
title or other Encumbrances that, in each case under this clause (vi), do not
materially affect the value, transferability or current use of the underlying
asset, and (vii) Encumbrances expressly contemplated by this Agreement; provided
that Permitted Encumbrances shall not include any Encumbrance which is not
reserved for in the Most Recent Financial Statements to the extent it was
required, as of the date of such financial statements, to be reserved therein
based on the accounting treatments, practices, methodologies, policies and bases
used in preparing such statements.
"Person" shall mean any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental or regulatory body or
other entity.
"Post-Closing Adjustment" shall have the meaning set forth in
Section 2.5(e).
"Potential Contributor" shall have the meaning set forth in
Section 9.8.
"Purchase Price" shall have the meaning set forth in Section
2.1.
"Reference EBITDA Adjustment Amount" shall have the meaning
set forth in Section 2.3.
"Release" shall mean any actual or threatened release, spill,
emission, leaking, dumping, injection, pouring, deposit, disposal, discharge,
dispersal, leaching or migration into or through the environment (including air,
surface water, groundwater, land surface or surface substrata) or within any
building, structure, facility or fixture.
"Resolution Period" shall have the meaning set forth in
Section 2.5(c).
"Resolved Items" shall have the meaning set forth in Section
2.5(c).
"Review Date" shall have the meaning set forth in Section
3.5(c).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Seller" shall have the meaning set forth in the Preamble.
"Seller Disclosure Schedule" shall have the meaning set forth
in the preamble to Article III.
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"Seller Indemnified Parties" shall have the meaning set forth
in Section 9.2(a).
"Seller Obligations" shall have the meaning set forth in
Section 10.15.
"Shares" shall have the meaning set forth in the Recitals.
"Significant Subsidiaries" shall have the meaning assigned in
Rule 1-02(w) of Regulation S-X promulgated pursuant to the Securities Act.
"SOBAs" shall have the meaning set forth in Section 6.4(e).
"Subsidiary" shall mean, as to any Person, any other Person
(i) of which such Person directly or indirectly owns, securities or other equity
interests representing fifty percent (50%) or more of the aggregate voting power
or (ii) of which such Person possesses the right to elect fifty percent (50%) or
more of the directors or Persons holding similar positions.
"Taxes" shall mean all federal, state, local or foreign
income, gross receipts, windfall or excess profits, severance, property,
production, sales, use, license, excise, franchise, employment, withholding,
environmental, customs duty, capital stock, stamp, payroll, unemployment,
disability, excise, production, value added, occupancy or other taxes, duties or
assessments of any kind whatsoever, together with any interest, additions or
penalties with respect thereto and any interest in respect of such additions or
penalties.
"Tax Package" shall have the meaning set forth in Section 5.2.
"Tax Returns" shall mean all federal, state, local or foreign
tax returns, tax reports, and declarations of estimated tax, including, without
limitation, consolidated federal income tax returns of Seller and the Persons
consolidated with Seller.
"Termination Date" shall have the meaning set forth in Section
8.1(d).
"Third-Party Intellectual Property Rights" shall have the
meaning set forth in Section 3.17(b).
"Transfer Taxes" shall have the meaning set forth in Section
5.1(h).
"Transitional Period" shall have the meaning set forth in
Section 6.4(d).
"Transition Services" shall have the meaning set forth in
Section 6.19(b).
"U.K. Employees" shall have the meaning set forth in Section
6.4(d).
"U.K. GAAP" shall mean United Kingdom generally accepted
accounting principles.
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"U.K. GAAP Company Financial Statements" shall have the meaning
set forth in Section 3.5(a).
"Unresolved Items" shall have the meaning set forth in Section
2.5(d).
"Updated Monetary Defaults" shall have the meaning set forth in
Section 6.18(b).
"U.S. GAAP" shall mean United States generally accepted
accounting principles.
"U.S. GAAP Company Financial Statements" shall have the meaning
set forth in Section 3.5(b).
"W/C Cash Amount" shall have the meaning set forth in Section
6.16.
Section 1.2 Other Terms. Other terms may be defined
elsewhere in the text of this Agreement and, unless otherwise indicated, shall
have such meaning indicated throughout this Agreement.
Section 1.3 Other Definitional Provisions. (a) The words
"hereof", "herein", and "hereunder" and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
Dollars. All payments and adjustments hereunder shall be made in United States
Dollars.
ARTICLE II
Purchase and Sale of Shares
Section 2.1 Purchase and Sale of Shares. Buyer agrees to
purchase from Seller, and Seller agrees to sell to Buyer, subject to the terms
and conditions of this Agreement, the Shares for a purchase price equal to
$2,260,000,000 minus the Reference EBITDA Adjustment Amount, if any (the "Base
Purchase Price"), as adjusted pursuant to Section 2.2 (as so adjusted, the
"Purchase Price").
Section 2.2 Purchase Price. The Purchase Price shall be
an amount equal to (A) minus (B); where (A) is equal to the sum of (i) the Base
Purchase Price and (ii) the amount, if any, by which the Closing Working Capital
exceeds negative $69,300,000 and (B) is equal to the sum of (i) the amount, if
any, by which negative $89,400,000 exceeds the Closing Working Capital, (ii) the
amount (positive or negative)
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of the Closing Net Indebtedness, (iii) the amount (positive or negative) of the
Franchisee Adjustment Amount, (iv) the amount (positive or negative), if any, of
the Capex Adjustment and (v) the amount (positive or negative) of the EBITDA
Adjustment True-Up Amount.
Section 2.3 Estimated Purchase Price. For the purpose of
determining the amount of cash to be paid as the Estimated Purchase Price by
Buyer to Seller at the Closing, Seller shall in good faith prepare a calculation
of the Closing Working Capital (such amount, the "Estimated Closing Working
Capital"), the Closing Net Indebtedness (such amount, the "Estimated Net
Indebtedness"), the Capex Adjustment (the "Estimated Capex Adjustment"), the
Franchisee Adjustment Amount (the "Estimated Franchisee Adjustment Amount") and
the EBITDA Adjustment Amount (the "Reference EBITDA Adjustment Amount") in each
case based on a good faith estimate (or, in the case of the Reference EBITDA
Adjustment Amount, based on the June 30 EBITDA or the FY02 Bonuses, as the case
may be) by Seller of such amount, if any such adjustment shall be applicable.
Seller shall deliver the calculation of all of such amounts to Buyer not less
than three (3) Business Days prior to the Closing Date.
Section 2.4 Closing; Delivery and Payment. (a) The
delivery of the Shares and the payment of the Estimated Purchase Price (the
"Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ at 10:00 A.M., local time, on the third Business Day
following the day upon which the conditions set forth in Article VII hereof have
been satisfied or waived (other than those conditions that by their nature are
to be satisfied at the Closing, including Sections 7.2(c) and 7.2(d), but
subject to the satisfaction or waiver of those conditions), or at such other
time and place as Buyer and Seller may agree in writing. The date on which the
Closing occurs is called the "Closing Date" and the Closing shall be deemed to
have occurred at 12:01a.m. on the Closing Date.
(b) At the Closing:
(i) Seller shall deliver to Buyer certificates
representing the Shares, free and clear of all Encumbrances,
duly endorsed and in a form for transfer to Buyer; and
(ii) Buyer shall pay to Seller, by wire
transfer to an account designated by Seller, immediately
available U.S. Dollar funds in an amount equal to the Estimated
Purchase Price.
(c) All transactions, transfers of assets and distributions of
assets between the Company and its Subsidiaries on the one hand, and Diageo and
its Subsidiaries (other than the Company and its Subsidiaries), on the other
hand, shall cease at 12:01 a.m. on the Closing Date, except as otherwise
approved in writing by Buyer (such approval not to be unreasonably withheld or
delayed).
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Section 2.5 Post-Closing Adjustment. (a) As soon as practicable,
but in no event later than ninety (90) days following the Closing Date, Buyer
shall deliver to Seller a calculation of the Closing Working Capital (the
"Closing Working Capital Statement"), the Closing Net Indebtedness (the "Closing
Net Indebtedness Statement"), the Franchisee Adjustment Amount (the "Franchisee
Adjustment Amount Statement"), the EBITDA Adjustment Amount, to the extent a
variance from the Reference EBITDA Adjustment Amount is permitted to be claimed
pursuant to the terms of Section 6.13(f) (the "EBITDA Adjustment Amount
Statement"), and the Capex Adjustment (the "Capex Statement", together with the
Closing Working Capital Statement, the Closing Net Indebtedness Statement, the
EBITDA Adjustment Amount Statement, if any, and the Franchisee Adjustment Amount
Statement, the "Calculation"). The Calculation shall also set forth the amount,
if any, by which the calculation of the Purchase Price differs from the
Estimated Purchase Price. The Calculation shall be set forth in sufficient
detail to permit Seller to make any objections it may seek to have. Buyer shall
cause a full closing of the financial statements in respect of the Company and
its Subsidiaries to occur for the period from July 1, 2002 to the Closing Date,
calculated on the basis that the Closing was effective at 11:59 p.m. on the day
prior to the Closing Date as if such date were a fiscal year end and such that
the unaudited financial statements produced with respect to the period ended on
the day prior to the Closing Date are similar in all material respects to the
U.K. GAAP Company Financial Statements (the "Closing Date Financial
Statements"). Seller shall, and shall cause Diageo and its Affiliates, to
provide Buyer with reasonable access to data within its control to the extent
necessary in connection with the preparation of the Calculation and the Closing
Date Financial Statements. Buyer shall provide the unaudited Closing Date
Financial Statements to Seller together with reasonable back-up documentation
reasonably necessary to evaluate or understand the Closing Date Financial
Statements and the Calculation at the time of delivery of the Calculation.
(b) During the period of any review or dispute as provided in this
Section 2.5, Buyer and Seller shall, and shall cause each of their Affiliates
to: (i) provide each other party and its representatives with reasonable access
to its and its Affiliates' relevant books, records and employees (to the extent
any of such books, records or employees relate to the Calculation) and (subject,
in the case of accountant or auditor work papers, to providing any customary
confidentiality, hold harmless or other agreements reasonably requested by the
accountant or auditor) relevant work papers of accountants or auditors and
permit copies to be made of any of the foregoing documentation and (ii)
cooperate fully with such other party and its authorized representatives,
including the provision on a timely basis of all information relevant for
purposes of the Calculation; provided that, without prejudice to any of Buyer's
other rights under this Agreement, after the submission of the Calculation,
Seller shall be required to provide such access and cooperation only to the
extent relevant to items disputed by Seller pursuant to Section 2.5(c).
(c) After receipt of the Calculation, Seller shall have sixty (60) days
to review the Calculation. Unless Seller delivers written notice to Buyer on or
prior to the
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sixtieth (60th) day after Buyer's delivery of the Calculation stating that
Seller has objections to the Calculation, Seller shall be deemed to have
accepted and agreed to the Calculation. Matters included in the Calculation,
which are not objected to in writing by Seller, shall be deemed to be accepted
by Seller ("Resolved Items") and any amounts included within such items shall be
deemed to be final, binding and conclusive. If Seller notifies Buyer in writing
of its objections to the Calculation, Buyer and Seller shall, within forty-five
(45) days (or such longer period as Buyer and Seller may agree in writing)
following such notice (the "Resolution Period"), attempt to resolve their
differences, and any written resolution by them as to any disputed amounts shall
be final, binding and conclusive.
(d) Any amounts remaining in dispute at the conclusion of the
Resolution Period ("Unresolved Items") shall be submitted by Buyer and Seller to
Deloitte and Touche LLP (such firm being referred to as the "CPA Firm") or, if
such firm shall be unable or unwilling to serve in such capacity or if Seller
and Buyer shall otherwise mutually agree in writing, such other nationally
recognized firm of independent accountants mutually agreed in writing by Seller
and Buyer (and, in such case, such firm shall be deemed to be the CPA Firm),
within 10 days after the expiration of the Resolution Period or as soon as
practicable after Buyer and Seller have engaged the CPA Firm. Seller and Buyer
agree to use their commercially reasonable efforts to engage the CPA Firm as
promptly as practicable. Each party agrees to execute, if requested by the CPA
Firm, an engagement letter with the CPA Firm containing reasonable terms and to
provide the CPA Firm such work papers and other documents and information
related to the Unresolved Items as the CPA Firm may reasonably request if
available to such party or its Affiliates (or their accountants or auditors).
All fees and expenses relating to the work, if any, to be performed by the CPA
Firm shall be borne 50% by Buyer and 50% by Seller. The CPA Firm shall act as an
arbitrator and not as an expert, to determine, based on the provisions of this
Section 2.5, only the Unresolved Items; provided, however, that the CPA Firm
shall have authority to determine, and the term "Unresolved Items" as used in
this Section 2.5 shall mean, only the amount(s) of the Calculation and no other
matter whatsoever, absent an express written agreement to the contrary by Buyer
and Seller. Seller and Buyer shall request that the CPA Firm provide its
determination of the Unresolved Items within 30 days after the submission of the
Unresolved Items to the CPA Firm, and a calculation of the Closing Working
Capital Statement, the Closing Net Indebtedness Statement, the Capex Statement,
the EBITDA Adjustment Amount Statement and the Franchisee Adjustment Amount
Statement, based upon the amount of Resolved Items and the CPA Firm's
determination of the Unresolved Items, shall be set forth in a written statement
delivered to Seller and Buyer by the CPA Firm and shall be final, binding and
conclusive on Buyer and Seller.
(e) Within five (5) Business Days following either (i) an agreement or
deemed agreement by Buyer and Seller as to the Closing Working Capital, the
Closing Net Indebtedness, the Capex Adjustment, the EBITDA Adjustment Amount, if
any, and the Franchisee Adjustment Amount, or (ii) the CPA Firm's determination
of all Unresolved Items, Seller shall pay to Buyer the amount, if any, by which
the Estimated
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Purchase Price exceeds the final calculation of the Purchase Price, or Buyer
shall pay to Seller the amount, if any, by which the final calculation of the
Purchase Price exceeds the Estimated Purchase Price (the "Post-Closing
Adjustment").
(f) Any payments made pursuant to this Section 2.5 shall be made by
wire transfer of immediately available U.S. Dollar funds to an account indicated
by the party to receive such funds and shall be accompanied by interest at the
Applicable Rate calculated on the basis of a year of 365 days for the actual
number of days elapsed, accrued from the Closing Date up to and including the
date of payment.
(g) Any payments made in respect of the Post-Closing Adjustment shall
be deemed to be adjustments to the Base Purchase Price pursuant to Section 2.2,
for all tax purposes.
ARTICLE III
Representations and Warranties of Seller
Except as otherwise (i) subject to Section 10.8, set forth in the
disclosure schedule delivered by Seller to Buyer on or prior to the date of the
execution of this Agreement (the "Seller Disclosure Schedule"), (ii) required by
this Agreement or (iii) set forth in the Company Financial Accounts, Seller
represents and warrants to Buyer as of the date hereof as follows:
Section 3.1 Organization and Authority of Seller and Diageo.
Seller and Diageo are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of organization, have
all requisite corporate power and authority, and have taken all corporate action
(including obtaining any and all required shareholder approvals) necessary in
order to execute, deliver and perform their obligations under this Agreement.
This Agreement has been duly executed and delivered by each of Seller and Diageo
and constitutes the legal, valid and binding obligation of each of Seller and
Diageo, enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by each of Seller and Diageo does not, and the
consummation by each of Seller and Diageo of the transactions contemplated
hereby will not, constitute or result in (A) a breach or violation of, or a
default under, the certificate of incorporation or by-laws of Seller or Diageo,
(B) a breach or violation of, a default under, or the acceleration of any
obligations or the creation of a lien, pledge, security interest, encumbrance,
option, transfer restriction or other restriction or third party right,
including restrictions on the right to vote equity interests (collectively,
"Encumbrances") on the assets, properties or rights of Seller or Diageo (with or
without notice, lapse of time or both) pursuant to, any agreement, lease,
contract, note, mortgage, indenture, instrument, arrangement or other obligation
("Contracts") binding upon Seller or Diageo, or any of their assets, or give any
party with rights thereunder the right to terminate, modify, accelerate or
otherwise change the existing rights or obligations of Seller or Diageo
thereunder or (C) assuming compliance with the matters referred to in
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Section 3.11 (Consents and Approvals) and Section 4.2 (Consents and Approvals),
a violation of or loss of rights or triggering of new obligations under any
federal, state, local or foreign law, rule, regulation, judgment, injunction,
order, decree, ordinance or arbitration award or other restriction of any court
or Governmental Entity ("Law") or permit or license issued by a Governmental
Entity to which Seller or Diageo or any of their assets, properties or rights is
subject except, in the case of clause (B) or (C) above, for any breach,
violation, default, acceleration, creation or loss of rights that would not,
individually or in the aggregate, be reasonably likely to prevent, materially
delay or materially impair the ability of Seller or Diageo to perform its
obligations contemplated by this Agreement or to consummate the transactions
contemplated by this Agreement.
Section 3.2 Organization and Qualification of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida and has the corporate power and authority
to own or lease its assets and to carry on its business as it is being
conducted, and is duly qualified and licensed to do business and is in good
standing, in each jurisdiction where the ownership or operation of its property
and assets or the conduct of its business requires such qualification, except
where the failure to be so qualified or in good standing would not be reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect, or,
individually or in the aggregate, prevent or materially delay or materially
impair the transactions contemplated hereby. Seller has made available to Buyer
prior to the date hereof correct and complete copies of the articles of
incorporation and by-laws of the Company and its Significant Subsidiaries (as
amended to the date hereof). The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute or result in (A) a breach or violation of, or a default under, the
articles of incorporation, by-laws or other organizational documents of the
Company or any of its Subsidiaries, (B) a breach or violation of, or a default
under, or the acceleration of any obligations, or the creation of an Encumbrance
on any assets, properties or rights of the Company or any of its Subsidiaries
(with or without notice, lapse of time or both) pursuant to, any Contracts
binding upon the Company or any of its Subsidiaries or any assets of the Company
or its Subsidiaries, or give any party with rights thereunder the right to
terminate, modify, accelerate or otherwise change the existing rights or
obligations of the Company or any of its Subsidiaries thereunder, or (C)
assuming compliance with the matters referred to in Section 3.11 (Consents and
Approvals) and Section 4.2 (Consents and Approvals), a violation of or loss of
rights or triggering of new obligations under any Law or governmental or
non-governmental permit or license to which the Company or any of its
Subsidiaries or any of their assets, properties or rights are subject, except,
in the case of clause (B) or (C) above, for any breach, violation, default,
creation, modification, acceleration, other change or loss of rights that would
not be reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect or, individually or in the aggregate, to prevent, materially
delay or materially impair the consummation of the transactions contemplated by
this Agreement.
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Section 3.3 Capitalization of the Company. The authorized capital
stock of the Company consists of 300,000,000 shares of Common Stock of which
105,754,800 shares of Common Stock are the only shares of Common Stock issued
and outstanding on the date hereof. The Shares have been duly authorized and
validly issued, are fully paid and nonassessable and are owned beneficially and
of record by Seller free and clear of any Encumbrances. There are no preemptive
or other outstanding commitments to grant rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, agreements, arrangements
or commitments to issue or sell, repurchase, redeem or otherwise reacquire any
shares of capital stock or other securities of the Company or any of its
Subsidiaries or any securities or obligations convertible or exchangeable into
or exercisable for, or giving any Person a right to subscribe for or acquire,
any securities of the Company or any of its Subsidiaries, and no securities or
obligations evidencing such rights are authorized, issued or outstanding. There
are no voting trusts, proxies or other agreements or understandings with respect
to the voting of the capital stock of the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries has outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or convertible into or exercisable for securities having the right to
vote) with, or as a separate class from, the stockholders of the Company or any
Subsidiary of the Company on any matter. Except as set forth in the Annexes
hereto, as reflected in the Company Financial Accounts or as otherwise permitted
by the terms hereof, there are no obligations of the Company or any of its
Subsidiaries to make any capital contribution, or other investment (in the form
of a loan, capital contribution or otherwise) in any Person, other than to a
wholly owned Subsidiary or pursuant to an Identified Contract (other than as a
result of a default under an Identified Contract).
