UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2005
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number: 1-2207
TRIARC COMPANIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 38-0471180
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
(212) 451-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(X) Yes ( ) No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
(X) Yes ( ) No
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
( ) Yes (X) No
There were 23,964,599 shares of the registrant's Class A Common Stock and
52,472,346 shares of the registrant's Class B Common Stock outstanding as of
October 31, 2005.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 2, October 2,
2005 (A) 2005
------- ----
(In Thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.........................................................$ 367,992 $ 245,712
Restricted cash equivalents....................................................... 16,272 444,497
Short-term investments............................................................ 198,218 808,951
Investment settlements receivable................................................. 30,116 197,004
Trade and other receivables....................................................... 34,215 29,599
Inventories....................................................................... 2,222 8,305
Deferred income tax benefit....................................................... 14,620 36,888
Prepaid expenses and other current assets......................................... 6,111 21,670
----------- -----------
Total current assets........................................................... 669,766 1,792,626
Restricted cash equivalents............................................................ 32,886 2,339
Investments............................................................................ 82,214 89,826
Properties............................................................................. 103,434 433,842
Goodwill .............................................................................. 118,264 542,107
Other intangible assets................................................................ 38,896 94,597
Deferred costs and other assets........................................................ 21,513 29,455
----------- -----------
$ 1,066,973 $ 2,984,792
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.....................................................................$ 15,334 $ 8,619
Current portion of long-term debt................................................. 37,214 14,951
Accounts payable.................................................................. 13,261 55,094
Investment settlements payable.................................................... 9,651 176,739
Securities sold under agreements to repurchase.................................... 15,169 497,633
Other liability positions related to short-term investments....................... 10,624 539,063
Accrued expenses and other current liabilities.................................... 90,757 121,323
Liabilities relating to discontinued operations................................... 13,834 13,272
----------- -----------
Total current liabilities...................................................... 205,844 1,426,694
Long-term debt......................................................................... 446,479 981,318
Deferred compensation payable to related parties....................................... 32,941 35,737
Deferred income taxes.................................................................. 20,002 45,351
Minority interests in consolidated subsidiaries........................................ 10,688 37,699
Other liabilities and deferred income.................................................. 47,880 52,021
Stockholders' equity:
Class A common stock.............................................................. 2,955 2,955
Class B common stock.............................................................. 5,910 5,910
Additional paid-in capital........................................................ 128,096 210,077
Retained earnings................................................................. 337,415 282,098
Common stock held in treasury..................................................... (227,822) (143,466)
Deferred compensation payable in common stock..................................... 54,457 54,457
Unearned compensation............................................................. (1,350) (10,120)
Accumulated other comprehensive income............................................ 3,478 4,580
Note receivable from non-executive officer........................................ -- (519)
----------- -----------
Total stockholders' equity..................................................... 303,139 405,972
----------- -----------
$ 1,066,973 $ 2,984,792
=========== ===========
(A) Derived and reclassified from the audited consolidated financial statements
as of January 2, 2005.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (A)
Three Months Ended Nine Months Ended
------------------------- ------------------------
September 26, October 2, September 26, October 2,
2004 2005 2004 2005
---- ---- ---- ----
(In Thousands Except Per Share Amounts)
(Unaudited)
Revenues:
Net sales.......................................................$ 52,324 $ 206,139 $ 151,709 $ 312,318
Royalties and franchise and related fees........................ 26,721 21,020 73,992 71,546
Asset management and related fees .............................. 6,915 13,197 6,915 37,912
-------- --------- --------- ---------