Section 3.4 Subsidiaries of the Company. Schedule 3.4 of the
Seller Disclosure Schedule (a) lists the name (together with the identity of the
record holders thereof), of each Subsidiary of the Company and (b) lists the
name of each other Person of which the Company, directly or indirectly, owns
outstanding voting securities or equity interests (together with the identity of
which of the Company or its Subsidiaries is the record holder in such Person and
the type of issued equity interest owned, and to the Knowledge of Seller the
identity, as of the date hereof, of the other record holders of such Person).
Each direct and indirect Subsidiary of the Company is, as of the date hereof, a
direct or indirect wholly owned Subsidiary of the Company. All voting
securities, shares of capital stock and equity interests of each Subsidiary of
the Company and other Persons that are required to be listed on Schedule 3.4 of
the Seller Disclosure Schedule are owned by the Company or the applicable
Subsidiary free and clear of all Encumbrances, and all such capital stock is
duly authorized, validly issued, fully paid and nonassessable and all other
equity interests are duly authorized, validly issued and fully paid. Schedule
3.10(a)(v) of the Seller Disclosure Schedule lists all legally binding documents
that set forth the allocation of profit and loss, voting rights and rights to
dividends or other distributions of cash associated with each voting security,
share of capital stock and equity interest of each Person (other than
wholly-owned Subsidiaries of the Company) in which the Company or any Subsidiary
of the Company owns equity securities. Except as
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contemplated hereby, neither the Company nor any of its Subsidiaries has any
obligation to sell, transfer or assign or has entered into a Contract regarding
the sale, transfer or assignment of any of its rights, securities or interests
in any Subsidiary of the Company or any of the other equity interests owned by
the Company or any Subsidiary of the Company. Each Subsidiary of the Company
currently conducting business is duly organized or formed, as the case may be,
validly existing and in good standing under the laws of its jurisdiction of
organization or formation, as the case may be, has the power and authority to
own or lease its assets and to carry on its business as it is currently being
conducted, and is duly qualified to do business and is in good standing, in each
jurisdiction where the ownership or operation of its properties and assets or
the conduct of its business requires such qualification, except where the
failure to be so qualified would not be reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect or, individually or in the
aggregate, prevent or materially delay or materially impair the transactions
contemplated hereby.
Section 3.5 Financial Accounts. (a) Schedule 3.5(a) of the Seller
Disclosure Schedule sets forth the following financial statements: the combined
balance sheets as of June 30, 2000 and June 30, 2001 and statements of income,
changes in stockholders' equity and cash flow for the fiscal years ended June
30, 2000 and 2001, for the Company and its Subsidiaries prepared as if such
Subsidiaries had been Subsidiaries throughout each of the years (such statements
being the "U.K. GAAP Company Financial Statements"). The U.K. GAAP Company
Financial Statements, except as otherwise specified therein, present fairly, in
all material respects, the financial position of the Company and its
Subsidiaries and the results of their operations and cash flows as of the dates
specified therein and for the fiscal years then ended in accordance with U.K.
GAAP on a combined basis consistently applied.
(b) Schedule 3.5(b) of the Seller Disclosure Schedule sets forth the
audited combined balance sheets as of June 30, 1999, June 30, 2000 and June 30,
2001, and audited statements of changes in stockholders' equity and of income
and cash flow for the fiscal years ended June 30, 1999, 2000 and 2001, for the
Company and its Subsidiaries prepared as if such Subsidiaries had been
Subsidiaries throughout each of the years (such statements being the "U.S. GAAP
Company Financial Statements"). The U.S. GAAP Company Financial Statements,
except as otherwise specified therein, present fairly, in all material respects,
the financial position of the Company and its Subsidiaries and the results of
their operations and cash flows as of the dates specified therein and for the
respective fiscal years then ended in accordance with U.S. GAAP on a combined
basis consistently applied.
(c) Schedule 3.5(c) of the Seller Disclosure Schedule sets forth the
unaudited combined balance sheet, statement of income and cash flow of the
Company and its Subsidiaries as of and for the six-month period ended December
31, 2001 prepared as if such Subsidiaries had been Subsidiaries throughout each
of the years (such statements being the "Most Recent Financial Statements" and
such date being the "Review Date"). The Most Recent Financial Statements, except
as otherwise stated
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therein and except for normal year-end closing procedures and adjustments (which
are expected by the Company to be either (i) not material or (ii) consistent
with the procedures noted in the Most Recent Financial Statements), present
fairly in all material respects, the financial position of the Company and its
Subsidiaries and the results of their operations and cash flows as of the date
specified therein and for the six-month period then ended in accordance with
U.K. GAAP on a combined basis consistently applied.
(d) The financial statements referred to in Sections 3.5(a), 3.5(b) and
3.5(c) include (and the FY02 U.K. GAAP Company Financial Statements will
include) as of their respective dates reserves in respect of liabilities
relating to matters covered by workers' compensation, casualty and auto
liability insurance calculated in all material respects in accordance with U.K.
GAAP or U.S. GAAP, as applicable.
(e) The items specified in the definition of Net Indebtedness are
calculable from the books and records of the Company and its Subsidiaries
underlying the U.K. GAAP Company Financial Statements.
(f) The FY02 U.S. GAAP Company Financial Statements, the FY02 U.K. GAAP
Company Financial Statements and the quarterly financial statements, if any, to
be delivered pursuant to Section 6.13(b)(i) shall each present fairly, in all
material respects, the financial position of the Company and its Subsidiaries
and the results of their operations and cash flows as of June 30, 2002 and for
the fiscal year then ended (in the case of the FY02 U.S. GAAP Company Financial
Statements and the FY02 U.K. GAAP Company Financial Statements) or September 30,
2002 and for the fiscal quarter then ended (in the case of such quarterly
financial statements), in each case, in accordance with U.S. GAAP or U.K. GAAP,
as the case may be, and on a combined basis, consistently applied (except for
such deviations as are consistent with those specified in the U.S. GAAP Company
Financial Statements or U.K. GAAP Company Financial Statements, as the case may
be), except in the case of the quarterly statements for normal year-ended
closing procedures and adjustments. The packages of monthly reporting documents
distributed by the Company to its Executive Officers in their completed form for
each of March 2002, April 2002 and May 2002 have been prepared in good faith
from the books and records of the Company and Seller has no reason to believe,
as of the date hereof, that they contain a material misstatement as updated by
the May document. The monthly reporting documents to be delivered pursuant to
Section 6.13(b), when delivered in their completed form, shall have been
prepared in good faith from the books and records of the Company and Seller
shall, as of the Closing, have no reason to believe that they contain a material
misstatement as updated by the last monthly reporting document delivered prior
to the Closing Date.
Section 3.6 Absence of Certain Changes or Events. Except to the
extent relating to the transactions contemplated by this Agreement, since the
Review Date and except as set forth in the monthly reporting documents
referenced in Section 3.5(f) that have been delivered to Buyer prior to the date
hereof (i) and through
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the date hereof the Company and its Subsidiaries, taken as a whole, have in all
material respects conducted their businesses in the Ordinary Course of Business
and (ii) there have not been any effects that, individually or in the aggregate,
have had or would be reasonably likely to have a Material Adverse Effect. In
addition, since the Review Date and through the date hereof, neither the Company
nor any of its Subsidiaries has:
(i) transferred or sold any of its assets, properties or
rights (other than the grant of a franchise including sales of
restaurants and associated sales of real property and other assets)
with a fair market value at the time of sale in excess of $2,000,000 or
subjected any of its material assets, properties or rights to an
Encumbrance which is outstanding as of the date hereof, except
Permitted Encumbrances;
(ii) become legally committed to make any equity investment in
any of its franchisees that has not been satisfied in full;
(iii) except as required by Law or the terms of any collective
bargaining agreement, (x) granted any salary or wage increases, other
than in the Ordinary Course of Business or (y) terminated, modified,
amended, entered into, established, adopted or assumed an obligation to
contribute to any existing or new Benefit Plan in any manner that
increased the amount of any liability attributable to the Company or
any of its Subsidiaries in respect of any such Benefit Plan other than
to an immaterial extent and other than the Executive Employment
Agreements;
(iv) except for in the Ordinary Course of Business, entered
into any employment agreement with any of its Employees;
(v) declared, set aside or paid any non-cash dividend or made
any non-cash distribution with respect to its capital stock other than
from a direct or indirect Subsidiary of the Company;
(vi) changed its accounting policies;
(vii) securitized any of its trade accounts receivable or any
other accounts receivable;
(viii) except in the Ordinary Course of Business, amended or
authorized an amendment in its articles of incorporation, certificate
of incorporation or similar applicable organizational document; or
(ix) authorized or entered into a Contract or transaction that
would have been in contravention of any of the foregoing.
Section 3.7 Licenses. The Company and its Subsidiaries hold all
permits, licenses, waivers, franchises, orders, approvals, concessions,
registrations and
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other authorizations issued or provided by Governmental Entities under all
applicable Laws, which are necessary for them to own their assets or operate
their businesses as currently conducted (the "Company Licenses"), except for
those Company Licenses the failure of which to hold would not be reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect or
prevent or materially delay or materially impair the transactions contemplated
hereby. There is not pending, nor to the Knowledge of Seller threatened, against
the Company or any of its Subsidiaries, any application, action, petition,
objection or other pleading, or any proceeding, with or by any Governmental
Entity which questions or contests the validity of, or any rights of the holder
under, or for nonrenewal or suspension of, any Company License which would be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect or, individually or in the aggregate, prevent or materially delay or
materially impair the transactions contemplated hereby.
Section 3.8 Litigation. None of Diageo, Seller, the Company or
any Subsidiary of the Company is subject to any outstanding injunction,
judgment, order, decree or ruling of any Governmental Entity which would be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect or, individually or in the aggregate, prevent or materially delay or
materially impair the transactions contemplated hereby or the performance by
Diageo or Seller of any of its obligations hereunder. There are no civil,
criminal or administrative claims, actions, suits, demands, proceedings,
hearings or investigations ("Litigation") pending or, to the Knowledge of
Seller, threatened against the Company, any of its Subsidiaries, Diageo or
Seller, at Law, in equity or otherwise, in, before, or by, any court or
Governmental Entity, authority or arbitrator which (if successful) would be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect or, individually or in the aggregate, prevent or materially delay or
materially impair the transactions contemplated hereby or the performance by
Diageo or Seller of any of its obligations hereunder.
Section 3.9 Compliance with Law. (a) Since July 1, 2001, the
Company and its Subsidiaries have conducted their respective businesses without,
and their respective businesses are not in (and with the giving of notice or
lapse of time or both, would not be in), violation of any applicable Law, except
for those violations which would not be reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect or, individually or in the
aggregate, prevent or materially delay or materially impair the transactions
contemplated hereby.
(b) The Company and its Subsidiaries are, and since July 1, 2000 have
been, in compliance with the U.S. Foreign Corrupt Practices Act, as amended, and
all other similar applicable Laws relating to illegal payments, gifts or
activities.
(c) All of the investments by the Company and its Subsidiaries in their
respective Subsidiaries have been registered with Governmental Entities to the
extent required by applicable Law for exchange control, repatriation, currency
convertibility and similar purposes.
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Section 3.10 Contracts. (a) Schedule 3.10(a) of the Seller Disclosure
Schedule lists the following Contracts to which the Company or one of its
Subsidiaries is a party as of the date hereof and which are currently in effect
(each Contract required to be listed on Schedule 3.10(a), an "Identified
Contract"):
(i) any Contract requiring capital expenditures involving
consideration in excess of $5,000,000 in any twelve-month period;
(ii) (A) any Contract which restricts or limits the ability of
the Company or any of its Subsidiaries to freely engage in the quick
service restaurant business in any geographic area or (B) any Contract
which restricts or limits the ability of Affiliates of the Company
(other than the Company and its Subsidiaries) to conduct any legal line
of business in any geographic area other than Contracts which restrict
or limit the ability to conduct a business at a particular site of real
property;
(iii) any collective bargaining agreement;
(iv) any Contract pursuant to which (A) payments were made
during the twelve-month period ended June 30, 2002, or (B) are
reasonably anticipated, as of the date hereof, by the Company to be
made during the twelve-month period ending on June 30, 2003, by or to
the Company or any of its Subsidiaries of more than $2,000,000 to or
from any Person, except for Contracts among only Affiliates of the
Seller, BKL Leases or franchise agreements with franchisees of the
Company or its Subsidiaries;
(v) any Contract relating to the ownership, management or
control of any Person in which the Company or any of its Subsidiaries
owns any equity securities other than direct and indirect wholly owned
Subsidiaries of the Company;
(vi) any Contract relating to the acquisition or disposition
outside the Ordinary Course of Business of any assets or any business
(whether by merger, sale of stock, sale of assets or otherwise) to the
extent any material actual or contingent express obligations of the
Company or any of its Subsidiaries thereunder remain in effect;
(vii) other than Intercompany Accounts, any Contract relating
to indebtedness for borrowed or loaned money or the deferred purchase
price of property (in each case, whether incurred, assumed, guaranteed
or secured or unsecured by any asset) under which at least $2,000,000
is outstanding;
(viii) other than Intercompany Accounts, any Contract relating
to outstanding letters of credit or performance bonds or creating any
liability as guarantor, surety, co-signer, endorser, co-maker or
indemnitor, in each case in
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respect of the obligation of any Person to make payments or perform
services with a value of at least $2,000,000;
(ix) any material Contract with any Executive Officer or
director of the Company or any of its Subsidiaries; and
(x) any Contract with outstanding obligations relating to the
settlement of any Litigation.
(b) Each Identified Contract is (and each Contract entered into between
the date hereof and the Closing that would have been an Identified Contract had
it been entered into prior to the date hereof, will, at the Closing be (unless
it shall have terminated or expired in accordance with its terms (other than as
a result of a breach or default by the Company or its Subsidiaries)) valid,
binding, in full force and effect and enforceable against the Company or the
applicable Subsidiary of the Company, unless it shall have terminated or expired
in accordance with its terms (other than as a result of a breach or default by
the Company or its Subsidiaries), and, to the Knowledge of Seller, against any
other party thereto, in accordance with its terms. The Company or the applicable
Subsidiary of the Company is not in breach or default under any Identified
Contract (or a Contract entered into between the date hereof and the Closing
that would have been an Identified Contract had it been entered into prior to
the date hereof) and, to the Knowledge of Seller, no event has occurred which,
with notice or lapse of time or both, would constitute a breach or default, or
permit termination, modification, or acceleration, under any Identified Contract
(or a Contract entered into between the date hereof and the Closing that would
have been an Identified Contract had it been entered into prior to the date
hereof) by any party thereto, except where the failure to be so valid, binding,
in full force and effect or enforceable, or such breach or default, termination,
modification or acceleration, would not be reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect or, individually or in the
aggregate, prevent or materially delay or materially impair the transactions
contemplated hereby.
(c) True and complete copies of each Identified Contract, including all
amendments thereto entered into prior to the date hereof, have been made
available by Seller to Buyer prior to the date hereof.
Section 3.11 Consents and Approvals. Except for the filings, permits,
authorizations, consents, approvals and/or notices required under the HSR Act,
no filings, permits, authorizations, consents, approvals and/or notices are
required to be made or obtained by Diageo, Seller, the Company or any of their
respective Subsidiaries with or from, as the case may be, any Governmental
Entity, in connection with the execution, delivery or performance of this
Agreement by Diageo or Seller or the consummation by Diageo or Seller of the
transactions contemplated hereby, except those filings, permits, authorizations,
consents, approvals and/or notices for which the failure to make or obtain, as
the case may be, would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect or, individually or in the
aggregate, prevent, materially
-24-
delay or materially impair the ability of Seller or Diageo to perform their
respective obligations and consummate the transactions contemplated by this
Agreement.
Section 3.12 Tax Matters. (a) All Tax Returns that are required to
be filed by or with respect to the Company and its Subsidiaries have been duly
and timely filed or, where not so timely filed, are covered under an extension
that has been obtained therefor, and all such Tax Returns are true, correct and
complete in all material respects.
(b) The Company and its Subsidiaries have paid in full all material
Taxes due, whether or not assessed, or set up reserves in accordance with U.K.
GAAP or U.S. GAAP, as applicable, in respect of all material Taxes for the
periods covered by such Tax Returns, as well as other material Taxes (and any
penalties, interest, fines, deficiencies, assessments and governmental charges
relating thereto) that have become due or payable (including, without
limitation, all such Taxes that the Company and its Subsidiaries are obligated
to withhold from amounts paid or payable to or benefits conferred upon
employees, creditors and third parties).
(c) No issues that have been raised by the relevant taxing authority in
connection with the examination of any of the Tax Returns referred to in clause
(a) of this Section 3.12 are pending. As of the date hereof, there is no
proposed liability for any material Tax to be imposed upon the Company or any of
its Subsidiaries for the tax year ended June 30, 2002 and all prior years for
which there is not an adequate accounting reserve.
(d) As of the date hereof, neither the Company nor any of its
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
material Taxes or Tax Returns.
(e) As of the date hereof, there are no Encumbrances (other than
Permitted Encumbrances) with respect to any material Taxes upon any of the
assets and properties of the Company or any of its Subsidiaries.
(f) Neither the Company nor any of its Subsidiaries has engaged in a
"reportable transaction" within the meaning of Treasury Regulations section
1.6011-4T(b).
(g) The Company has not executed any closing agreement pursuant to
Section 7121 of the Code or any predecessor provision thereof, or any
corresponding provision of state or local law.
(h) Neither the Company nor any of its Subsidiaries has agreed or is
required to make any material adjustments pursuant to section 481(a) of the Code
or any corresponding provision of state, local, or foreign law by reason of a
change in accounting method initiated by it or any other relevant party and
neither the Company nor any of its Subsidiaries has received any notice in
writing from the IRS or other relevant authority proposing any such adjustment
or change in accounting method, nor does the
-25-
Company or any of its Subsidiaries have any application pending with any
governmental or regulatory authority requesting permission for any changes in
accounting methods that relate to the business or assets of the Company or any
of its Subsidiaries.
(i) Neither the Company nor any of its Subsidiaries has agreed or is
required to make any material adjustments pursuant to section 482 of the Code or
any corresponding provision of state, local, or foreign law with respect to
transfers of intangibles or any other intercompany transaction, and neither the
Company nor any of its Subsidiaries has received any notice in writing from the
IRS or other relevant authority proposing any such adjustment. Neither the
Company nor any of its Subsidiaries have entered into a qualified cost sharing
arrangement (or an arrangement purporting to be a qualified cost sharing
arrangement) under section 482 of the Code.
(j) Neither the Company nor any of its Subsidiaries has filed, or is
otherwise subject to, a dual consolidated loss election under Treasury
Regulations section 1.1503-2(g)(2), a gain recognition agreement under Treasury
Regulations section 1.367(a)-8, deferred gain recognition pursuant to the
installment sale provisions under section 453 of the Code or any corresponding
provision under state or foreign Tax law which would have a material effect on
the Taxes of the Company or any Subsidiary.
Section 3.13 Employee Benefits. (a) All benefit and compensation
plans, Contracts, policies and arrangements covering any current or former
Employees or current or former directors of the Company or to which any such
Employee or director is a party, including, but not limited to, "employee
benefit plans" within the meaning of Section 3(3) of ERISA, whether or not
subject to ERISA, and employment, consulting, severance, termination, change in
control, retention, deferred compensation, stock option, stock purchase, stock
appreciation rights, other stock based, incentive and bonus plans, Contracts,
policies and arrangements (the "Benefit Plans"), other than Benefit Plans that
are (i) not material in cost or (ii) mandated by statute of a jurisdiction
outside of the United States and that are maintained primarily for the benefit
of Employees working outside of the United States, are listed on Schedule
3.13(a) of the Seller Disclosure Schedule. True and complete copies of all
Benefit Plans listed on Schedule 3.13(a) of the Seller Disclosure Schedule,
including, but not limited to, any trust or other funding instruments and
insurance contracts forming a part of any Benefit Plans, and all amendments
thereto, for all Benefit Plans that are subject to ERISA or are intended to be
qualified under the Code ("ERISA Plans"), if applicable, all summary plan
descriptions, summaries of material modifications, the IRS Forms 5500 and
related schedules most recently required to be filed prior to the date hereof,
the final actuarial report most recently delivered to the Company prior to the
date hereof and each most recent IRS determination letter received prior to the
date hereof have been made available to Buyer prior to the date hereof.
(b) All ERISA Plans have been operated and administered in accordance
with, and are in compliance with, ERISA and the Code and all Benefit Plans have
been operated and administered in accordance with, and are in compliance with,
all
-26-
other applicable Laws, except for any failure that would not be reasonably
likely to, individually or in the aggregate, result in a material liability of
the Company or any of its Subsidiaries. Each ERISA Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA and which is
intended to be qualified under Section 401(a) of the Code (a "Pension Plan") has
received a favorable determination letter from the IRS with respect to its
qualified status and to Seller's Knowledge there are no circumstances which are
reasonably likely to result in the revocation of such letter or the loss of such
qualified status and, within the remedial amendment period under Section 401(b)
applicable with respect to the current provisions of the Code, an application
has been filed with the IRS for a renewed determination of the qualified status
of each such Pension Plan under the current provisions of the Code. Neither the
Company nor any of its Subsidiaries has (i) engaged in any transactions with
respect to any Benefit Plan that, assuming the "taxable period" (as defined in
Section 4975(f) of the Code) with respect to such transaction expired as of the
date hereof, could be reasonably likely to subject the Company or any of its
Subsidiaries (directly or indirectly) to a tax or penalty imposed by Section
4975 of the Code or Section 502(i) of ERISA and (ii) no transaction has occurred
with respect to any Benefit Plan that could be reasonably likely to subject the
Company or any of its Subsidiaries to any liability in respect of a breach of
fiduciary duty, in any such event, in either clause (i) or (ii) in an amount
which would be material.
(c) No liability under Subtitle C, D or E of Title IV of ERISA has been
incurred which has not been satisfied or is expected to be incurred (in any such
case, either directly or indirectly, including, without limitation, as a result
of any indemnification obligation or joint and several liability) by either the
Company or any of its Subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, the single-employer plan
currently or formerly maintained by any entity which is considered one employer
with the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate") or any "multiemployer plan" (within the meaning of Section
3(37) of ERISA). No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived or extended, other than pursuant to Pension Benefit Guaranty Corporation
Reg. Section 4043.66, has been required to be filed for any Pension Plan or by
any ERISA Affiliate within the preceding 12-month period or will be required to
be filed in connection with the transactions contemplated by this Agreement.
(d) All contributions required to be made under the terms of any
Benefit Plan or applicable law have been timely made and, to the extent not yet
due, will be reflected on the FY02 U.K. GAAP Company Financial Statements.
Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has
an "accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA and none of the Company, any
of its Subsidiaries or any ERISA Affiliate has an outstanding funding waiver.
Neither the Company nor any of its Subsidiaries has provided, or is (or is
reasonably expected to be) required to provide,
-27-
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(e) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA, as determined on the basis of the
actuarial assumptions contained in such Pension Plan's most recent actuarial
valuation for purposes of ERISA, did not exceed the then current value of the
assets of such Pension Plan, and there has been no material change in the
financial condition of such Pension Plan since the last day of such most recent
plan year.
(f) There is no pending or, to the Knowledge of Seller, threatened
claim, litigation proceeding, action or audit relating to any of the Benefit
Plans other than claims for benefits in the Ordinary Course of Business. Neither
the Company nor any of its Subsidiaries has any obligations for retiree health
and life benefits under any Benefit Plan.
(g) There has been no amendment to, announcement by the Company or any
of its Subsidiaries relating to, or change in employee participation or coverage
under, any Benefit Plan which would increase materially the expense of
maintaining or liabilities under such Plan above the level of the expense and
liability incurred therefor for the most recent fiscal year. Neither the
execution of this Agreement nor the consummation of the transactions
contemplated hereby will, alone or in combination with termination of employment
or any other event, (i) entitle any current or former employee, consultant or
director of the Company or any of its Subsidiaries to severance pay or other
benefits or entitlements or any increase in severance pay or other benefits or
entitlements in connection with any termination of employment, (ii) accelerate
the timing of payment or vesting or result in any payment or funding of any
compensation or benefits under, increase the amount payable or result in any
other material obligation pursuant to, any of the Benefit Plans or otherwise to
or in respect of any current or former employee, consultant or director, (iii)
limit or restrict the right of the Company, any of its Subsidiaries or, after
the consummation of the transactions contemplated hereby, Buyer to merge, amend
or terminate any of the Benefit Plans (except as contemplated by Section 6.4 of
this Agreement) or (iv) result in payments under any Benefit Plan that would not
be deductible by reason of Section 280G of the Code.
(h) All Benefit Plans maintained by the Company or its Subsidiaries
outside of the United States ("Foreign Plans") comply in all material respects
with applicable Laws. The Company and its Subsidiaries have no material unfunded
liabilities with respect to any such Foreign Plan that has not been reflected on
the U.K. GAAP Company Financial Statements. Any Foreign Plan that is a defined
benefit pension plan that is required by applicable Law to be funded complies in
all material respects with such applicable funding requirements.
-28-
(i) Each of the representations set forth in this Section 3.13, other
than subparagraphs (a), (b), (g) and (h), shall be deemed to be accurate unless
the failure to be so accurate would be reasonably likely to have individually or
in the aggregate a Material Adverse Effect or, individually or in the aggregate,
prevent or materially delay or materially impair the transaction contemplated
hereby.
Section 3.14 Environmental Matters. (a) Except as would not be
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect or, individually or in the aggregate, prevent or materially delay or
materially impair the transactions contemplated hereby, the Company and its
Subsidiaries: (i) have obtained and are not in violation of any permits,
licenses or governmental authorizations pursuant to any Environmental Law
necessary for their operations as currently conducted; (ii) have not been since
July 1, 1999 and are not in violation of any applicable Environmental Laws;
(iii) are not the subject of any proceeding and, since July 1, 1999, have not
received any written notice, demand, claim, legal complaint or request for
information from any Governmental Entity alleging the violation of or liability
under any applicable Environmental Law or relating to liabilities or obligations
arising from the presence or Release or exposure to Hazardous Substances; (iv)
are not the subject of any court order, administrative order or decree arising
under any Environmental Law; (v) have not generated, stored, used, emitted,
discharged or disposed of any Hazardous Substances, except as permitted under
applicable Environmental Laws; (vi) have no asbestos-containing materials,
polychlorinated byphenyls or underground storage tanks at, on or under the
facilities of the Company or its Subsidiaries, except in compliance with
Environmental Laws and (vii) have made available to Buyer all written
assessments, audits, investigations, and sampling or similar reports in the
possession of the Company in the United States relating to the environment or
the presence or Release of any Hazardous Substances to the extent related to the
real property owned or leased by the Company and its Subsidiaries.
(b) Notwithstanding any other representation and warranty in Article
III, the representations and warranties contained in this Section 3.14
constitute the sole representations and warranties of Seller concerning the
Company and its Subsidiaries with respect to Environmental Laws and Hazardous
Substances.
Section 3.15 Brokers and Finders. None of Diageo, Seller, the
Company, or any of the Company's Subsidiaries has employed any broker, finder,
consultant or intermediary in connection with the transactions contemplated by
this Agreement who would be entitled to a broker's, finder's or similar fee or
commission in connection therewith or upon the consummation thereof that would
be payable by Buyer or any of its Affiliates or investors or by the Company or
its Subsidiaries.
Section 3.16 Undisclosed Liabilities. (a) None of the Company and
its Subsidiaries has any indebtedness, obligations or liabilities of any kind
(whether known or unknown, accrued, off-balance sheet, contingent or
unasserted), that, individually or in the aggregate, would be reasonably likely
to have a Material Adverse Effect except for
-29-
(i) liabilities set forth in the Company Financial Accounts, (ii) liabilities
set forth in the Most Recent Financial Statements, and (iii) liabilities which
have arisen after the Review Date in the Ordinary Course of Business, including
pursuant to Contracts in effect on the Review Date (none of which is a liability
resulting from breach of Contract, tort, or violation of Law).
(b) The Company and its Subsidiaries do not have any assets, operations
or liabilities (on or off balance sheet) (i) other than those arising out of or
those related to the ownership and operation of a fast food hamburger restaurant
business, selling of franchises for a fast food hamburger restaurant business
and matters incident or ancillary thereto, including the purchase and sale of
real property (whether or not operated as restaurants) whether or not arising
out of breach of Contract, violation of Law or tort or (ii) that arise out of or
relate to the activities of the Franchisee Acceptance Corporation Limited.
(c) Seller has made available to Buyer all material documents in the
possession of either Diageo or any of its Subsidiaries that relate primarily to
or address the matter and risks referred to in item 1 of Schedule 3.16(a) of the
Seller Disclosure Schedule and, to the Knowledge of Seller, all such documents
shall be in the exclusive possession of the Company as of the Closing.
(d) To the Knowledge of Seller, as of the date hereof, no beef products
which have been purchased by the Company or any of its Subsidiaries are the
subject of the ConAgra Beef Company recall which is ongoing at the date hereof.
Section 3.17 Intellectual Property. (a) The Company and/or each of
its Subsidiaries owns, is licensed under, or otherwise possesses legally
enforceable rights to use all patents, trade secrets, trademarks, trade names,
service marks, and the goodwill associated with all of the foregoing, Internet
domain names, copyrights, and any applications and registrations for any and all
of the foregoing, technology, know-how, computer software programs and
applications, tangible and intangible proprietary information and materials and
any other intellectual property or similar proprietary rights in any
jurisdiction where such property or rights are used or exercised (collectively,
"Intellectual Property Rights") that are material to the business of the Company
or any of its Subsidiaries as currently conducted. Such rights are owned free
and clear of any Encumbrances other than Permitted Encumbrances. Schedule 3.17
of the Seller Disclosure Schedule sets forth all material patents, patent
applications, material unregistered trademarks, trademark and copyright
applications and registrations, and Internet domain name registrations owned by
the Company or any of its Subsidiaries as of the date hereof, in each case
listing the current registered owner thereof, and a list of all material
Contracts under which (x) the Company or any of its Subsidiaries uses or has the
right to use any material Third Party Intellectual Property Rights and (y) the
Seller, the Company or any of the Company's Subsidiaries has licensed others the
right to use any Owned Intellectual Property Rights.
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(b) The Company is not, nor will it be as a result of the execution and
delivery of this Agreement by Diageo or Seller or the performance by Diageo or
Seller of its obligations hereunder, in material violation of any material
licenses, sublicenses and other agreements as to which the Company is a party
and pursuant to which either (i) the Company is authorized to use any
third-party patents, trademarks, service marks, copyrights, trade secrets or
other Intellectual Property Rights (collectively, "Third-Party Intellectual
Property Rights") or (ii) the Seller, the Company or any of the Company's
Subsidiaries has authorized others to use any Owned Intellectual Property
Rights.
(c) No claims with respect to (i) the Intellectual Property Rights
owned or purported to be owned by the Company or any of its Subsidiaries
(collectively, the "Owned Intellectual Property Rights"); (ii) Third-Party
Intellectual Property Rights or (iii) any other Intellectual Property Rights
that are used in the business of the Company and its Subsidiaries as currently
conducted are, with respect to clause (i), pending or, to the Knowledge of
Seller currently pending with respect to clauses (ii) and (iii) or threatened by
any Person against the Company or its Subsidiaries with respect to clauses (i),
(ii) and (iii).
(d) To the Knowledge of Seller, there are no grounds for any material
claims (A) to the effect that the manufacture, sale, importation, licensing or
use of any product as now manufactured, used, sold, imported or licensed or the
offering of any product or service now offered, in each case by the Company or
any of its Subsidiaries, infringes upon, misappropriates, violates or conflicts
with any patent, trademark, service ▇▇▇▇, copyright, trade secret or other
Intellectual Property Right of any Person; (B) relating to the use by the
Company or any of its Subsidiaries, of any Owned Intellectual Property Right or
Third-Party Intellectual Property Right used in the business of the Company or
any of its Subsidiaries as currently conducted; (C) challenging the ownership,
validity or enforceability of any of the Owned Intellectual Property Rights; or
(D) challenging the license or legally enforceable right to use the Third-Party
Intellectual Rights by the Company or any of its Subsidiaries.
(e) To the Knowledge of the Seller, there are no unauthorized uses,
disclosures, infringements, or misappropriations by any Person of any Owned
Intellectual Property Rights, or breaches by any Person of any Contract pursuant
to which such Person has the right to use any Owned Intellectual Property Rights
or Third-Party Intellectual Property Rights, except for such uses, disclosures,
infringements and misappropriations that would not be reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect.
Section 3.18 Real Property. (a) Schedule 3.18(a) of the Seller
Disclosure Schedule lists a description, as of the date hereof, of all real
property owned by or leased to the Company and its Subsidiaries (with
identification of which is owned and which is leased). With respect to each
parcel of real property that is owned by the Company or a Subsidiary of the
Company ("Owned Real Property") or leased to the
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Company or a Subsidiary of the Company, and except for matters which would not
be reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect:
(i) the Company or its relevant Subsidiary has marketable
title to the real property owned by it and a valid leasehold interest
in the real property leased to it, as the case may be, free and clear
of any Encumbrances, except for Permitted Encumbrances; and
(ii) except for leases and subleases of restaurants set forth
in Schedule 3.23(b) and 3.18(a)(ii) of the Seller Disclosure Schedule,
there are no leases, subleases, licenses, concessions, or other
agreements entered into by the Company or any of its Subsidiaries
granting to any Person or Persons the right of use or occupancy to any
portion of the parcel of any of such real property.
(b) Schedule 3.18(b) of the Seller Disclosure Schedule identifies all
mortgages, deeds of trust and other Encumbrances (other than Permitted
Encumbrances) upon Owned Real Property of the Company or any of its Subsidiaries
which secure (i) indebtedness for money borrowed, (ii) judgments or (iii) other
obligations to pay a sum certain.
(c) Schedule 3.18(c) of the Seller Disclosure Schedule reflects at
least 90% of the gross rental revenue received by the Company and its
Subsidiaries from the rental of U.S. real property to third parties that are not
Affiliates of the Company during the periods indicated therein.
Section 3.19 Sufficiency of Assets. (a) The Company and its
Subsidiaries taken as a whole have ownership of or rights in all of the assets
(including the books and records) to the extent necessary to conduct or used in
conducting their business in all material respects as currently conducted. As of
the date hereof, except for repairs contemplated by the amounts set forth in
Annex 2.5(a) all of the material tangible assets owned or leased by the Company
or its Subsidiaries are in satisfactory operating condition for the use or uses
to which they are being put, subject to ordinary wear and tear and continuing
maintenance requirements or a replacement of any such asset has been ordered or
such asset is being repaired.
(b) Schedule 3.19(b) of the Seller Disclosure Schedule is a list of at
least 95% of all restaurants which are branded as Burger King or Hungry Jack's
that are owned or operated by the Company or any of its Subsidiaries as of the
date hereof.
Section 3.20 Labor Matters. As of the date hereof, neither the Company
nor any of its Subsidiaries is the subject of, nor, to the Knowledge of Seller,
is there threatened, any material claim asserting that the Company or any of its
Subsidiaries has committed an unfair labor practice under applicable Law, nor is
there pending or, to the Knowledge of Seller, threatened, nor has there been
since July 1, 2001, any organized effort or demand for recognition by any labor
organization or any labor dispute or labor slow-down with respect to the
operations of the Company and its Subsidiaries, taken as a
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whole in the United States, except for those that would not be reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect or,
individually or in the aggregate, prevent or materially delay or impair the
transactions contemplated hereby. As of the date hereof, there is not pending,
nor, to the Knowledge of Seller, is there threatened in the United States any
labor strike, walk-out, work stoppage or lockout in the United States with
respect to Employees, except for such strikes, walk-outs, work stoppages or
lockouts as would not be reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect or, individually or in the aggregate,
prevent or materially delay or impair the transactions contemplated hereby.
Section 3.21 Insurance. (a) Set forth as Schedule 3.21(a) of the
Seller Disclosure Schedule is a list of each insurance policy to which the
Company or any of its Subsidiaries, is a party, a named insured with respect to
a policy maintained by them or any of their Affiliates, or otherwise the
beneficiary of coverage thereunder with respect to a policy maintained by them
or any of their Affiliates (collectively, the "Insurance Policies").
(b) (i) Each Insurance Policy is in full force and effect, and is
valid, outstanding and enforceable, and all premiums due thereon have been paid
in a timely fashion and cover against the risks of the nature normally insured
against by Persons in the same or similar lines of business in coverage amounts
typically and reasonably carried by such Persons; (ii) none of the Insurance
Policies shall terminate or lapse as a result of the execution or delivery of
this Agreement or the consummation of the transactions contemplated hereby;
(iii) each of the Company and its Subsidiaries, and each of their Affiliates
that maintains a policy on their behalf with respect to them, has complied in
all material respects with the provisions of each Insurance Policy under which
it is the insured party; (iv) no insurer under any Insurance Policy has
cancelled or generally disclaimed liability under any such Insurance Policy or
indicated in writing to the Company or one of its Subsidiaries, or to an
Affiliate of the Company or its Subsidiaries that maintains a policy on their
behalf, any intent to do so or not to renew any such Insurance Policy; and (v)
all material claims of the Company and its Subsidiaries for which insurance was
available under the Insurance Policies have been filed in a timely fashion since
July 1, 2001.
Section 3.22 Affiliate Transactions. (a) Set forth as Schedule 3.22(a)
of the Seller Disclosure Schedule is a general list, as of the date hereof, of
the types of intercompany services that Diageo and its Affiliates (other than
the Company and its Subsidiaries) currently provides and/or has provided since
January 1, 2002 to the Company and its Subsidiaries. As of the Closing, neither
the Company nor any of its Subsidiaries shall or shall be legally obligated to
provide services to Diageo or any of its Affiliates (other than the Company and
its Subsidiaries).
(b) Schedule 3.22(b) of the Seller Disclosure Schedule includes all
Contracts between Diageo or any of its Subsidiaries (other than the Company and
its
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Subsidiaries) on the one hand, and the Company or any of its Subsidiaries, on
the other hand, other than those that will be terminated at or prior to the
Closing.
(c) Since July 1, 2001, neither the Company nor any of its Subsidiaries
has been a party to any arrangement or transaction that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act by the
Company if the Company was a Person both (i) subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and (ii) with
no other Person owning more than 0.5% of the equity of the Company.