85,960 240,356 232,616 421,776
-------- --------- --------- ---------
Costs and expenses:
Cost of sales, excluding depreciation and amortization.......... 40,902 148,162 119,891 228,389
Cost of services, excluding depreciation and amortization....... 2,042 4,610 2,042 13,373
Advertising and selling......................................... 3,971 15,150 12,767 24,160
General and administrative, excluding depreciation and
amortization................................................. 28,713 56,527 77,495 125,715
Depreciation and amortization, excluding amortization of
deferred financing costs..................................... 4,804 10,043 11,619 21,110
-------- --------- --------- ---------
80,432 234,492 223,814 412,747
-------- --------- --------- ---------
Operating profit.......................................... 5,528 5,864 8,802 9,029
Interest expense..................................................... (5,017) (22,081) (23,655) (44,818)
Insurance expense related to long-term debt.......................... (934) (531) (2,883) (2,294)
Loss on early extinguishment of debt................................. -- (35,790) -- (35,790)
Investment income (loss), net........................................ (3,730) 13,600 7,439 30,276
Gain on sale of businesses........................................... 35 325 57 12,989
Loss on settlement of unfavorable franchise rights................... -- (17,024) -- (17,024)
Other income, net.................................................... 312 1,025 1,051 2,138
-------- --------- --------- ---------
Loss from continuing operations before benefit from
income taxes and minority interests.................. (3,806) (54,612) (9,189) (45,494)
Benefit from income taxes............................................ 15,618 14,657 16,559 11,647
Minority interests in income of consolidated subsidiaries............ (663) (2,525) (653) (6,006)
-------- ---------- --------- ---------
Income (loss) from continuing operations.................. 11,149 (42,480) 6,717 (39,853)
Gain on disposal of discontinued operations.......................... 10,823 -- 10,823 471
-------- --------- --------- ---------
Net income (loss).........................................$ 21,972 $ (42,480) $ 17,540 $ (39,382)
======== ========= ========= =========
Basic income (loss) per share:
Class A common stock:
Continuing operations.....................................$ .16 $ (.58) $ .10 $ (.59)
Discontinued operations................................... .16 -- .16 .01
-------- --------- --------- ---------
Net income (loss).........................................$ .32 $ (.58) $ .26 $ (.58)
======== ========= ========= =========
Class B common stock:
Continuing operations.....................................$ .18 $ (.58) $ .11 $ (.59)
Discontinued operations................................... .18 -- .18 .01
-------- --------- --------- ---------
Net income (loss).........................................$ .36 $ (.58) $ .29 $ (.58)
======== ========= ========= =========
Diluted income (loss) per share:
Class A common stock:
Continuing operations.....................................$ .15 $ (.58) $ .09 $ (.59)
Discontinued operations................................... .13 -- .15 .01
-------- --------- --------- ---------
Net income (loss).........................................$ .28 $ (.58) $ .24 $ (.58)
======== ========== ========= =========
Class B common stock:
Continuing operations.....................................$ .16 $ (.58) $ .10 $ (.59)
Discontinued operations................................... .14 -- .17 .01
-------- --------- --------- ---------
Net income (loss).........................................$ .30 $ (.58) $ .27 $ (.58)
======== ========= ========= =========
(A) The results of operations for the three-month and nine-month periods ended
October 2, 2005 reflect the acquisition of the RTM Restaurant Group on July
25, 2005. See Note 3 for a discussion of the effect of this acquisition.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
------------------------------
September 26, October 2,
2004 2005
---- ----
(In Thousands)
(Unaudited)
Cash flows from continuing operating activities:
Net income (loss)...................................................................$ 17,540 $ (39,382)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
continuing operating activities:
Operating investment adjustments, net (see below).............................. 51,808 (490,940)
Gain on sale of businesses..................................................... (57) (12,989)
Deferred asset management fees recognized...................................... -- (2,621)
Equity in undistributed earnings of investees.................................. (1,724) (1,629)
Unfavorable lease liability recognized......................................... (1,208) (1,048)
Gain on disposal of discontinued operations.................................... (10,823) (471)
Depreciation and amortization of properties.................................... 9,833 15,226
Amortization of other intangible assets and certain other items................ 1,786 5,884
Amortization of deferred financing costs and original issue discount........... 1,954 2,129
Minority interests in income of consolidated subsidiaries...................... 653 6,006
Stock-based compensation provision............................................. 79 5,064
Write-off of deferred financing costs on early extinguishment of debt.......... -- 4,751
Straight-line rent accrual..................................................... 330 1,985
Deferred compensation provision................................................ 1,240 1,625