Section 3.23 Franchisees. (a) Set forth as Schedule 3.23(a) of the
Seller Disclosure Schedule is a list, as of the date hereof, of at least 95% of
all restaurants which are branded as Burger King or Hungry Jack's and are not
owned or operated by the Company or any of its Subsidiaries and each of which is
operated pursuant to a franchise agreement with the Company or one of its
Subsidiaries (a "Franchised Restaurant").
(b) Set forth as Schedule 3.23(b) of the Seller Disclosure Schedule is
a list, as of the date hereof, of all leases (land and/or building) by the
Company or any of its Subsidiaries (as landlord or sublandlord) to the
applicable franchisee or other counterparty (as lessee or sublessee) for the
site of Franchised Restaurants (each lease required to be listed on such
Schedule, a "BKL Lease"). To the Knowledge of Seller, each BKL Lease listed on
Schedule 3.23(b) of the Seller Disclosure Schedule is (and each lease that is
entered into after the date hereof and prior to the Closing that would have been
a BKL Lease if it had been entered into prior to the date hereof will be) valid,
binding, in full force and effect and enforceable against the Company or the
applicable Subsidiary of the Company and, to the Knowledge of Seller, against
the lessee or sublessee thereto, in accordance with its terms, and the Company
or the applicable Subsidiary of the Company is not in breach or default under
any such lease and to the Knowledge of Seller, no event has occurred which, with
notice or lapse of time or both, would constitute a breach or default, or permit
termination, modification or acceleration, under any such lease by any party
thereto, except where the failure to be so valid, binding, in full force and
effect or enforceable, or such breach or default, termination, modification or
acceleration, would not be reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect or, individually or in the aggregate, prevent
or materially delay or materially impair the transactions contemplated hereby,
or where the BKL Lease has expired or been terminated pursuant to its terms
(other than as a result of a breach or default by the Company or its
Subsidiaries).
(c) None of the franchisees who own or operate any of the Franchised
Restaurants are, as of June 30, 2002, more than sixty days in arrears in
royalty, advertising, lease or other payments pursuant to the terms of any of
their franchise agreements or BKL Leases with the Company or its Subsidiaries.
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(d) The amount of arrearages set forth in the Updated Monetary Defaults
shall not be materially greater than the aggregate amount of arrearages set
forth on Schedule 3.23(c) of the Seller Disclosure Schedule
(e) To the Knowledge of Seller, as of the date hereof, there are no
restaurants that are branded as Prince or Hungry Jack's that are not either
owned or operated by the Company or one of its Subsidiaries or operated pursuant
to a franchise agreement with the Company or one its Subsidiaries. Such
franchise agreements conform in all material respects to a form of franchise
agreement made available to Buyer prior to the date hereof. There are no
defaults by the Company or any of its Subsidiaries or, to the Knowledge of
Seller, events that have occurred or that, with notice or lapse of time or both,
would be reasonably likely to constitute a breach or default, or permit
termination, modification or acceleration, under any franchise agreement by any
party thereto (other than monetary defaults by franchisees who own or operate
any of the franchised restaurants), except for defaults that would not be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect or, individually or in the aggregate, prevent or materially delay or
materially impair the transactions contemplated hereby. Such franchise
agreements are (when duly authorized, executed and delivered by the
counterparties thereto), in all material respects, legal, valid, binding and
enforceable in accordance with their terms, subject to customary exceptions
relating to bankruptcy, insolvency and similar Laws of general applicability
relating to creditors' rights. The Company and its Subsidiaries do not own or
operate, or franchise to any Person the right to own or operate any restaurant,
that is not branded Prince or Hungry Jack's or that is not engaged in the fast
food hamburger restaurant business.
Section 3.24 Franchisee Circulars. Except to the extent that they,
as of the date hereof, do not specify Buyer as the acquiror of the Company or
any terms of this transaction or the background of this transaction since July
2, 2002, all disclosure statements that the Company or any of its Subsidiaries
is required by Law to provide prospective or existing franchisees (the
"Franchisee Circulars"), comply in all material respects with the requirements
of applicable Law, and as of their respective dates none of such Franchisee
Circulars makes any untrue statement of a material fact required to be stated
therein or omits to state any material fact required to be stated therein.
Section 3.25 Indebtedness. (a) The aggregate prepayment penalty,
premium or breakage cost (other than any such penalty, premium or cost arising
from breach of a Contract) that Company and its Subsidiaries would be required
to pay after the Closing for prepayment of any indebtedness of the type referred
to in clause (i) (other than subclauses (C) or (E)) of the definition of Net
Indebtedness with respect to indebtedness of the Company and its Subsidiaries
outstanding at Closing shall not exceed $1,000,000. The amount of indebtedness
referred to in clause (i) of the definition of Net Indebtedness (other than
subclauses (C) or (E)) that is not prepayable pursuant to its terms shall not
exceed $2,000,000 at the Closing. To the Knowledge of Seller, the Diageo
Guarantees set forth on Schedule 3.25(a) of the Seller Disclosure Schedule shall
be the only Diageo Guarantees in effect at the Closing.
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(b) As of the date hereof, the Company and its Subsidiaries do not have
any deferred income liabilities required to be set forth in financial statements
complying with U.K. GAAP (other than the MAA Fund) that will require a cash
expenditure by the Company and its Subsidiaries to decrease such liability.
Section 3.26 Franchisee Investments. Between June 15, 2002 and the
date hereof, the Company and its Subsidiaries made cash expenditures equal to no
less than $11,919,000 in respect of transactions with the first Person listed on
Annex 2.5(c).
Section 3.27 Acknowledgement by Seller. Seller acknowledges that no
other representations and warranties of Buyer other than as are set forth in
this Agreement are required by Seller to enter into this Agreement.
Section 3.28 No Other Representations or Warranties. Except for the
representations and warranties contained in this Agreement, none of Diageo,
Seller, the Company, any Subsidiary of the Company or Diageo or any other Person
makes any other express or implied representation or warranty on behalf of
Diageo, Seller, the Company or any Subsidiary of the Company or Diageo with
respect to the transactions contemplated by this Agreement.
ARTICLE IV
Representations and Warranties of Buyer
Except as required by this Agreement, Buyer represents and warrants to
Seller as of the date hereof as follows:
Section 4.1 Organization and Authority of Buyer. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, has all requisite corporate power and authority, and has taken all
corporate action (including obtaining any and all required shareholder
approvals) necessary in order to execute, deliver and perform its obligations
under this Agreement. This Agreement has been duly executed and delivered by
Buyer and constitutes the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by Buyer does not, and the consummation by Buyer
of the transactions contemplated hereby will not, constitute or result in (A) a
breach or violation of, or a default under, the certificate of incorporation,
by-laws or other organizational documents of Buyer, (B) a breach or violation
of, a default under, or the acceleration of any obligations or the creation of
any Encumbrance on the assets, properties or rights of Buyer (with or without
notice, lapse of time or both) pursuant to any Contracts binding upon Buyer or
any of its assets or giving any party with rights thereunder the right to
terminate, modify, accelerate or otherwise change the existing rights or
obligations of Buyer thereunder or (C) assuming compliance with the matters
referred to in Section 3.11 (Consents and Approvals) and Section 4.2 (Consents
and Approvals) and Schedules 3.1, 3.2 and 3.11 of the Seller Disclosure
Schedule, a violation of or loss of rights or trigger of any new substantial
obligations under any Law or
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governmental or nongovernmental permit or license to which Buyer or any of its
assets, properties or rights is subject, except, in the case of clause (B) or
(C) above, for any breach, violation, default, acceleration, creation,
modification, termination, other change or loss of rights that would not be
reasonably likely to prevent, materially delay or materially impair the ability
of Buyer to perform its obligations and consummate the transactions contemplated
by this Agreement.
Section 4.2 Consents and Approvals. Except for the filings,
permits, authorizations, consents, approvals and/or notices required under
either the HSR Act or referenced in Schedule 3.11 of the Seller Disclosure
Schedule, no filings, permits, authorizations, consents, approvals and/or
notices are required to be made or obtained by Buyer or any of its Subsidiaries
with or from, as the case may be, any Governmental Entity, in connection with
the execution, delivery and performance of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated hereby, except those
filings, permits, authorizations, consents, approvals and/or notices for which
the failure to make or obtain would not be reasonably likely, individually or in
the aggregate, to prevent, materially delay or materially impair the ability of
Buyer to consummate the transactions contemplated by this Agreement.
Section 4.3 Brokers and Finders. Neither Buyer nor any of its
Subsidiaries has employed any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement who would be
entitled to a broker's, finder's or similar fee or commission in connection
therewith or upon the consummation thereof that would be payable by Seller or
any of its Affiliates.
Section 4.4 Financial Capability. (a) Buyer will have sufficient
funds at the Closing to purchase the Shares on the terms and conditions
contemplated by this Agreement and to consummate the transactions contemplated
hereby and will have sufficient funds to perform its obligations and the
obligations of the Company (including any obligations the Company may have with
respect to its Subsidiaries) after the Closing Date. Buyer has provided Seller
with copies of all financing commitments it has received with respect to the
transactions contemplated hereby (the "Financing Commitments") and such
commitments are in full force and effect and have not been amended or rescinded.
(b) Buyer acknowledges that Seller and its Affiliates have relied upon
assurances of Buyer that Buyer shall have adequate equity capitalization at
Closing to permit it to effect the transactions contemplated hereby on and
subject to the terms of the Equity Commitments. Equity funding has been
committed to Buyer for the purpose of consummating the transactions contemplated
hereby on the terms and in the amounts, and subject to the conditions, set forth
in the equity commitments provided to Seller prior to the date hereof (together
with the amendments delivered to Seller on the date hereof, the "Equity
Commitments"). There are no conditions to the Equity Commitments other than as
set forth therein. Each provider of an Equity Commitment and Buyer is satisfied
with the terms and conditions of this Agreement and no later than the 45th day
after the date
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hereof will be satisfied with the terms and conditions of the equity purchase
documentation.
Section 4.5 Securities Act. Buyer is acquiring the Shares solely
for the purpose of investment and not with a view to, or for sale in connection
with, any distribution thereof in violation of the Securities Act. Buyer
acknowledges that the Shares are not registered under the Securities Act or any
applicable state securities law, and that the Shares may not be transferred,
sold or otherwise disposed of except pursuant to the registration provisions of
the Securities Act or pursuant to an applicable exemption therefrom and pursuant
to state securities laws and regulations as applicable.
Section 4.6 Litigation. As of the date hereof, there are no
civil, criminal or administrative claims, actions, suits, demands, proceedings
or investigations pending or, to the Knowledge of Buyer, threatened against
Buyer or any of its Subsidiaries, at law, in equity or otherwise, in, before, or
by, any court, Governmental Entity, authority or arbitrator which would be
reasonably likely to have a material adverse effect on the business or financial
condition of Buyer or would be reasonably likely to prevent, materially delay or
materially impair the transactions contemplated hereby.
Section 4.7 Acknowledgment by Buyer. Buyer acknowledges that no
other representations and warranties of Seller other than as are set forth in
this Agreement are required by Buyer to enter into this Agreement.
Section 4.8 No Other Representations or Warranties. Except for
the representations and warranties contained in this Article IV, neither Buyer
nor any other Person makes any other express or implied representation or
warranty on behalf of Buyer or any of its Affiliates or investors.
ARTICLE V
Tax Matters
Section 5.1 Liability for Taxes and Related Matters.
(a) Seller's Indemnification of Buyer. From and after the Closing and
until the third anniversary thereof, (other than with respect to Income Taxes
and all other Taxes which are not of a type that is reflected in the calculation
of Closing Working Capital, for which Seller's liability shall extend until the
termination of all applicable statutes of limitations) Seller shall be liable
for and indemnify and hold harmless Buyer for all Taxes attributable to, imposed
on, or for which the Company or any of its Subsidiaries may otherwise be liable
(including, without limitation, Income Taxes for which the Company or any of its
Subsidiaries may be liable under Treasury Regulation 1.1502-6 or Taxes of
another person for whom the Company or any of its Subsidiaries may be liable as
transferor or successor, by Contract or otherwise, (but excluding any liability
for Taxes included in the Closing Working Capital) (i) for events occurring or
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periods ending on or before the Closing Date and, (ii) with respect to any
taxable year or period beginning before and ending after the Closing Date, the
portion of such taxable year ending on and including the Closing Date. Seller
shall be entitled to any refund of Taxes of the Company or any of its
Subsidiaries, received for any taxable year or period (or portion thereof)
ending on or before the Closing Date and Buyer shall cause such refund to be
paid to Seller promptly following its receipt.
(b) Buyer's Indemnification of Seller. From and after the Closing,
Buyer shall be liable for and indemnify Seller for the Taxes of the Company
other than those Taxes referred to in Section 5.1(a). From and after the
Closing, Buyer shall be entitled to any refund of Taxes of the Company other
than those refunds described in Section 5.1(a).
(c) Taxes for Short Taxable Year. For purposes of subsections (a) and
(b) of this Section 5.1, whenever it is necessary to determine the liability for
Taxes of the Company or any of its Subsidiaries for a portion of a taxable year
or period that begins before and ends after the Closing Date, the determination
of the Taxes of the Company or any of its Subsidiaries for the portion of the
year or period ending on, and the portion of the year or period beginning after,
the Closing Date generally shall be determined by assuming that the Company or
any of its Subsidiaries had a taxable year or period which ended at the close of
the Closing Date, except that exemptions, allowances or deductions that are
calculated on an annual basis, (such as the deduction for depreciation), and
Taxes imposed on a periodic basis (such as real property taxes), shall be
apportioned on a time basis.
(d) Adjustment to Purchase Price. Any payment by Buyer or Seller under
this Article V will be treated as an adjustment to the Purchase Price.
(e) Carrybacks. Following the Closing, Buyer and the Company shall, to
the extent permissible, waive the right to carryback any Income Tax losses,
credits or similar items attributable to the Company and from a taxable year or
period that begins after the Closing Date to a taxable year or period that ends
on or before the Closing Date.
(f) Tax Returns. From and after the Closing, Seller shall file or cause
to be filed when due all Tax Returns that are required to be filed by or with
respect to the Company or any of its Subsidiaries for taxable years or periods
ending on or before the Closing Date (including, but not limited to, the Tax
Returns with respect to Income Taxes which are listed on Schedule 5.1(f) of the
Seller Disclosure Schedule) and shall pay when due any Taxes due in respect of
such Tax Returns. Buyer shall file or cause to be filed when due all Tax Returns
that are required to be filed by or with respect to the Company or any of its
Subsidiaries for taxable years or periods ending after the Closing Date and
shall remit any Taxes due in respect of such Tax Returns. Such Tax Returns shall
be prepared on a basis consistent with those prepared for prior taxable periods
unless a different treatment of an item is required by an intervening change in
law. Buyer shall permit Seller to review and comment on each Tax Return for
which Seller may be liable
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under Section 5.1(a) of this Agreement, and shall make such revisions to such
Tax Returns as are reasonably requested by Seller, provided such revisions do
not materially adversely affect Buyer in any post-Closing period. Buyer or
Seller, as applicable, shall pay to the other an amount equal to the Taxes for
which the payor is liable pursuant to Section 5.1 but which are payable with Tax
Returns to be filed by the payee at least 10 days prior to the due date
(including any extensions) for the filing of such Tax Returns.
(g) Contest Provisions. Buyer shall promptly notify Seller in writing
upon receipt by Buyer, any of its Affiliates or the Company or any of its
Subsidiaries of notice of any pending or threatened federal, state, local or
foreign Tax audits or assessments which may affect the tax liabilities of the
Company or any of its Subsidiaries for which Seller would be required to
indemnify Buyer pursuant to Section 5.1(a), but no failure to give such notice
shall relieve Seller of any liability hereunder except to the extent, if any,
that the rights of Seller with respect to such claim are actually prejudiced.
Seller shall have the right to represent the Company or any of its Subsidiaries'
(and upon assuming such right, no other Person will have the right to represent
the Company and its Subsidiaries) interests in and manage any Income Tax audit
or administrative or court proceeding relating to taxable years or periods
ending on or before the Closing Date, and to employ counsel of its choice at its
expense. Seller may not agree to settle any Income Tax claim which would
materially adversely affect Buyer, the Company or any of their Subsidiaries in
any taxable period ending after the Closing Date without Buyer's prior written
consent, which consent shall not be unreasonably withheld.
Seller shall be entitled to participate at its expense in the defense
of any claim for Income Taxes for a year or period ending after the Closing Date
which may be the subject of indemnification by Seller pursuant to Section 5.1(a)
and, with the written consent of Buyer, and at Seller's expense, may assume the
entire defense of such Income Tax claim. Neither Buyer nor the Company nor any
of its Subsidiaries may agree to settle any Income Tax claim for the portion of
the year or period ending on the Closing Date which may be the subject of
indemnification by Seller under Section 5.1(a) without the prior written consent
of Seller, which consent shall not be unreasonably withheld.
(h) Transfer Taxes. All excise, sales, use, transfer, documentary,
filing and other similar Taxes which may be imposed or assessed as a result of
Buyer's acquisition of the Shares ("Transfer Taxes") shall be borne by Buyer.
(i) Any Tax allocation or sharing agreement that may have been entered
into by Seller (or any Affiliate of Seller) and the Company shall be terminated
as to the Company as of the Closing Date, and no payments which are owed by or
to the Company pursuant thereto shall be made thereunder, except to the extent
such obligation is reflected in the Closing Date Financial Statements.
Section 5.2 Information to be Provided by Buyer. With respect to
any taxable year of the Company or any of its Subsidiaries for which Seller is
required to file a Tax Return pursuant to Section 5.1(f) hereof and for the
period prior to the Closing
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Date in any taxable year of the Company or any of its Subsidiaries in which the
Closing occurs, Buyer shall cause the Company to prepare and provide to Seller a
package of tax information materials (the "Tax Package"), which shall be
completed in accordance with the past practice of the Company or the relevant
Subsidiary including past practice as to providing the information, schedules
and work papers and as to the method of computation of separate taxable income
or other relevant measure of income. Buyer shall cause the Tax Package (i) for
the taxable year ended June 30, 2002 to be delivered to Seller no later than
November 30, 2002 and (ii) for the portion of the taxable period ending on the
Closing Date to be delivered to Seller within one hundred fifty (150) days after
the close of the taxable year or period in which the Closing Date occurs.
Section 5.3 Assistance and Cooperation. After the Closing Date,
each of Seller and Buyer shall:
(a) assist (and cause their respective Affiliates to assist) the other
party in preparing any Tax Returns or reports which such other party is
responsible for preparing and filing in accordance with this Article V;
(b) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of the Company;
(c) make available to the other party and to any taxing authority, as
reasonably requested, all information, records, and documents relating to Taxes
of the Company (including information necessary to file extensions and make
estimated Tax payments);
(d) provide timely notice in writing to the other party of any pending
or threatened tax audits or assessments of the Company for taxable periods for
which the other may have a liability under this Article V; and
(e) furnish the other party with copies of all correspondence received
from any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period.
Section 5.4 Miscellaneous.
(a) Any Tax sharing agreement or arrangement between Diageo and its
Affiliates on the one hand, and either of the Company or any of its
Subsidiaries, on the other hand, shall be terminated prior to the Closing Date.
To the extent any payments are due under any of the Tax sharing agreements
described above, such payments shall be settled prior to the Closing Date.
(b) Buyer shall not, without the prior consent of Seller (which may, in
its sole and absolute discretion, withhold such consent), make, or cause to
permit to be made, any Tax election, or adopt or change any method of
accounting, or undertake any
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other extraordinary action on the Closing Date, that would affect the Seller or
the Company or any of its Subsidiaries prior to the Closing Date.
ARTICLE VI
Certain Covenants and
Agreements of Seller and Buyer
Section 6.1 Access and Information.
(a) Prior to Closing, subject to applicable Law, Seller shall permit
Buyer and its representatives (including representatives of Buyer's financing
sources) to have reasonable access, during regular business hours and upon
reasonable advance notice, to the Company and its Subsidiaries and to their
respective books, Contracts, records, facilities and properties (including
reasonable access to conduct Phase I environmental investigations) and to the
officers, key Employees, accountants and auditors of the Company and its
Subsidiaries, and to furnish to Buyer such data and information (including
financial and operations data) regarding the business of the Company and its
Subsidiaries as Buyer may reasonably request (including, to the extent
satisfying such criteria, any data or information to facilitate the transactions
contemplated by the Financing Commitments), in each case to the extent that such
access does not unreasonably interfere with the business or operations of
Seller, the Company or any of their respective Affiliates; provided that Buyer
and such representatives comply with the confidentiality obligations contained
herein and in the Confidentiality Agreement; and provided further that the
foregoing shall not (i) require Seller to permit any inspection, or to disclose
any information, that in its reasonable judgment would result in the disclosure
of any trade secrets or violate any of Seller's, the Company's or any of the
Subsidiaries' obligations with respect to confidentiality or (ii) require any
disclosure by Seller, the Company or any of its Subsidiaries that reasonably
could, as a result of such disclosure, have the effect of causing the waiver of
any legal privilege. Seller agrees to use its commercially reasonable efforts to
obtain waivers of any of the foregoing confidentiality obligations and Buyer and
Seller agree to use commercially reasonable efforts to enter into appropriate
joint defense agreements.
(b) In addition to the confidentiality arrangements contained herein,
all information provided or obtained in connection with the transactions
contemplated by this Agreement (including pursuant to clause (a) above) shall be
held by Buyer in accordance with and subject to the terms of the Confidentiality
Agreement, dated March 28, 2002, between TPG Partners III, L.P. and Diageo (the
"Confidentiality Agreement") and Seller shall have the right to enforce the
provisions of the Confidentiality Agreement against Buyer as if it were Diageo
and Buyer were TPG Partners III, L.P. In the event of a conflict or
inconsistency between the terms of this Agreement and the Confidentiality
Agreement, the terms of this Agreement shall govern.
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(c) Promptly following the date hereof, Seller shall cause Diageo to
request the return or destruction of all non-public information provided by the
Company or its Affiliates after July 1, 2001 and prior to the date hereof to (i)
other potential purchasers of the Company or its Subsidiaries in connection with
a confidentiality agreement executed in connection with such a potential sale of
the Company, or (ii) potential underwriters pursuant to a confidentiality
agreement in connection with a plan to publicly offer securities of the Company.
From and after the Closing, Seller shall cause Diageo or an applicable Affiliate
of Diageo to assign to Buyer or the Company (or, if assignment is not permitted,
enforce for the benefit of Buyer or the Company) any existing confidentiality or
similar agreements with such other potential purchasers or underwriters to the
extent such confidentiality agreement was executed in connection with a proposed
sale of the Company or plan to publicly offer securities of the Company.
(d) From and after the Closing, Buyer shall, and shall cause the
Company to, provide to Seller promptly following a request by Seller such
information regarding the Company and its Subsidiaries as Seller reasonably
requests in connection with Seller preparing (a) the reports and accounts of
Seller's Affiliates required under applicable stock exchange rules and
regulations or (b) the reports of Seller's Affiliates required to be filed under
the Securities Exchange Act of 1934, as amended; provided that the foregoing
shall not require the preparation by Buyer of any interim audited financial data
or statements.
(e) Seller shall and shall cause Diageo and its Subsidiaries to
maintain the confidentiality of, and not use, (A) confidential or proprietary
information regarding the Company or any of its Subsidiaries from the Closing
until the third anniversary of the Closing Date or (B) trade secrets regarding
the Company or any of its Subsidiaries from and after the Closing; provided,
however, that this Section 6.1(e) shall not apply to information: (i) that
becomes available after the Closing Date to Seller, Diageo or Diageo's
Subsidiaries from a source other than the Company (and not as a result of a
violation of a contractual restriction or fiduciary duty known to Seller); or
(ii) that was or becomes generally available to the public (and not as a result
of a violation of a contractual restriction or fiduciary duty known to Seller).
Notwithstanding the preceding sentence, Seller may, and may permit, disclosure
of such information (1) in response to any judicial or administrative
proceedings (by oral questions, interrogatories, requests for information or
documents, subpoena, Civil Investigation Demand or similar process); (2) if
requested by a Governmental Entity; (3) to avoid violating the federal
securities laws; or (4) related, as of the Closing Date, to the business of
Diageo or its Affiliates (other than the Company and its Subsidiaries); provided
that Seller will, to the extent practicable, promptly notify Buyer and the
Company thereof and cooperate with Buyer and the Company at Buyer's reasonable
request and cost if Buyer or the Company should seek to obtain an order that
confidential treatment will be accorded to such information. Buyer, without
prejudice to any rights to judicial relief it may otherwise have, shall be
entitled to seek equitable relief, including an injunction, in the event of a
threatened or actual breach of this Section 6.1(e) and Seller will not resist
such application for relief on the basis that Buyer has an adequate remedy at
law.
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Section 6.2 Conduct of Business. During the period from the date
hereof until the Closing, except in each case (a) as required by Law, (b) as
otherwise contemplated by this Agreement, (c) as set forth on Schedule 6.2 of
the Seller Disclosure Schedule, (d) with respect to Intercompany Accounts
(consistent with Section 6.8), or (e) as Buyer shall otherwise agree in writing
(such agreement not to be unreasonably withheld or delayed), Seller covenants
and agrees that it shall cause each of the Company and its Subsidiaries to
operate their businesses in all material respects in the Ordinary Course of
Business. During the period from the date hereof until the Closing, except in
each case (a) as required by Law, (b) as otherwise contemplated by this
Agreement, (c) as set forth on Schedule 6.2 of the Seller Disclosure Schedule,
(d) with respect to Intercompany Accounts (consistent with Section 6.8), or (e)
as Buyer shall otherwise agree in writing (such agreement not to be unreasonably
withheld or delayed), Seller shall cause each of the Company and its
Subsidiaries to:
(i) not become legally committed to any new individual item of
Capex requiring expenditures following the Closing Date that is
materially inconsistent with Annex 2.5(f);
(ii) not transfer, sell, lease, license, mortgage, pledge,
create an Encumbrance (other than a Permitted Encumbrance) on or
otherwise dispose of any of its assets or properties (A) except for
restaurant sales, with a fair market value not in excess of $2,000,000
in the aggregate in any consecutive three-month period and (B) in the
case of sales of restaurants, no more than 10 restaurants in the
aggregate; provided that no sale of a restaurant shall be permitted to
the extent it is not made on arm's-length terms;
(iii) not make or commit to make any investment in or payment
or advance to any of its franchisees in excess of $1,500,000 in the
aggregate, except for investments or advances in respect of the
transactions with the Persons referred to in Annex 2.5(c) hereto and in
the amounts specified therein;
(iv) not amend or modify any of the material terms of the
franchise agreements or BKL Leases that are, or would be reasonably
likely to become, applicable to a material portion of the Company's and
its Subsidiaries' franchisees;
(v) not amend or modify, or grant any express waivers of any
of the material terms of any Identified Contract, or enter into, or
amend, modify or grant any express waivers of any of the material terms
of, any Contract that would have been an Identified Contract if it had
been entered into prior to the date hereof; provided that the foregoing
shall not (I) prohibit the entry in the Ordinary Course of Business
into (A) any Contract that restricts the ability of the Company and its
Subsidiaries to open or franchise restaurants with respect to a
location and that, but for Section 3.10(a)(ii), would not have been an
Identified Contract if it had been entered into prior to the date
hereof or (B) Contracts providing for
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settlements of Litigation or threatened Litigation (other than the
matters referred to in Section 9.3(a)(iv)) that provide for payments
after the Closing not in excess of $1,000,000 in the aggregate or (II)
prevent amending or modifying, in the Ordinary Course of Business,
Contracts entered into with franchisees which permit the franchisee to
seek to sell its restaurant and franchise;
(vi) except for increases in salaries or wage rates of
Employees (other than the Executive Officers) granted in the Ordinary
Course of Business and except as required by Law or the current terms
of any collective bargaining agreement or, solely in the case of clause
(y), as a result of any change or modification to a Benefit Plan
sponsored by Seller or Diageo and not solely related to the Employees
and which would not be reasonably like to result in any material
increase in liability to the Company or any of its Subsidiaries, not
(x) grant any salary or wage increases or (y) terminate, modify, amend,
enter into, establish, adopt or assume an obligation to contribute to
any existing or new Benefit Plan in any manner that increases the
amount of any current or future liability attributable to the Company
or any of its Subsidiaries in respect of any such Benefit Plan other
than to an immaterial extent or (z) establish or communicate any
financial performance targets for annual or long-term bonuses for the
Employees for any period after the date hereof;
(vii) not issue, sell, pledge, dispose of or create an
Encumbrance on any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls,
commitments or rights of any kind to acquire any shares of its capital
stock;
(viii) except for new hires or in the Ordinary Course of
Business, not (A) enter into any employment agreement with any of its
employees or (B) take any action or fail to take any action with
respect to any individual who is a party to an Executive Employment
Agreement that results in the termination of such individual party's
employment prior to the Closing Date by the Company without "Cause" or
by such individual party for "Good Reason" (each as defined in such
individual's Executive Employment Agreement) or that results in such a
termination of employment after the Closing pursuant to notice
delivered under such agreement by such individual party or the Company
prior to the Closing;
(ix) not declare, set aside or pay any non-cash dividend or
make any non-cash distribution with respect to its capital stock;
(x) not change its accounting policies, except, after prior
consultation with Buyer, as required by accounting rules or Laws
applicable to it or its Affiliates;
(xi) not merge or consolidate with or into any other legal
entity (other than any direct or indirect wholly owned Subsidiaries) or
dissolve, windup or liquidate;
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(xii) except to the extent outside the Ordinary Course of
Business, use its commercially reasonable efforts to (a) preserve
substantially intact its present business organization, (b) keep
available the services of its management and Employees and (c) preserve
its relationships with landlords, franchisees, suppliers, distributors,
lessees and joint venture and alliance counterparties;
(xiii) on a basis consistent with past practice use its
commercially reasonable efforts to maintain its material assets in
their current physical condition, except for ordinary wear and tear;
(xiv) not permit the "deferred income" relating to the MAA
Fund to become positive or incur any deferred income which would have
resulted in a breach of the representation set forth in Section 3.25(b)
if existing as of the date hereof;
(xv) pay or otherwise satisfy (except if being contested in
good faith) any material accounts payable, liabilities or obligations
when due and payable (subject to any applicable grace periods) on a
basis consistent with past practice;
(xvi) not securitize any of its trade accounts receivable or
any other accounts receivable;
(xvii) not enter into any material Contract with an Affiliate,
other than a wholly owned Subsidiary;
(xviii) not amend or authorize any amendment to its articles
of incorporation, certificate of incorporation or similar applicable
organizational document or bylaws; and
(xix) not authorize or enter into a Contract or transaction
that would be in contravention of any of the foregoing.
Section 6.3 Registrations, Filings and Consents. (a) Seller and
Buyer shall cooperate with each other and use (and shall cause their respective
Subsidiaries to use) all their respective reasonable best efforts to take or
cause to be taken all actions, and do or cause to be done all things necessary,
proper or advisable on their respective parts (i) to consummate and make
effective the transactions contemplated by this Agreement as soon as reasonably
practicable, including preparing and filing as promptly as practicable all
documentation to effect all necessary applications, notices, petitions, filings
and other documents; (ii) to obtain as promptly as reasonably practicable all
consents, registrations, approvals, permits and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental Entity in
order to consummate the transactions contemplated by this Agreement (including
all consents required to be listed on Schedule 3.2(B) of the Seller Disclosure
Schedule) and (iii) to cause and facilitate the
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prompt satisfaction of the conditions set forth in Article VII to the extent
within its control (other than by curing inaccuracies in its representations and
warranties in Article III or IV that exist and are not within the Knowledge of
Buyer (in the case of Buyer's obligation under this clause (iii)) or the
Knowledge of Seller, (in the case of Seller's obligation under this clause
(iii)) as of the date hereof; it being understood that the foregoing shall not
limit any common law duties to act in good faith or prejudice any rights or
remedies of the other party arising under any other provision of this
Agreement). In furtherance of the foregoing, Buyer and Seller agree to file or
to cause their Affiliates to file, if applicable, within fifteen (15) days
following the date hereof all documentation, filings and other documents
necessary under the HSR Act. Subject to applicable Laws relating to the exchange
of information, Buyer and Seller shall have the right to review in advance, and
to the extent practicable each will consult the other on, all the information
relating to Diageo, Seller or the Company or Buyer, as the case may be, and any
of their respective Subsidiaries, that appear in any filing made with, or
written materials submitted to, any third party and/or any Governmental Entity
in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of Buyer and Seller shall act reasonably
and as promptly as reasonably practicable.
(b) To the extent permissible under applicable law and consistent with
the instructions of any Person with jurisdiction to review and, as appropriate,
authorize or approve the transactions contemplated by this Agreement (each, a
"Government Regulatory Entity"), Buyer and Seller each shall keep the other
informed of the status of matters relating to completion of the transactions
contemplated hereby, including promptly furnishing the other with copies of
notices or other communications received by Buyer or Seller, as the case may be,
the Company or any of its Subsidiaries or any of the Affiliates or
representatives of the foregoing, from any third party and/or any Governmental
Entity with respect to the transactions contemplated by this Agreement.
(c) Without limiting the generality of the undertakings pursuant to
this Section 6.3, Seller (in the case of clauses (i) and (iii) below) and Buyer
(in all cases below) agree to take or cause to be taken the following actions:
(i) provide promptly to any Government Regulatory Entity information and
documents requested by any Government Regulatory Entity or necessary, proper or
advisable to permit consummation of the transactions contemplated by this
Agreement; (ii) sell or otherwise dispose of, or hold separate and agree to sell
or otherwise dispose of, such assets, categories of assets or businesses of the
Company or Buyer or either's respective Subsidiaries (and to enter into
agreements with the relevant Government Regulatory Entity giving effect thereto)
if such action should be required by any court order obtained by or on behalf of
any Government Regulatory Entity; and (iii) in the event that, after substantial
compliance with all requests for information, any complaint by any Government
Regulatory Entity seeking a preliminary or permanent injunction or other order,
or, in the case of Government Regulatory Entities located outside the United
States, decision or decree (in all cases other than a request for information)
becomes reasonably foreseeable to be made or filed and such injunction or other
order, decision or decree would make consummation of the transactions
contemplated by the terms of this Agreement unlawful or would prevent or
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prohibit consummation of the transactions contemplated hereby, take promptly
reasonable steps necessary to prevent, vacate, modify or suspend such injunction
or order so as to permit such consummation on a schedule as close as possible to
that contemplated by this Agreement.
(d) In the event that the Closing occurs prior to the time the matters
addressed in Section 6.3 shall have been resolved (including obtaining all
consents and approvals) the obligations hereunder shall continue until such
resolution.
Section 6.4 Employee Compensation and Benefit Plans. (a)
Following the Closing and subject to Section 6.4(e), Buyer shall honor, or cause
the Company or its Subsidiaries, as applicable, to honor in accordance with
their terms as in effect on the date hereof or as such terms may be amended in
accordance with Section 6.2(vi) hereof those Benefit Plans that are (i) listed
on Schedule 3.13(a) of the Seller Disclosure Schedule and (ii) maintained solely
by the Company and/or one or more of its Subsidiaries or to which the Company or
any of its Subsidiaries is a party; provided that nothing herein shall limit the
right of Buyer, the Company and its Subsidiaries to amend or terminate any such
Benefit Plan in accordance with its terms. Buyer agrees that it shall, or it
shall cause the Company or its Subsidiaries, as applicable, to (i) provide
aggregate employee benefits to Employees who are Employees on the Closing Date
for a period of at least one year following the Closing that, in the aggregate
provide a level of benefits to such Employees during employment that is
substantially comparable, in the aggregate, to that provided to such Employees
pursuant to the terms of those Benefit Plans listed on Schedule 3.13(a) of the
Seller Disclosure Schedule as in effect on the date hereof or as such terms may
be amended in accordance with Section 6.2(vi) hereof; and (ii) maintain for a
period of at least one year following the Closing employee severance plans that
will provide a level of severance benefits to Employees who are Employees on the
Closing Date that are no less favorable than those provided to such Employees
pursuant to the terms of the severance plans that are listed on Schedule 3.13(a)
of the Seller Disclosure Schedule as in effect on the date hereof or as such
terms may be amended in accordance with Section 6.2(vi) hereof; provided that
nothing herein shall limit the right of Buyer, the Company or any of its
Subsidiaries to terminate the employment of any Employee or, subject to the
covenants in this subsection (a), amend or terminate any Benefit Plan in
accordance with its terms.
(b) Following the Closing, Buyer shall cause the Company or its
Subsidiaries, as applicable, not to decrease the base salary and target annual
bonus of any Person who was an active Employee on the Closing Date for a period
of at least one year following the Closing from such employees' base salary and
target annual bonus (at achievement of 100% performance) in effect on the date
hereof or as may be adjusted after the date hereof and prior to the Closing Date
in accordance with Section 6.2 hereof.
(c) Employees shall be given credit for all service with the Company,
its Subsidiaries, Seller and their respective past and present Affiliates under
all employee benefit plans, programs and policies of Buyer in which they become
participants for
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purposes of eligibility, vesting and benefit accrual (but not for purposes of
benefit accrual under any defined benefit pension plan), to the same extent such
service was credited under the comparable Benefit Plan applicable to such
Employees. If and to the extent that Employees who are Employees at the Closing
Date become covered under a medical, dental, health, life insurance or
disability plan maintained by Buyer or any of its Subsidiaries effective as of,
or after, the Closing, then Buyer shall cause such plan to (i) waive any
preexisting condition limitations for conditions that would have been covered
under the applicable medical, dental, health, life insurance or disability plan
of the Company and its Subsidiaries in which such employee participated
immediately prior to participation in a Buyer (or Subsidiary) plan and (ii)
honor any deductible, co-payment and other out of pocket expenses incurred by
such employees and their beneficiaries under the applicable medical, dental,
health, life insurance or disability plans of the Company and its Subsidiaries
during the portion of such calendar year preceding the Closing Date.
(d) Seller shall permit the Employees who participate in the Diageo
Pension Scheme sponsored by Diageo in the United Kingdom (the "Existing UK DB
Plan") as of the Closing (the "UK Employees") to continue to participate in the
Existing UK DB Plan for up to one year after the Closing (the "Transitional
Period") subject to the Buyer's payment of the pension contributions, if any,
required to be made to the Existing UK DB Plan under applicable Law or the terms
of the Existing UK DB Plan, as such terms are in effect on the date hereof, for
the UK Employees during the Transitional Period. Prior to the end of the
Transitional Period, but subject to the receipt of the related assets, Buyer
shall cause the Company or one of its Subsidiaries to, as provided in Schedule
6.4(d) of the Seller Disclosure Schedule, create a new defined benefit pension
plan (the "New UK DB Plan") which shall provide pension benefits no less
favorable than those provided to the UK Employees under the Existing UK DB Plan
as of the date hereof. Following the end of the Transitional Period, the New UK
DB Plan shall assume the relevant pension liabilities of the Existing UK DB Plan
(and shall receive assets from the Existing UK DB Plan equal to the amount of
such liabilities) attributable to the UK Employees as provided in Schedule
6.4(d) of the Seller Disclosure Schedule.