Deferred income tax benefit.................................................... (3,455) (13,072)
Release of income tax and related interest accruals............................ (18,934) --
Other, net..................................................................... 410 1,195
Changes in operating assets and liabilities:
(Increase) decrease in trade and other receivables......................... (1,292) 11,061
Decrease in inventories.................................................... 89 1,138
(Increase) decrease in prepaid expenses and other current assets........... 56 (5,364)
Increase (decrease) in accounts payable and accrued expenses and other
current liabilities...................................................... (2,651) 2,363
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Net cash provided by (used in) continuing operating activities.......... 45,634 (509,089)(A)
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Cash flows from continuing investing activities:
Investment activities, net (see below)............................................... (57,352) 456,021
Transfer from restricted cash equivalents collateralizing long-term debt............. 65 30,547
Collection of a note receivable...................................................... -- 5,000
Costs of business acquisitions, less cash acquired and equity consideration.......... (93,768) (201,146)
Capital expenditures................................................................. (7,892) (13,813)
Other, net........................................................................... (302) 2,372
------------ -----------
Net cash provided by (used in) continuing investing activities.......... (159,249) 278,981
------------ -----------
Cash flows from continuing financing activities:
Proceeds from issuance of term loan in connection with RTM Acquisition............... -- 620,000
Proceeds from issuance of other long-term debt and notes payable..................... -- 5,629
Net contributions from minority interests in consolidated subsidiaries............... -- 20,863
Proceeds from exercises of stock options............................................. 13,354 2,941
Repayments of long-term debt in connection with RTM Acquisition...................... -- (480,355)
Repayments of other long-term debt and notes payable ................................ (26,666) (33,386)
Dividends paid ..................................................................... (12,797) (14,765)
Deferred financing costs............................................................. -- (13,262)
Repurchases of common stock for treasury............................................. (1,381) --
------------ -----------
Net cash provided by (used in) continuing financing activities.......... (27,490) 107,665
------------ -----------
Net cash used in continuing operations.................................................. (141,105) (122,443)
Net cash provided by (used in) discontinued operations.................................. (318) 163
------------ -----------
Net decrease in cash and cash equivalents............................................... (141,423) (122,280)
Cash and cash equivalents at beginning of period........................................ 560,510 367,992
------------ -----------
Cash and cash equivalents at end of period..............................................$ 419,087 $ 245,712
============ ===========
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended
---------------------------------
September 26, October 2,
2004 2005
---- ----
(In Thousands)
(Unaudited)
Detail of cash flows related to investments:
Operating investment adjustments, net:
Cost of trading securities purchased.............................................$ (114,394) $(1,958,726)
Proceeds from sales of trading securities and net settlements of trading
derivatives................................................................... 161,913 1,470,495
Net recognized losses from trading securities and derivatives and short
positions in securities....................................................... 832 2,288
Other net recognized (gains) losses, including other than temporary losses....... 5,267 (4,257)
Accretion of discount on debt securities and short positions in securities, net
of distributions received..................................................... (1,810) (740)
------------ -----------
$ 51,808 $ (490,940)
============ ===========
Investing investment activities, net:
Net proceeds from sales of repurchase agreements.................................$ -- $ 481,320
Proceeds from securities sold short.............................................. 19,539 1,621,880
Payments to cover short positions in securities.................................. (38,493) (1,197,999)
Proceeds from sales and maturities of available-for-sale securities and other
investments................................................................... 171,587 92,120
Cost of available-for-sale securities and other investments purchased............ (217,252) (113,075)
(Increase) decrease in restricted cash equivalents collateralizing securities
obligations................................................................... 7,267 (428,225)
------------ -----------
$ (57,352) $ 456,021
============ ===========
(A) Net cash used in continuing operating activities reflects the significant
net purchases of trading securities and net settlements of trading
derivatives, which were principally funded by proceeds from net sales of
repurchase agreements and the net proceeds from securities sold short.