(e) Prior to the Closing, Seller shall assume directly or cause an
Affiliate of Seller to assume and, from and after the Closing Date, Seller shall
indemnify and hold Buyer, the Company and their respective Subsidiaries and
Affiliates harmless from and against and will promptly pay or reimburse each
such Person for, any and all liabilities and obligations for or in respect of
all "sale of business awards" that become payable pursuant to the terms of any
of the Executive Employment Agreements as in effect on the date hereof or as the
same may be amended or superceded pursuant to any Contract entered into in
substitution therefor, in either case, with the consent of the individual party
thereto, (the "SOBAs"). To the extent any such amendment or superceding contract
would result in a change to any part of the Executive Employment Agreements
other than the SOBAs, then the consent of Buyer, which shall not be unreasonably
withheld, shall be required. Seller agrees to comply with the terms of the SOBAs
or to cause an Affiliate of Seller to comply with the terms of the SOBAs. To the
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extent that Buyer or the Company or any of its Subsidiaries recognize a tax
deduction in respect of payments to the Executive Officers as a result of this
Section 6.4(e), then Buyer shall promptly pay, or cause to be paid to Seller, an
amount in cash equal to the value of such deduction. Buyer shall cooperate with
Seller and provide such assistance as is reasonably requested by Seller in order
to effect the intention of this Section 6.4(e).
(f) From and after the Closing, Seller shall indemnify and hold
harmless Buyer, the Company and their respective Subsidiaries and Affiliates
from and against, and shall promptly pay or reimburse them for, any and all
Controlled Group Liability, to the extent the occurrence or imposition of which
is unrelated to the employees of the Company or its Subsidiaries. For purposes
of this paragraph "Controlled Group Liability" shall mean any Liability (i)
under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections
412 and 4971 of the Code or (iv) as a result of failure to comply with the
continuation coverage requirements of Section 601 et seq. of ERISA and Section
4980B of the Code.
Section 6.5 Retention of Books and Records. (a) Following the
Closing, Buyer shall cause the Company and its Subsidiaries to retain, until all
applicable tax statutes of limitations (including periods of waiver) have
expired, all books, records and other documents pertaining to the Company and
its Subsidiaries that relate to the period prior to the Closing Date that are
required to be retained under retention policies in effect as of the date hereof
and to make the same available after the Closing Date for inspection (at an
office of the Company or any of its Affiliates, the location of which shall be
mutually agreed by Buyer and Seller) and copying by Seller or its agents at
Seller's expense, during regular business hours of the Company and upon
reasonable request and upon reasonable advance notice. After the expiration of
such period, no such books and records shall be destroyed by Buyer without first
advising Seller in writing detailing the contents thereof and providing Seller
with at least 120 days of reasonable opportunity to obtain possession thereof.
Seller agrees that such records will be kept strictly confidential and used only
for tax purposes.
(b) Following the Closing, Seller shall, and shall cause its and
Diageo's Affiliates to, retain, until all applicable tax statutes of limitations
(including periods of waiver) have expired, all books, records and other
documents pertaining to the Company and its Subsidiaries that relate to the
period prior to the Closing Date and that are required to be retained under
Diageo's retention policies in effect as of the date hereof and to make the same
available after the Closing Date for inspection (at an office of Diageo or any
of its Affiliates, the location of which shall be mutually agreed by the Buyer
and the Seller) and copying by Buyer or its agents at Buyer's expense, during
regular business hours of Diageo and upon reasonable request and upon reasonable
advance notice. After the expiration of such period, no such books and records
shall be destroyed by Seller (and Seller shall not permit such destruction by
Diageo or any of its or Diageo's Affiliates) without first advising Buyer in
writing detailing the contents thereof and providing Buyer with at least 120
days of reasonable opportunity to obtain possession thereof.
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Section 6.6 Resignations/Directors. (a) Seller shall use its
reasonable efforts to deliver to Buyer the resignations of all members of the
boards of directors of the Company and each of its Subsidiaries from their
position as directors of such Person immediately prior to the Closing. If any
such resignation shall not have been obtained at least 10 Business Days prior to
the Closing, Seller shall notify Buyer of any such failure to resign unless
Buyer has requested that any Person remain on any such board of directors.
(b) Prior to the Closing Seller shall use commercially reasonable
efforts to terminate any outstanding powers of attorney executed on behalf of
the Company or any of its Subsidiaries, except for those powers of attorney
granted in favor of current officers of such Person or which may be revoked by
the Company or its Subsidiaries.
(c) Following the Closing and for a period of six years thereafter,
Buyer shall cause to be maintained in effect the policies of directors' or
officers' liability insurance maintained on behalf of directors and officers of
the Company and its Subsidiaries listed on Schedule 3.21 of the Seller
Disclosure Schedule for the benefit of those directors and officers who are
covered by such policies at the Closing (or Buyer may substitute therefore
policies of at least the same coverage with respect to matters occurring prior
to the Closing), at a cost to Buyer not greater than 150% of the annual premium
for such directors' and officers' liability insurance in effect at Closing or,
if Buyer shall not be able to obtain at the least the same coverage for such
amount, as much coverage as Buyer may obtain up to such annual premium amount.
Following the Closing and for a period of six years thereafter (only to the
extent required by the Delaware General Corporation Law ), Buyer will not permit
Article IX of the Company's by-laws to be amended (through merger or otherwise)
in any manner that would be adverse to any Person who was a current or former
director or officer of the Company or its Subsidiaries at or prior to the
Closing and will not permit the Company's by-laws or articles of incorporation
to be amended (through merger or otherwise) in any manner or enter into any
other agreement or understanding that would have the effect of amending Article
IX of the Company's by-laws in any manner that would be adverse to any Person
who was a current or former director or officer of the Company or its
Subsidiaries.
Section 6.7 Diageo Arrangements and Other Guarantees. (a) Buyer
and Seller shall use their reasonable best efforts to cause Buyer or one or more
of its Affiliates to be substituted in all respects for Diageo or its Affiliates
(other than the Company and its Subsidiaries), as applicable, and for Diageo or
its Affiliates (other than the Company and its Subsidiaries), as applicable, to
be otherwise removed or released, effective as of the Closing, in respect of all
obligations of Diageo or its Affiliates (other than the Company and its
Subsidiaries), as applicable, under each of the guarantees, indemnities, surety
bonds, letters of credit and letters of comfort given or obtained by Diageo or
its Affiliates (other than the Company and its Subsidiaries), as applicable, for
the benefit of the Company or its Subsidiaries (collectively, the "Diageo
Guarantees"); provided that the parties shall not be required to make any
payment to a beneficiary of a
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Diageo Guarantee to obtain such a substitution, removal, release or termination
of any such guarantee. In addition, Buyer and Seller shall take all actions
reasonably necessary for all obligations of Diageo or its Affiliates (other than
the Company and its Subsidiaries), as applicable, in respect of Diageo
Guarantees to be terminated as of the Closing, with, in each case, such
substitution, removal, release and termination to be in form and substance
reasonably satisfactory to the Seller; provided that the parties shall not be
required to make any payment to a beneficiary of a Diageo Guarantee to obtain
such a substitution, removal, release or termination of any such guarantee.
(b) If Buyer and Seller have been unable to effect any such
substitution, removal, release and termination with respect to any such Diageo
Guarantee, effective as of the Closing, following the Closing, Buyer and Seller
shall continue to use their reasonable best efforts to effect such substitution,
removal, release and termination as soon as reasonably practicable after the
Closing; provided that the parties shall not be required to make any payment to
a beneficiary of a Diageo Guarantee to obtain such a substitution, removal,
release or termination of any such guarantee and, from and after Closing, Buyer
shall promptly reimburse Diageo and its Affiliates for any payments made by
Diageo or its Affiliates and for the costs of Diageo and its Affiliates in
performing, in whole or in part, any performance obligation in accordance with
the underlying obligation under any such Diageo Guarantee.
(c) Notwithstanding anything herein to the contrary and subject to
paragraph (b) above, after the Closing, Seller shall not, and shall not permit
Diageo or any of its Affiliates to, withdraw, revoke, terminate (other than at
the scheduled expiration of such guarantee) or modify any Diageo Guarantee if so
doing would trigger an obligation to provide cash collateral, the acceleration
of an obligation, change in pricing, loss of rights or trigger any new
obligations under any obligation underlying a Diageo Guarantee. Following the
Closing, Buyer shall certify within five days after the end of each calendar
quarter to Seller in writing that no event has occurred or circumstances exist
which would require payment under any Diageo Guarantee which is listed on
Schedule 3.25(a) of the Seller Disclosure Schedule or specified in a notice by
Seller to Buyer after the date hereof, or promptly following any event which
would require payment under any such Diageo Guarantee. With respect to the
letters of credit set forth on Schedule 3.25(a) of the Seller Disclosure
Schedule, Buyer agrees to reimburse Seller in U.S. dollars for all fees paid
under such letters of credit promptly following written notice to Buyer from
Seller requesting reimbursement of such fees.
(d) From and after the Closing, Seller shall reimburse Buyer and its
Affiliates for any payments in excess of $4,000,000 made after the Closing by
any of such Persons in respect of any guarantee given by the Company or its
Subsidiaries in effect as of the Closing; provided that such guarantee supports
obligations of a Person (other than the Company and its Affiliates) that are of
the nature specified in clause (i) of the definition of Net Indebtedness.
Seller's liability under this Section 6.7(d) shall be limited to the amounts
outstanding as of the Closing under the obligations underlying such guarantees
plus any additional amounts outstanding under such obligations after the
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Closing resulting from accrued, but unpaid interest. Buyer further agrees not to
amend or modify any guarantee or waive any material rights under any guarantee
without the consent of Seller, such consent not to be unreasonably withheld.
Buyer agrees to cause the Company and its Affiliates to use their commercially
reasonable efforts (but without incurring out-of-pocket costs) to cause the
obligations underlying such guarantees to be performed.
Section 6.8 Intercompany Accounts. (a) Notwithstanding anything
contained herein to the contrary other than Section 6.8(b) between the date
hereof and the Closing Date, Seller and its Affiliates shall be permitted to
manage the Intercompany Accounts in any manner they determine in their sole
discretion.
(b) At or prior to Closing, Seller shall use reasonable efforts to
cause all Intercompany Accounts to be settled, including by being contributed to
capital in its discretion. To the extent that any Intercompany Account has not
been settled or contributed to capital by the Closing, Buyer agrees to cause any
Intercompany Account payable by the Company or any of its Subsidiaries to be
satisfied in full when due. To the extent that any Intercompany Account payable
to the Company or any of its Subsidiaries has not been settled prior to the
Closing, Seller shall cause it to be satisfied in full when due or when
necessary to offset an Intercompany Account then due and payable by the Company
or its Subsidiaries.
(c) With respect to any Intercompany Accounts disregarded from the
definition of Net Indebtedness pursuant to such definition, Buyer agrees to
cause the Company or its applicable Affiliate which is paid an amount under such
Intercompany Account to promptly reimburse such amount to Seller. In connection
with any offset pursuant to the third sentence of Section 6.8(b) or any such
reimbursement, the original payment obligation under the applicable Intercompany
Account shall be treated as if it were cancelled immediately prior to the
Closing.
Section 6.9 Non-Company Related Assets. (a) Buyer agrees to allow
Seller to dividend, distribute or otherwise transfer assets from the Company or
its Subsidiaries from time to time prior to the Closing Date which are not used
in or are reasonably anticipated by the Company to be used in and are not
necessary for the operation of the businesses of the Company or its
Subsidiaries. To the Knowledge of Seller all of such assets are set forth on
Annex 6.9(b)(1).
(b) With respect to the parcels of real property set forth on Annex
6.9(b)(1) and Annex 6.9(b)(2), Buyer and Seller agree to take such actions as
shall be reasonably necessary to cause the properties to be assigned to the
Persons listed on such Annex. Seller agrees to, from and after the Closing,
defend, indemnify and hold harmless the Buyer Indemnified Parties against all
Losses related to the properties set forth on Annex 6.9(b)(1), except to the
extent that such Losses result from any actions taken by Buyer or any of its
Affiliates (other than actions taken to cause such properties to be transferred
to the Person listed on such Annex). Buyer agrees to provide any
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notices it receives with respect to such property to Seller promptly following
receipt thereof. With respect to the property set forth on Annex 6.9(b)(2),
Seller agrees to, from and after the Closing, provide the Company with all of
the benefits from such property in consideration of Buyer's agreement to cause
the Company to bear all liabilities and obligations with respect to such
property (other than liabilities and obligations to the extent resulting from
actions taken by Seller or any of its Affiliates after Closing).
(c) As soon as reasonably practicable after the Closing, Seller shall
cause Diageo and its Subsidiaries (other than the Company and its Subsidiaries)
to use their reasonable best efforts to transfer their rights and obligations
under the leases listed on Annex 6.9(c) to the Company. Pending such transfers,
Seller shall provide Buyer with all of the benefits under such leases and Buyer
shall satisfy all obligations under such leases.
Section 6.10 Certain Insurance Matters. Seller agrees to cause the
interest and rights of the Company and its Subsidiaries as of the Closing Date
as insureds or beneficiaries or in any other capacity under occurrence based
insurance policies and programs (and under claims made policies and programs to
the extent a claim has been submitted prior to the Closing) of Diageo or any of
its Subsidiaries (other than the Company and its Subsidiaries) in respect of
periods prior to the Closing Date to survive the Closing for the period for
which such interests and rights would have survived without regard to the
transactions contemplated hereby to the extent permitted by such policies, and
Seller shall cause Diageo to continue to administer such policies and programs
on behalf of the Company and its Subsidiaries, subject to Buyer reimbursement to
Diageo and its Affiliates for the actual out-of-pocket costs of such ongoing
administration and the internal costs (based on the proportion of the amount of
time actually spent on such matter to such employee's normal working time) of
any employee or agent of Diageo who will be required to spend at least twenty
percent of their normal working time over any 15 Business Days working with
respect to any such matter. Any proceeds received by Seller after the Closing
under such policies and programs in respect of the Company and its Subsidiaries
shall be for the benefit of the Company and its Subsidiaries. Notwithstanding
the foregoing, such insurance proceeds payable in respect of the Company and its
Subsidiaries for periods prior to the Closing Date shall be for the benefit of
the Seller and its Affiliates (other than the Company and its Subsidiaries) to
the extent such proceeds relate to expenditures that have been made prior to the
Closing Date.
Section 6.11 Non-Solicitation. Seller undertakes that for a period
of three years following the Closing Date, neither it nor Diageo or any of its
or Diageo's Affiliates shall hire or solicit for hire any Person whose name is
listed on Annex 6.11; provided that such undertaking shall not apply to (i)
general solicitations by Diageo or any of its Affiliates; (ii) solicitations
undertaken by a third party on behalf of Diageo or any of its Affiliates without
Diageo requesting the recruiting of such Person and (iii) any Person whose
employment is terminated following the Closing (without prior solicitation in
violation of this Section 6.11).
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Section 6.12 Acquisition Proposals. (a) Except for the
transactions contemplated by this Agreement and the funding of such
transactions, until the Closing Date or the earlier termination of this
Agreement, Seller shall not, and shall not permit Diageo or any of its
Affiliates to: (a) make, solicit, assist, initiate, facilitate, or provide any
information in connection with or encourage any inquiries, proposals, offers or
bids from any Person who is not an Affiliate of Diageo relating to a spin-off,
public or private offering or other transaction involving debt or equity
securities of, or representing direct interests in, the Company or any of its
Subsidiaries or a direct purchase of all or substantially all of the assets of
the Company, by one or more Persons which are not Affiliates of Diageo (an
"Acquisition Proposal"), or (b) enter into any understanding, agreement or
agreement in principle (whether or not binding) with any Person which is not an
Affiliate of Diageo providing for an Acquisition Proposal.
(b) In addition to any remedy at law for any breach or threatened
breach of Sections 6.1(e), 6.11 or 6.12, Buyer, in addition to any other relief
available to it, shall be entitled to seek temporary and permanent injunctive
relief and Seller will not oppose such relief on the basis that Buyer has an
adequate remedy at law.
Section 6.13 Financial Statements and Reports. (a) At least 30
Business Days prior to Closing, Seller shall deliver to Buyer (i) audited
combined balance sheets and statements of income, changes in stockholders'
equity and cash flow as of and for the fiscal year ended June 30, 2002, for the
Company and its Subsidiaries prepared in a manner consistent with the U.S. GAAP
Company Financial Statements, accompanied by an opinion of the Company's
auditors (the "FY02 U.S. GAAP Company Financial Statements") and (ii) audited
combined balance sheets and statements of income, changes in stockholders'
equity and cash flow as of and for the fiscal year ended June 30, 2002, for the
Company and its Subsidiaries prepared in accordance with accounting policies
consistent with the U.K. GAAP Company Financial Statements, accompanied by an
opinion of the Company's auditors (the "FY02 U.K. GAAP Company Financial
Statements"). For the avoidance of doubt, Seller acknowledges that the financial
statements referred to in this paragraph shall be audited standalone financial
statements and shall include footnote disclosure of the amounts specified in
clause (a) and clause (b) of the definition of FY02 Bonuses.
(b) Promptly after their preparation and prior to the Closing Date,
Seller shall furnish Buyer with unaudited U.K. GAAP combined balance sheets and
statements of incomes and cash flows for the Company and its Subsidiaries for
(i) each fiscal quarter of the Company ended after June 30, 2002 that has ended
at least 45 calendar days before the Closing Date and (ii) each fiscal month of
the Company ended after June 30, 2002 that has ended at least 30 calendar days
before the Closing Date. Seller shall deliver to Buyer the Company's monthly
reporting document that is distributed to all of its Executive Officers promptly
following such delivery.
(c) Prior to Closing, Seller shall, and shall cause the Company and its
Affiliates, to provide reasonable assistance to Buyer in connection with
drafting a
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prospectus, offering memorandum or private placement memorandum for use by Buyer
in a customary "high yield road show". Without limiting the foregoing, Seller
shall use reasonable best efforts to provide Buyer with (i) audited financial
statements for the Company and its Subsidiaries on a consolidated basis as of
the end of and for each of the years in the three-year period ended June 30,
2002, prepared in accordance with U.S. GAAP and Regulation S-X under the
Securities Act and (ii) if the Closing occurs on or after November 15, 2002,
unaudited financial statements for the Company and its Subsidiaries on a
combined basis (which shall have been reviewed by the Company's independent
accountants as provided in Statement on Auditing Standards No. 71) as of the end
of and for the three-month periods ended September 30, 2002 and 2001, prepared
in accordance with U.S. GAAP and Regulation S-X under the Securities Act, (iii)
a pro forma balance sheet as of June 30, 2002 and a pro forma income statement
for the year ended June 30, 2002, prepared in accordance with U.S. GAAP and
Regulation S-X under the Securities Act, (iv) if the Closing occurs on or after
November 15, 2002, a pro forma balance sheet as of September 30, 2002 and pro
forma income statements for the three month and twelve month periods ended
September 30, 2002, prepared in accordance with U.S. GAAP and Regulation S-X, in
the cases of clauses (iii) and (iv) for the Company and its Subsidiaries on a
combined basis giving effect to the Closing (provided that Seller's obligations
under clauses (iii) and (iv) shall be subject to Buyer's providing as promptly
as practicable all data and information within its possession that is necessary
for the preparation of such pro forma statements by Seller, including without
limitation information necessary to understand Buyer's proposed accounting
treatment of the transactions contemplated hereby and full descriptions of the
accounting of the transactions contemplated hereby) and (v) selected financial
data for the Company and its Subsidiaries on a combined basis which would be
required under Regulations S-X and S-K under the Securities Act, prepared in
accordance with U.S. GAAP for the five-year period ended June 30, 2002. Seller
will also (1) cause all necessary, appropriate or customary consents and
representation letters of management of the Company and its auditors to be
provided promptly following a reasonable request therefor and (2) use its
reasonable efforts to cause the executive officers of the Company to
participate, to the extent requested by Buyer, in and in preparation for,
investor presentations and roadshows with respect to a high-yield offering.
(d) Seller will promptly, following reasonable request of Buyer,
furnish Buyer such additional information or documents necessary for the
preparation of financial statements prepared in accordance with Regulation S-X
under the Securities Act that will include or reflect the financial condition,
results of operations and cash flows of the Company and its Subsidiaries for
periods prior to the Closing to the extent such information or documents are
within the possession or control of Diageo or its Affiliates.
(e) If Buyer engages an appraisal firm to deliver a letter at or prior
to the Closing stating that at the Closing and after giving effect to the
transactions contemplated hereby (including the incurrence of all financing for
the transactions contemplated hereby) and any changes in the Company's assets
and liabilities as a result thereof, the Company: (i) will be solvent (i.e., the
fair value of its assets will not be less
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than the sum of its debts and the present fair saleable value of its assets will
not be less than the amount required to pay its probable liabilities on its
debts as they become absolute and mature); (ii) will not have unreasonably small
capital with which to engage in its business; and (iii) will not have incurred
and will not plan to incur debts beyond its ability to pay as they become
absolute and mature or any letter to a similar effect, Buyer shall use its
commercially reasonable efforts (but without incurring any out-of-pocket costs)
to cause the Board of Directors of the Company, Seller and the Board of
Directors of Seller to be addressees of such letter at the cost of Seller. If
Buyer has not affirmed to Seller that it will deliver such a letter at Closing
by the 30th day following the date hereof, it shall provide Seller with such
documents and information as Seller shall reasonably request to permit Seller to
acquire such a letter.
(f) Promptly following the delivery of the FY02 U.K. GAAP Company
Financial Statements, Seller shall deliver to Buyer a statement, certified by an
officer of Diageo, that sets forth the June 30 EBITDA. Such statement shall,
absent manifest error, be binding on Buyer for purposes of determining the
EBITDA Adjustment Amount pursuant to Section 2.5, except that Buyer may elect to
claim that the EBITDA Adjustment Amount should be different than the Reference
EBITDA Adjustment Amount on one or more of the following bases, if it has a good
faith basis to make such claim:
(i) the arithmetic calculations used to determine the June 30
EBITDA are incorrect or do not accurately reflect the line items in the
arithmetic formula set forth in Annex 2.5(d);
(ii) "Profit on ordinary activities before taxation" or any
add-back to the "Profit on ordinary activities before taxation" that is
stated as a stand-alone line item in the income statement in the FY02
U.K. GAAP Company Financial Statements (or in the notes thereto) is not
the same as the amount stated in the FY02 U.K. GAAP Company Financial
Statements;
(iii) the amount of any other add-back to the "Profit on
ordinary activities before taxation" that is not expressly stated as a
stand-alone line item in the income statement in the FY02 U.K. GAAP
Financial Statements (or in the notes thereto) is not the amount
included in "Profit on ordinary activities before taxation" line item
in the FY02 U.K. GAAP Financial Statement; or
(iv) the add-backs to the "Profit on ordinary activities
before taxation" (A) in respect of Exceptional Items to the extent they
include exceptional items that are of a different nature than the
specified Permitted Exceptional Items listed in Annex 2.5(d) or (B) in
the case of such Exceptional Items that are of the same nature as those
listed as Permitted Exceptional Items in Annex 2.5(d), the amount of
such Permitted Exception Item addback exceeds the amount permitted to
be added back in respect of such Permitted Exceptional Item as
indicated in Annex 2.5(d).
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Prior to the completion of the FY02 U.K. GAAP Company Financial
Statements, Seller shall, and shall cause its representatives to, provide Buyer
and PricewaterhouseCoopers with a reasonable opportunity to review the
calculation of and comment on matters relevant to the determination of the June
30 EBITDA and the EBITDA Adjustment Amount. Buyer and Seller agree that the June
30 EBITDA may be rounded to the hundred thousands utilizing normal rounding
methodologies.
Buyer and Seller agree that with respect to the calculation of the FY02
Bonuses the only basis upon which Buyer may object to the FY02 Bonuses is that
the amount of the FY02 Bonuses do not reflect the amount of such bonus included
in the footnotes to the FY02 U.K. GAAP Company Financial Statements and the FY02
U.S. GAAP Company Financial Statements.
Section 6.14 Bank Accounts of the Business. Seller shall use its
reasonable efforts to provide Buyer with a list of each of the bank accounts of
the Company and its Subsidiaries. Buyer and Seller shall cooperate in connection
with any replacement or supplementation of the signatories on such bank accounts
to be effective as of the Closing.
Section 6.15 Financing. Buyer shall use its reasonable best
efforts to obtain the funds, including drawing down such funds when available,
contemplated by the Financing Commitments on the terms stated therein as
promptly as reasonably practicable following the date hereof.
Section 6.16 Cash Undertaking. Seller shall cause the amount of
cash and cash equivalents (other than cash held in escrow for the benefit of
Sydran Services LLC and other cash held for the benefit of Persons who are not
Subsidiaries of the Company) held by the Company and its Subsidiaries to be
equal to at least $15,000,000 (the "W/C Cash Amount").
Section 6.17 Hedging Instruments. Seller agrees that at or prior
to the Closing it shall cause the Company and its Subsidiaries to terminate,
cancel or permit to expire all foreign exchange Contracts and all other ▇▇▇▇▇▇,
swaps, forward Contracts and similar arrangements, to which the Company or any
of its Subsidiaries is a party ("Hedging Instruments").
Section 6.18 Notifications. (a) Until the Closing, Buyer and
Seller shall promptly notify the other in writing of any fact, change,
condition, circumstance or occurrence or nonoccurrence of any event of which it
(or, in the case of Seller, Diageo) is aware that has resulted in, or would be
reasonably likely to result in, the conditions set forth in Section 7.2(a),
7.2(b), 7.3(a) and 7.3(b) of this Agreement becoming incapable of being
satisfied or any representation or warranty by such party, subject to the terms
hereof, not being true and correct as of the date hereof or as of the Closing
Date as if restated on such date; provided that neither Buyer nor Seller shall
have any liability for breach of this Section 6.18 unless it (or, in the case of
Seller, Diageo) willfully elected
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not to so notify the other party of such matter. Such notifications shall not
prejudice any right or remedies of the notified party.
(b) At least 15 days prior to the Closing Date, Seller shall provide
Buyer with a list of the franchisees who own or operate any of the Franchised
Restaurants of the Company and its Subsidiaries that are as of the month ended
immediately prior to such date at least 60 days in arrears on their royalty,
advertising, lease or other payments pursuant to the terms of any of their
franchise agreements or BKL Leases with the Company and its Subsidiaries and the
aggregate amount of such arrearages (the "Updated Monetary Defaults").
Section 6.19 Transition Arrangements. (a) Seller shall cooperate
with the Company to the extent that prior to the Closing the Company seeks to
enter into a Contract on terms reasonably similar to the Global Services
Agreement between Diageo and MCI Worldcom Limited, dated as of November 30,
2000. If such Contract has not been entered into prior to Closing, then, at
Buyer's request, Buyer and Seller shall use commercially reasonable efforts to
enter into a reasonable arrangement designed to provide the Company with the
benefits and proportionate burdens of such Global Services Agreement from and
after Closing at the proportionate charge to Buyer and its Affiliates plus 5% of
such charge.
(b) Prior to the Closing, Buyer and Seller shall cooperate with respect
to the provision to the Company and its Subsidiaries after the Closing of any
management information systems services provided by Affiliates of Seller (other
than the Company and its Subsidiaries) immediately prior the Closing that are
not provided pursuant to a Contract that would survive the Closing (the
"Transition Services"). Seller shall use its commercially reasonable efforts to
provide for period of up to three months after Closing the Transition Services
at a quality that is similar to the quality of such services provided by it to
its Affiliates from time to time after the Closing to the extent Buyer and
Seller, after using commercially reasonable efforts, are able to reach an
agreement with respect to the payments by Buyer for the Transition Services.
(c) From and after the Closing, Seller shall permit the Company and its
representatives to have reasonable access, during regular business hours and
upon reasonable advance notice, to Seller's and its Affiliates' books,
Contracts, records and documents (including, without limitation, claims
information for obtaining new insurance policies) to the extent reasonably
required in connection with the Company's transition to operating on a
stand-alone basis; provided that the foregoing shall not (i) require Seller to
permit any inspection, or to disclose any information, that in its reasonable
judgment would result in the disclosure of any trade secrets or violate any of
Seller's, or any of its Affiliates' obligations with respect to confidentiality
or (ii) require any disclosure by Seller, or any of its Affiliates that
reasonably could, as a result of such disclosure, have the effect of causing the
waiver of any legal privilege. Seller agrees to use its commercially reasonable
efforts to obtain waivers of any of the foregoing confidentiality
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obligations and Buyer and Seller agree to use commercially reasonable efforts to
enter into appropriate joint defense agreements.
Section 6.20 Further Assurances. At any time following the Closing
Date, Seller and Buyer shall, and Buyer shall cause the Company or any of its
Subsidiaries to and Seller shall cause Diageo and its Subsidiaries to, promptly
execute, acknowledge and deliver any other assurances or documents reasonably
requested by Buyer or Seller, as the case may be, and necessary for Buyer or
Seller, as the case may be, to satisfy its obligations hereunder or to
consummate the transactions contemplated by this Agreement.
ARTICLE VII
Conditions to Closing
Section 7.1 Conditions to Each Party's Obligation to Effect the
Transaction. The respective obligations of the parties to consummate the
transactions contemplated hereby is subject to the satisfaction (or waiver in
writing) at or prior to the Closing of each of the following conditions:
(a) (i) The waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
earlier terminated and (ii) any required material approvals pertaining to the
transactions contemplated by this Agreement by the European Commission under
European Union Council Regulation (EEC) No. 4064/89 of December 21, 1989 on the
control of concentrations between undertakings, as amended by the European
Council Regulation (EC) No. 1310/97 of June 30, 1997 shall have been obtained.
(b) No court or Governmental Entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any Law (whether
temporary, preliminary or permanent) that is in effect and enjoins or otherwise
prohibits consummation of the transactions contemplated by this Agreement (an
"Order") and no Governmental Entity shall have initiated any proceeding that is
pending and that seeks to have such a result if such a result would be
reasonably likely to have a Material Adverse Effect or, if proceeding with the
Closing while such proceeding was pending, would be reasonably likely to have a
Material Adverse Effect.
Section 7.2 Conditions to Obligations of Buyer. The obligation of
Buyer to consummate the transactions contemplated by this Agreement is subject
to the satisfaction (or waiver in writing by Buyer) at or prior to the Closing
of each of the following conditions:
(a) The representation and warranty of Seller contained in clause (ii)
of the first paragraph of Section 3.6 shall be true and correct as of the
Closing as if made as of the Closing. In addition, the other representations and
warranties of Seller contained herein (without giving effect to any Material
Adverse Effect, materiality or
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similar qualifier in all cases, except for Section 3.10(a)(vi), Section
3.10(a)(ix), Section 3.16(c) and the third sentence of Section 3.17(a)) shall be
true and correct as of the Closing as if made as of the Closing (except that
such other representations and warranties that are expressly made only as of a
specific date or as of the date hereof (other than in respect of the preamble to
Article III) in each case need be true and correct only as of such date), except
for such inaccuracies in any such other representation or warranty that have not
had, and would not be reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect. Buyer shall have received a certificate to
such effect dated the Closing Date and executed by a duly authorized officer of
Seller.
(b) The covenants and agreements of Seller to be performed on or prior
to the Closing shall have been duly performed in all material respects, and
Buyer shall have received a certificate to such effect dated the Closing Date
and executed by a duly authorized officer of Seller.
(c) If the Closing shall occur (i) prior to November 15, 2002, then
Buyer shall have received the documents required by Section 6.13(c)(i), (iii)
and (v) at least 30 Business Days prior to the Closing Date, (ii) on or after
November 15, 2002 and on or prior to December 20, 2002, then this condition
shall be deemed satisfied on December 20, 2002 if Buyer shall have received the
documents required by Section 6.13(c)(ii) and (iv) on or prior to November 15,
2002, and have received the documents required by Section 6.13(c)(i), (iii) and
(v) at least 30 Business Days prior to the Closing Date; and (iii) after
December 20, 2002, then this condition shall be deemed satisfied on the later of
(A) February 6, 2003 and (B) 30 Business Days after Buyer shall have received
the documents required by Section 6.13(c)(i), (ii), (iii), (iv) and (v).
(d) The lenders under the Financing Commitments shall have disbursed to
Buyer and Buyer shall have received an amount equal to the difference between
the Estimated Purchase Price and $ 900,000,000.
(e) The statement provided pursuant to Section 6.13(f) shall indicate
that the sum of (i) the June 30 EBITDA and (ii) to the extent included in the
June 30 EBITDA, the FY02 Bonuses shall be equal to at least $323,000,000 (this
condition and the provisions herein relating to the EBITDA Adjustment Amount are
not intended to be indicative in any way of, or heighten, lower or otherwise
affect, the threshold for what constitutes a Material Adverse Effect or what is
material for purposes of this Agreement).
(f) The Closing EBITDA shall not be less than the June 30 EBITDA and
Buyer shall have received a certificate, dated the Closing Date, to such effect
from a duly authorized executive officer of Seller, certifying as to such
officer's good faith belief that the Closing EBITDA is not less than the June 30
EBITDA.
(g) Buyer shall have received a certificate dated the Closing Date from
an executive officer of Seller that certifies that since the last day of the
calculation of the Closing EBITDA nothing has come to such officer's attention
that would have caused such officer to believe that the EBITDA of the Company
and its Subsidiaries calculated
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in accordance with Annex 2.5(e) for the 12 month period ending two Business Days
prior to the Closing Date (as if such date were the last date of the
twelve-month period in the calculation of the Closing EBITDA) is not less than
the June 30 EBITDA.
Section 7.3 Conditions to Obligations of Seller. The obligation
of Seller to consummate the transactions contemplated by this Agreement is
subject to the satisfaction (or waiver in writing by Seller) at or prior to the
Closing of each of the following conditions:
(a) The representations and warranties of Buyer contained in Sections
4.3 and 4.5 (without giving effect to any materiality or a similar qualifier)
shall be true and correct in all material respects as of the Closing as if made
on and as of the Closing. In addition, the other representations and warranties
of Buyer contained herein (without giving effect to any materiality or similar
qualifier) shall be true and correct as of the Closing as if made as of the
Closing (except that such other representations that are expressly made only as
of a specific date or as of the date hereof (other than in respect of the
preamble to Article IV) in each case need be true and correct only as of such
date), except for such inaccuracies in any such other representation or warranty
that have not had and would not be reasonably likely to have, individually or in
the aggregate, a material adverse effect on the ability of Buyer to perform its
obligations hereunder. Seller shall have received a certificate to such effect
dated the Closing Date and executed by a duly authorized officer of Buyer.
(b) The covenants and agreements of Buyer to be performed on or prior
to the Closing shall have been duly performed in all material respects, and
Seller shall have received a certificate to such effect dated the Closing Date
and executed by a duly authorized officer of Buyer.
ARTICLE VIII
Termination
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written agreement of Seller and Buyer; or
(b) by either Buyer or Seller, by giving written notice of such
termination to the other party, if such other party shall have breached this
Agreement which breach would result in a failure of the condition set forth in
Section 7.2(a) or 7.2(b), in the case of a termination by Buyer, and the
condition set forth in Section 7.3(a) or 7.3(b), in the case of a termination by
Seller, and such breach has not been cured within ninety (90) days following the
giving of written notice of such breach by the non-breaching party to the
breaching party; or
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(c) by either Buyer or Seller, by giving written notice of such
termination to the other party, if any Order permanently enjoining or otherwise
prohibiting consummation of the transactions contemplated hereby shall become
final and non-appealable; or
(d) by either Buyer or Seller, by giving written notice of such
termination to the other, if any condition to such party's obligations hereunder
has not been satisfied or waived and the Closing shall not have occurred on or
prior to January 2, 2003 (the "Termination Date"); provided that if any material
consent, registration, approval, permit, clearance, waiting period expiration,
or authorization required to be obtained from any Governmental Entity prior to
the Closing pursuant to Section 7.1(a) or Section 7.1(b) shall not have been
obtained by the Termination Date, then such date may be extended by Buyer or
Seller from time to time by written notice to the other; provided further that
such extensions shall in the aggregate be for a period of no more than 45
calendar days beyond the Termination Date.
Section 8.2 Additional Termination Rights. If the Closing shall
not have occurred on or before December 31, 2002 and the condition set forth in
Section 7.2(d) shall not have been satisfied on or before December 31, 2002 then
(A) Buyer shall not be permitted to terminate this Agreement prior to February
15, 2003; (B) if Buyer delivers to Seller amended Equity Commitments and amended
Financing Commitments on or prior to 6:00 p.m. (New York time) on January 2,
2003 that (i) expire no earlier than February 15, 2003, (ii) make available
sufficient financing to consummate the transactions contemplated hereby, and
(iii) are on terms and conditions substantially the same as those contained in
the Equity Commitments and Financing Commitment or are otherwise reasonably
satisfactory to Seller (the "Amended Commitments"), then the Termination Date
shall be deemed to be February 15, 2003; and (C) if the Buyer has not delivered
the Amended Commitments to Seller on or before 6:00 p.m. (New York time) on
January 2, 2003 then (I) Seller may terminate this Agreement immediately upon
written notice to Buyer at any time on or before January 5, 2003 and (II) Seller
may terminate this Agreement upon 30 days prior written notice to Buyer on and
after January 6, 2003.
Section 8.3 Effect of Termination. In the event of the
termination of this Agreement in accordance with Section 8.1 (Termination) or
Section 8.2 (Additional Termination Rights) hereof, this Agreement shall
thereafter become void and have no effect, and no party hereto or its respective
Affiliates or their directors, officers, employees, shareholders or agents shall
have any liability to the other parties hereto or their respective Affiliates,
directors, officers, employees, shareholders or agents except for the
obligations of the parties hereto contained in this Section 8.3 and in Sections
10.2 (Expenses), 10.3 (Public Disclosure) and 10.11 (Notices) hereof, and except
that nothing herein will relieve any party from liability for any willful breach
of this Agreement prior to such termination.