These purchases and sales were principally transacted through an investment
fund, Deerfield Opportunities Fund, LLC, which employs leverage in its
trading activities and which we consolidate in our condensed consolidated
financial statements. Under accounting principles generally accepted in the
United States of America, the net purchases of trading securities and the
net settlements of trading derivatives must be reported in continuing
operating activities. However, the net sales of repurchase agreements and
the net proceeds from securities sold short are reported in continuing
investing activities.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
October 2, 2005
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
(the "Financial Statements") of Triarc Companies, Inc. ("Triarc" and, together
with its subsidiaries, the "Company") have been prepared in accordance with Rule
10-01 of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC") and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with accounting principles generally accepted in
the United States of America ("GAAP"). In the opinion of the Company, however,
the Financial Statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company's financial
position and results of operations as of and for the three-month and nine-month
periods and its cash flows for the nine-month periods set forth in the following
paragraph. The results of operations for the three-month and nine-month periods
ended October 2, 2005 are not indicative of the results to be expected for the
full year principally due to the effect of the July 25, 2005 acquisition of RTM
Restaurant Group ("RTM"), including the recognition of losses on early
extinguishment of debt and the settlement of unfavorable franchise rights (see
Notes 3 and 5 and "Item 2. Management's Discussion and Analysis of Financial
Consolidation and Results of Operations - Seasonality"). These Financial
Statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 2, 2005 (the "Form 10-K").
The Company reports on a fiscal year consisting of 52 or 53 weeks ending
on the Sunday closest to December 31. However, Deerfield & Company LLC
("Deerfield"), in which the Company acquired a 63.6% capital interest on July
22, 2004 (see Note 3), Deerfield Opportunities Fund, LLC (the "Opportunities
Fund") which commenced during the fourth quarter of 2004 and in which the
Company owns a 77.9% capital interest as of October 2, 2005, and DM Fund, LLC,
which commenced during the first quarter of 2005 and in which the Company owns a
93.3% capital interest, report on a calendar year ending on December 31. The
Company's first nine-month period of fiscal 2004 commenced on December 29, 2003
and ended on September 26, 2004, with its third quarter commencing on June 28,
2004, except that for each of these periods Deerfield is included commencing
July 23, 2004 through its quarter end September 30, 2004. The Company's first
nine-month period of fiscal 2005 commenced on January 3, 2005 and ended on
October 2, 2005, with its third quarter commencing on July 4, 2005, except that
(1) RTM is included commencing July 26, 2005 and (2) Deerfield, the
Opportunities Fund and DM Fund, LLC are included on a calendar three-month and
nine-month basis. The periods from June 28, 2004 to September 26, 2004 and
December 29, 2003 to September 26, 2004 are referred to herein as the
three-month and nine-month periods ended September 26, 2004, respectively. The
periods from July 4, 2005 to October 2, 2005 and January 3, 2005 to October 2,
2005 are referred to herein as the three-month and nine-month periods ended
October 2, 2005, respectively. Each quarter contained 13 weeks and each
nine-month period contained 39 weeks. The effects of including Deerfield, the
Opportunities Fund and DM Fund, LLC on a calendar-period basis instead of the
Company's fiscal-period basis were not material. All references to quarters,
nine-month periods, quarter-end(s) and nine-month period end(s) herein relate to
fiscal periods rather than calendar periods, except with respect to Deerfield,
the Opportunities Fund and DM Fund, LLC.
Certain amounts included in the accompanying prior period's condensed
consolidated financial statements have been reclassified to conform with the
current period's presentation.
(2) Stock-Based Compensation
The Company maintains several equity plans (the "Equity Plans") which
collectively provide or provided for the grant of stock options, tandem stock
appreciation rights and restricted shares of the Company's common stock to
certain officers, other key employees, non-employee directors and consultants,
including shares of the Company's common stock granted in lieu of annual
retainer or meeting attendance fees to non-employee directors.