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ARTICLE IX
Survival and Indemnification
Section 9.1 Survival of Representations, Warranties, Covenants
and Agreements; Knowledge of Breach. (a) Except as set forth in this Section
9.1(a), the representations and warranties contained in this Agreement shall
survive the Closing until the eighteen-month anniversary of the Closing Date and
shall expire at such time, except that (i) the representations and warranties
set forth in Section 3.12 (Tax Matters) shall not survive the Closing and (ii)
the representations and warranties set forth in Sections 3.1 (Organization and
Authority of Seller), other than the last sentence of Section 3.1, 3.2
(Organization and Qualification of the Company), other than the last sentence of
Section 3.2, 3.3 (Capitalization of the Company), 3.11 (Consents and Approvals),
3.15 (Brokers and Finders), 3.27 (Acknowledgment by Seller), 4.1 (Organization
and Authority of Buyer), other than the last sentence of Section 4.1, 4.2
(Consents and Approvals), 4.3 (Brokers and Finders), 4.5 (Securities Act) and
4.7 (Acknowledgment by Buyer) shall survive the Closing indefinitely. Except for
the covenants set forth in Section 6.3(a)(iii) (Registrations, Filings and
Consents) and Section 6.18 (Notifications) which shall survive the Closing for
eighteen months, the covenants and other agreements contained in this Agreement
shall survive the Closing until the date or dates specified therein or the
expiration of the applicable statute of limitations with respect to such
matters, whichever is later. Except with respect to the representations and
warranties contained in Section 3.3 (Capitalization of the Company), Section
3.15 (Brokers and Finders), Section 3.25 (Indebtedness) and Section 3.26
(Franchisee Investments): (i) no claims by Buyer under Section 9.3(a)(i) or
9.3(a)(ii) for any Loss equal to or less than $500,000 shall be deemed to be a
Loss (except that in respect of breaches or inaccuracies of representations and
warranties in Section 3.5 which are modified by materiality or a similar
qualifier or Material Adverse Effect such amount shall be equal to $1,000,000)
(each, a "De Minimis Claim"); and (ii) in no event shall Seller be liable to
Buyer under Section 9.3(a)(i) or 9.3(a)(ii), unless and until all claims for
which Losses are recoverable by Buyer hereunder exceed $10,000,000 (the
"Deductible") and Seller shall be liable only for the amount by which all such
recoverable Losses exceed the Deductible. In addition, except for Section 3.3
(Capitalization of the Company), Section 3.15 (Brokers and Finders), Section
3.25 (Indebtedness) and Section 3.26 (Franchisee Investments) for which there
shall be no limit, any payments under Section 9.3(a)(i) or 9.3(a)(ii) by Seller
to Buyer shall not exceed $500,000,000 (the "Limit").
(b) Except as set forth in the Agreement, regardless of whether any
party or any of its Affiliates or any of their respective representatives had or
should have had knowledge or notice of any facts or circumstances which would
result in the breach of, or inaccuracy in, any representation or warranty of the
other parties or the failure of any condition for its benefit to be satisfied or
the breach of any covenant for its benefit, for purposes of this Agreement, such
party shall not be deemed to have waived such breach or inaccuracy or condition.
Actual or constructive knowledge, diligence
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investigations, access to information, sophistication, experience, notices and
any other actual or deemed sources of information outside the express provisions
of this Agreement shall in no way limit the scope of any representation,
warranty or condition or heighten any materiality or Material Adverse Effect
threshold herein.
(c) In determining any liability for breach of a representation or
warranty under Sections 9.2(a)(i) and (ii) and Section 9.3(a)(i) and (ii), all
references to a materiality or similar qualifier or Material Adverse Effect
shall be disregarded, (i) except with respect to the representations set forth
in clause (ii) of the first paragraph of Section 3.6, Section 3.10(a)(vi),
Section 3.10(a)(ix), Section 3.16(c), the third sentence of Section 3.17(a) in
that it relates to matters expressly listed on the Seller Disclosure Schedule
and Section 3.23(d) and (ii) it being understood that an express "Knowledge"
qualifier shall not be disregarded in determining any such liability.
Section 9.2 Indemnification by Buyer. (a) For the period
commencing on the Closing Date and, subject to submission of a notice to the
Indemnifying Party prior to the expiration of the periods specified in Section
9.1(a) hereof in sufficient detail for the Indemnifying Party to evaluate the
claim, Buyer shall indemnify and hold harmless Seller and its Affiliates, and
their respective directors, officers, employees, shareholders and agents
("Seller Indemnified Parties") against and in respect of all actions, suits,
hearings, proceedings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, losses, damages (including
punitive, special and consequential damages), lost profits, diminution in value,
liabilities, costs and expenses (including reasonable attorneys' fees and
expenses incurred in investigating, preparing or defending any claims covered
hereby) (collectively, "Losses") sustained or incurred by any Seller Indemnified
Party, arising out of, in connection with or relating to (i) any breaches of
Buyer's representations, warranties and covenants set forth in this Agreement or
(ii) any breach of Buyer's representations and warranties in this Agreement as
if they were made on and as of the Closing (other than such representations and
warranties made only as of a specified date, except as a result of the preamble
to Article IV).
(b) Any payments pursuant to this Section 9.2 or Section 9.3 shall be
treated as an adjustment to the Purchase Price for all Tax purposes.
Section 9.3 Indemnification by Seller. (a) For the period
commencing on the Closing Date and, subject to submission of a notice to the
Indemnifying Party prior to the expiration of the applicable period specified in
Section 9.1(a) hereof in sufficient detail for the Indemnifying Party to
evaluate the claim, Seller shall, subject to the limitations set forth in
Sections 9.1(a), 9.1(b) and 9.1(c) hereof and without duplication of any
payments under Article V (Tax Matters), indemnify and hold harmless Buyer and
its Affiliates and their respective directors, officers, employees, shareholders
and agents ("Buyer Indemnified Parties" and, collectively with the Seller
Indemnified Parties, the "Indemnified Parties") against and in respect of all
Losses sustained or incurred by any Buyer Indemnified Party, arising out of, in
connection with or relating to (i) any breaches of Seller's representations and
warranties set forth in this Agreement and the covenants
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set forth in Section 6.3(a)(iii) and Section 6.18; (ii) any breach of Seller's
representations and warranties in this Agreement as if they were made as of the
Closing (other than such representations and warranties made only as of a
specified date, except as a result of the preamble to Article III); (iii) any
breaches of Seller's covenants set forth in this Agreement, except as set forth
in clause (i) above; or (iv) any matter described in any of item 5 (Ameriserve)
of Schedule 3.8 of the Seller Disclosure Schedule, item 6 (Ameriserve), 7
(Ameriserve) and 13 (Ameriserve) of Schedule 3.16(a) of the Seller Disclosure
Schedule or item 4 of Schedule 3.6 (Lopdrup) of the Seller Disclosure Schedule.
(b) No amounts shall be recoverable under Section 9.3(a) by the Buyer
Indemnified Parties with respect to any matter to the extent such matter was
reflected in the Calculation (provided, however, if the Losses in connection
with such matter exceed the extent of the adjustment in respect of such matter
in the Calculation, then this Section 9.3(b) shall not bar a claim for the
amount by which such Losses exceed the amount of such adjustment) and any
adjustments reflected in the Calculation shall not be counted in determining if
the Deductible has been satisfied.
Section 9.4 Indemnification as Sole Remedy. Following the
Closing, the indemnities provided in Article V, this Article IX, Section 6.4(e),
Section 6.9 and the provisions of Section 10.15 (provided that the foregoing
shall not increase Diageo's obligations hereunder) shall be the sole and
exclusive remedy of the parties with respect to any and all claims for Losses
sustained or incurred arising out of, in connection with or relating to this
Agreement and the transactions contemplated by this Agreement, except for claims
for fraud and except for actions for equitable relief under Section 6.1(e) and
Section 6.11.
Section 9.5 Mitigation of Losses. Buyer and Seller shall be
required to take all actions reasonably necessary to mitigate any Losses in
respect of which they or their related Indemnified Parties may seek
indemnification hereunder during such period as the Indemnified Party was aware
of the claim giving rise to the Loss.
Section 9.6 Method of Asserting Claims, Etc. All claims for
indemnification by any Indemnified Party hereunder shall be asserted and
resolved as set forth in this Section 9.6. In the event that any written claim
or demand for which Seller or Buyer, as the case may be (an "Indemnifying
Party"), may be liable to any Indemnified Party hereunder is asserted against or
sought to be collected from any Indemnified Party by a third party, such
Indemnified Party shall promptly, but in no event later than 30 days following
such Indemnified Party's receipt of such claim or demand, notify in writing the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) (the "Claim Notice").
The Indemnifying Party shall be relieved of its obligations to indemnify the
Indemnified Party with respect to such claim or demand if the Indemnified Party
fails to timely deliver the Claim Notice to the extent that the Indemnifying
Party is materially prejudiced thereby.
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The Indemnifying Party shall have 30 days after the personal delivery or mailing
of the Claim Notice, whichever is later, (the "Notice Period") to notify the
Indemnified Party whether or not it desires to defend the Indemnified Party
against such claim or demand and shall during the Notice Period and thereafter
be provided by the Indemnified Party with such information relating to the claim
or demand as the Indemnifying Party shall reasonably request. All costs and
expenses incurred by the Indemnifying Party in defending such claim or demand
shall be borne by the Indemnifying Party, but shall be counted towards the Limit
if such Claim is for breach of a representation or warranty other than such
representations and warranties exempt from the Limit as set forth in Section
9.1. Except as hereinafter provided, in the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that it desires to
defend the Indemnified Party against such claim or demand, the Indemnifying
Party shall have the sole power to direct and control such defense. If the
Indemnifying Party so elects to assume the defense of such claim, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal
expenses subsequently incurred by the Indemnified Party. If any Indemnified
Party desires to participate in, but not control, any such defense it may do so
at its sole cost and expense. The Indemnified Party shall not settle, compromise
or discharge a claim or demand for which it is indemnified by the Indemnifying
Party or admit to any liability with respect to such claim or demand without the
prior written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld or delayed). The Indemnifying Party shall not, without the
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed), settle, compromise or offer to settle or
compromise any such claim or demand unless the terms of such settlement provide
for no admission of liability, fault or violation of Law or Contract and no
relief other than payments of monetary damages that are not to be paid by the
Indemnified Party or any of its Affiliates. To the extent the Indemnifying Party
shall direct, control or participate in the defense or settlement of any third
party claim or demand, the Indemnified Party shall provide the Indemnifying
Party and its counsel reasonable access to all relevant business records and
other documents, and shall use its reasonable best efforts to assist, and to
cause the employees and counsel of the Indemnified Party to assist, in defense
of such claim. Notwithstanding the foregoing, if the Indemnifying Party elects
not to defend the Indemnified Party or if an actual conflict of interest exists,
the Indemnified Party shall (at the sole cost and expense of the Indemnifying
Party in accordance with and subject to this Article IX) have the right and the
obligation to vigorously defend the claim or demand by appropriate proceedings
and shall have the sole power to direct and control such defense with respect to
itself, subject to the restriction on settlement pursuant to this Article IX. In
any event, the Indemnifying Party shall have the right to participate in the
defense or settlement of any third party claim or demand for which the
Indemnifying Party may be liable hereunder at its own expense.
Section 9.7 Calculation of Losses. The payment of any amount by
the Indemnifying Party to the Indemnified Party under Article V or this Article
IX shall be (i) reduced by any amounts recovered by the Indemnified Party under
applicable insurance policies, (ii) reduced by any Tax benefit realized by the
Indemnified Party arising from
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the incurrence or payment of any amount with respect to which an indemnity
obligation exists under Article V or this Article IX and (iii) increased by the
amount of any Tax detriment realized by the Indemnified Party as a result of
receiving a payment from the Indemnifying Party under Article V or this Article
IX.
Section 9.8 Assignment of Claims. If an Indemnified Party
receives any payment from an Indemnifying Party in respect of any Losses and the
Indemnified Party could have recovered all or a part of such Losses from a third
party (a "Potential Contributor") based on the underlying claim or demand
asserted against such Indemnifying Party, such Indemnified Party shall, to the
extent permitted by Law, assign such of its rights to proceed against the
Potential Contributor as are necessary to permit such Indemnifying Party to
recover from the Potential Contributor the amount of such payment.
Section 9.9 No Recourse. After the Closing, no Buyer Indemnified
Party shall have any claim for indemnification, contribution or other recourse,
whether based on statute or common law (including theories of subrogation)
against Persons listed on Annex 1.1(a) or against any Person who is, as of the
date hereof, an Employee, in each case, in connection with any claim made with
respect to this Agreement, and Buyer hereby waives, and shall cause each Buyer
Indemnified Party to waive, all rights to make any such claim.
ARTICLE X
Miscellaneous
Section 10.1 Amendment and Waiver. Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the parties hereto, or in the case
of a waiver, by the party against whom the waiver is to be effective. No failure
or delay by any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
Section 10.2 Expenses. Except as otherwise expressly provided in
this Agreement, whether or not the transactions contemplated by this Agreement
are consummated, the parties shall bear their own respective expenses
(including, but not limited to, all compensation and expenses of counsel,
financial advisors, consultants, actuaries and independent accountants and
expenses in connection with all regulatory filings) incurred in connection with
this Agreement and the transactions contemplated hereby. Notwithstanding the
foregoing (and without prejudice to Buyer's rights in the event of a breach of
Section 3.2), with respect to obtaining consents or waivers of breach prior to
Closing for the matters that are or should have been described on Schedule
3.2(B) of the Seller Disclosure Schedule, Seller or its Affiliates shall bear
the first $250,000 of fees paid to obtain such waivers or consents; Seller or
its Affiliates and Buyer or its
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Affiliates shall each bear 50% of the next $750,000 of all fees paid to obtain
such waivers or consents; and Seller shall bear the balance of such fees;
provided that Buyer shall have used its commercially reasonable efforts to
obtain such consents, including by agreeing to commercially reasonable
modifications to such Contracts.
Section 10.3 Public Disclosure. Each party to this Agreement
hereby agrees with the other parties hereto that, except as may be required to
comply with the requirements of applicable Law or the rules and regulations of
any national securities exchange upon which the securities of one of the parties
or its Affiliates is listed (following consultation with the other parties if
reasonably practicable), no press release or similar public announcement or
communication will be made or caused to be made concerning the execution or
performance of this Agreement unless specifically approved in advance by all
parties hereto.
Section 10.4 Assignment. No party to this Agreement may assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the other parties hereto, except that Buyer may engage in
collateral assignments to the financing sources providing financing to Buyer in
connection with the transactions contemplated hereby (and their assignees) and
that either Buyer or Seller may, on prior notice to the other, assign its rights
or obligations hereunder to any wholly-owned Subsidiary which expressly agrees
to the terms of the obligations transferred and, if not a U.S. based Person,
appoints an agent for service of process in Manhattan. Any assignment or
transfer in violation of this Section 10.4 shall be null and void ab initio.
Section 10.5 Entire Agreement. This Agreement (including all
Annexes and Schedules hereto) contains the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, with respect to such matters.
Section 10.6 Fulfillment of Obligations. Any obligation of any
party to any other party under this Agreement, which obligation is performed,
satisfied or fulfilled by an Affiliate of such party, shall be deemed to have
been performed, satisfied or fulfilled by such party.
Section 10.7 Parties in Interest; No Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
Buyer, Seller, Diageo or their successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
Section 10.8 Schedules. The inclusion of any matter in any
Schedule to this Agreement shall qualify or respond to representations and
warranties in this Agreement to the extent that such disclosure is reasonable on
its face to identify such representation or warranty that such disclosure is
qualifying or being responsive to and
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the nature of such qualification or response but inclusion therein shall
expressly not be deemed to constitute an admission by Seller, or otherwise
imply, that any such matter is material or creates a measure for materiality for
the purposes of this Agreement.
Section 10.9 Counterparts. This Agreement and any amendments
hereto may be executed in one or more counterparts, each of which shall be
deemed to be an original by the parties executing such counterpart, but all of
which shall be considered one and the same instrument.
Section 10.10 Section Headings. The Section and paragraph headings
and table of contents contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
Section 10.11 Notices. All notices or other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended, if delivered
by registered or certified mail, return receipt requested, or by a national
courier service, or if sent by facsimile; provided that the facsimile is
promptly confirmed by written confirmation by registered mail thereof, to the
person at the address set forth below, or such other address as may be
designated in writing hereafter, in the same manner, by such person:
(a) if to Seller or Diageo, to:
Gramet Holdings Corp.
c/o Corporation Trust Company
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel, Diageo North America Inc.
facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
Diageo plc
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇
facsimile: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attention: General Counsel; and
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▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
(b) if to Buyer, to:
Delaware Champion Acquisition Corporation
c/o Texas Pacific Group
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Vice President
With a copy to:
Cleary, Gottlieb, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Any notice given by mail shall be effective when received.
Section 10.12 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF
FORUM. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO AGREES THAT IT SHALL BRING
ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS
AGREEMENT (OTHER THAN ACTIONS OR PROCEEDINGS AGAINST ▇▇▇▇▇▇), WHETHER IN TORT OR
CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK OR, IF SUCH COURT DOES NOT HAVE SUBJECT
MATTER JURISDICTION, THE SUPREME COURT OF THE STATE OF NEW YORK FOR THE COUNTY
OF NEW YORK (THE "CHOSEN COURTS"). BUYER AND SELLER HEREBY (I) IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS, (II) WAIVE ANY
OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR
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PROCEEDING IN THE CHOSEN COURTS, (III) WAIVE ANY OBJECTION THAT THE CHOSEN
COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER ANY PARTY
HERETO, (IV) AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 10.11 (NOTICES)
OF THIS AGREEMENT OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW SHALL BE
VALID AND SUFFICIENT SERVICE THEREOF AND (V) 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
APPLICABLE LAW.
Section 10.13 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 10.14 Severability. The provisions of this Agreement shall
be deemed severable and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof
unless such invalidity or unenforceability, after taking into account the
mitigation contemplated by the next sentence, deprives a party of a material
benefit contemplated by this Agreement. If any provision of this Agreement, or
the application thereof to any Person or any circumstance, is invalid or
unenforceable: (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, as far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision; and (b) the
remainder of this Agreement and the application of such provision to other
Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
Section 10.15 Guarantee. (a) Diageo hereby irrevocably and
unconditionally specially guarantees to Buyer the prompt and full discharge by
Seller of all of Seller's covenants, agreements, obligations and liabilities
under this Agreement including, without limitation, the due and punctual payment
of all amounts which are or may become due and payable by Seller hereunder, when
and as the same shall become due and payable (collectively, the "Seller
Obligations"), in accordance with the terms hereof; provided, that Seller shall
have previously defaulted in the due or punctual performance of any Seller
Obligation and shall, after such default, have received a written request by
Buyer to perform such Seller Obligation, it being understood that the foregoing
shall not require the commencement of a proceeding against Seller or the
exhaustion of all remedies against Seller. Promptly following the receipt of
such request
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from Buyer, Diageo will forthwith perform or cause to be performed such Seller
Obligation.
(b) The liabilities and obligations of Diageo shall not be released,
discharged or otherwise affected by:
(i) any acceleration, extension or renewal in respect of any
Seller Obligation, by operation of Law or otherwise;
(ii) the invalidity or unenforceability, in whole or in part,
of this Agreement;
(iii) any modification or amendment of or supplement to this
Agreement;
(iv) any change in the corporate existence, structure or
ownership of either Seller or Diageo or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting either of them or
their assets; or
(v) if any payment by Seller is rescinded in connection with
any matter referenced in clause (iv) above; or
(vi) by any provisions of English law expressly applicable to
guarantees.
(c) Diageo's obligations hereunder shall remain in full force and
effect until the Seller Obligations shall have been performed in full.
(d) Upon performance by Diageo of any Seller Obligation, Diageo shall
be subrogated against Seller, with respect to such Seller Obligation; provided
that Diageo shall not enforce any Seller Obligation by way of subrogation
against Seller while any Seller Obligation is due and unperformed by Seller.
Section 10.16 Construction. This Agreement has been negotiated by
the parties and their respective counsel in good faith and will be fairly
interpreted in accordance with its terms and without any strict construction in
favor of or against any party.
Section 10.17 Company's Fiscal Year. All references in this
Agreement to the Company's fiscal year shall refer to a period commencing on
July 1 of the year preceding the referenced year and ending on June 30 of the
referenced year.
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IN WITNESS WHEREOF, this Agreement has been signed on behalf
of each of the parties hereto as of the date first written above.
GRAMET HOLDINGS CORP.
By: _______________________________
Name:
Title:
DELAWARE CHAMPION ACQUISITION CORP.
By: _______________________________
Name:
Title:
Solely with respect to Section 10.15, DIAGEO PLC
By: _______________________________
Name:
Title:
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