The Company measures compensation costs for its employee stock-based
compensation, other than employee membership interests in future profits of a
subsidiary, under the intrinsic value method rather than the fair value method.
Compensation cost for the Company's stock options is measured as the excess, if
any, of the market price of the Company's class A common stock (the "Class A
Common Stock" or "Class A Common Shares"), and/or class B common stock, series 1
(the "Class B Common Stock" or "Class B Common Shares"), as applicable, at the
date of grant, or at any subsequent measurement date as a result of certain
types of modifications to the terms of its stock options, over the amount an
employee must pay to acquire the stock. Such amounts are recognized as
compensation expense over the vesting period of the related stock options.
On March 14, 2005, the Company granted 149,000 and 731,000 contingently
issuable performance-based restricted shares of Class A Common Stock and Class B
Common Stock, respectively, (the "Restricted Shares") to certain officers and
key employees under its 2002 equity participation plan. The Restricted Shares
vest ratably over three years, subject to meeting, in each case, certain Class B
Common Stock market price targets of between $12.09 and $16.09 per share, or to
the extent not previously vested, on March 14, 2010 subject to meeting a Class B
Common Stock market price target of $18.50 per share. The prices of the
Company's Class A and Class B Common Stock on the March 14, 2005 grant date were
$15.59 and $14.75 per share, respectively. The Company's Restricted Shares are
accounted for as variable plan awards, since they vest only if the Company's
Class B Common Stock meets certain market price targets. The Company measures
compensation cost for its Restricted Shares by estimating the expected number of
shares that will ultimately vest based on the market price of its Class B Common
Stock at the end of each period. Such amounts are recognized ratably as
compensation expense over the vesting period of the related Restricted Shares
and are adjusted based on the market price of the Class B Common Stock at the
end of each period.
A summary of the effect on net income (loss) and net income (loss) per
share in each period presented as if the fair value method, calculated under the
Black-Scholes-Merton option pricing model (the "Black-Scholes Model"), had been
applied to all outstanding and unvested stock options and Restricted Shares is
as follows (in thousands except per share data):
Three Months Ended Nine Months Ended
------------------------- ------------------------
September 26, October 2, September 26, October 2,
2004 2005 2004 2005
---- ---- ---- ----
Net income (loss), as reported..................................$ 21,972 $ (42,480) $ 17,540 $ (39,382)
Reversal of stock-based compensation expense determined
under the intrinsic value method included in reported net
income or loss, net of related income taxes................... -- 1,711 157 3,226
Recognition of stock-based compensation expense determined
under the fair value method, net of related income taxes...... (609) (3,931) (1,786) (9,467)
-------- --------- -------- ---------
Net income (loss), as adjusted..................................$ 21,363 $ (44,700) $ 15,911 $ (45,623)
======== ========= ======== =========
Net income (loss) per share:
Class A Common Stock:
Basic, as reported.........................................$ .32 $ (.58) $ .26 $ (.58)
Basic, as adjusted......................................... .31 (.61) .24 (.67)
Diluted, as reported....................................... .28 (.58) .24 (.58)
Diluted, as adjusted....................................... .27 (.61) .22 (.67)
Class B Common Stock:
Basic, as reported.........................................$ .36 $ (.58) $ .29 $ (.58)
Basic, as adjusted......................................... .35 (.61) .27 (.67)
Diluted, as reported....................................... .30 (.58) .27 (.58)
Diluted, as adjusted....................................... .29 (.61) .25 (.67)
Stock options granted during the periods presented below are exercisable
for one share of Class A Common Stock (the "Class A Options") or one share of
Class B Common Stock (the "Class B Options"). The fair value of these stock
options granted under the Equity Plans on the date of grant was estimated using
the Black-Scholes Model with the following weighted average assumptions:
Nine Months Ended
----------------------------------------------
September 26, 2004 October 2, 2005
--------------------- ---------------------
Class A Class B Class A Class B
Options Options Options Options
------- ------- ------- -------
Risk-free interest rate........................................ 3.96 % 3.87% 3.99% 3.87%
Expected option life in years.................................. 7 7 7 7
Expected volatility............................................ 19.6 % 32.7% 17.7% 28.1%
Dividend yield................................................. 2.41 % 2.63% 2.21% 2.62%
During the nine-month period ended September 26, 2004, the Company granted
43,000 Class A Options and 239,000 Class B Options and during the nine-month
period ended October 2, 2005, the Company granted 43,000 Class A Options and
4,599,000 Class B Options under the Equity Plans at exercise prices equal to the
market price of the stock on the grant dates. In addition, in connection with
the acquisition of RTM on July 25, 2005 (see Note 3) the Company granted 774,000
Class B Options at exercise prices ranging from $4.49 to $15.59. The weighted
average grant date fair values of each of these stock options, using the
Black-Scholes Model with the assumptions set forth above, were $2.23, $3.33,
$3.19 and $4.10, respectively.
The Black-Scholes Model has limitations on its effectiveness including
that it was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable and that the model
requires the use of highly subjective assumptions including expected stock price
volatility. The Company's stock-option awards to employees have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimates.
Therefore, in the opinion of the Company, the existing model does not
necessarily provide a reliable single measure of the fair value of the Company's
stock-option awards.
(3) Business Acquisitions
Deerfield
On July 22, 2004 the Company acquired a 63.6% capital interest in
Deerfield (the "Deerfield Acquisition") for an aggregate cost of $94,907,000,
consisting of payments of $86,532,000 to selling owners and estimated expenses
of $8,375,000, including expenses reimbursed to a selling owner. In connection
with the Deerfield Acquisition, effective August 20, 2004 Deerfield granted
membership interests in future profits to certain of its key employees, which
reduced the Company's interest in the profits of Deerfield subsequent to August
19, 2004 to 61.5%. The Company acquired Deerfield with the expectation of
growing the substantial value of Deerfield's historically profitable investment
advisory brand. Deerfield is an asset manager and represents a business segment
of the Company (see Note 13).
Deerfield's results of operations, less applicable minority interests, and
cash flows subsequent to the July 22, 2004 date of the Deerfield Acquisition
have been included in the Company's condensed consolidated statements of
operations and cash flows. As such, Deerfield's results of operations, less
applicable minority interests, and cash flows are included in the Company's
consolidated results for the three-month and nine-month periods ended October 2,
2005, but are only included in the three-month and nine-month periods ended
September 26, 2004 subsequent to the July 22, 2004 date of the Deerfield
Acquisition.
The allocation of the purchase price of Deerfield to the assets acquired
and liabilities assumed included in Note 3 to the consolidated financial
statements contained in the Form 10-K became final effective July 3, 2005.
Pro forma condensed consolidated summary operating data (the "As Adjusted
Data") of the Company for the three-month and nine-month periods ended September
26, 2004 reflecting the Deerfield Acquisition, as well as the acquisition of
RTM, is set forth below under "Pro Forma Operating Data."
RTM
On July 25, 2005, the Company completed the acquisition (the "RTM
Acquisition") of substantially all of the equity interests or the assets of the
entities comprising RTM. RTM was the largest franchisee of Arby's restaurants
with 775 Arby's in 22 states as of the date of acquisition. The total
consideration in connection with the RTM Acquisition is currently estimated to
be $369,504,000, subject to a post-closing adjustment, consisting of (1)
$175,000,000 in cash, (2) 9,684,000 shares of the Company's Class B Common Stock
issued from treasury with a fair value of $145,265,000 as of July 25, 2005 based
on the closing price of the Company's Class B Common Stock on such date and the
two prior days of $15.00 per share, (3) the payment of $21,817,000 of debt,
including related accrued interest and prepayment penalties, that was not an
obligation of the entities included in the RTM Acquisition, (4) the vested
portion of stock options to purchase 774,000 shares of the Company's Class B
Common Stock, with a fair value of $4,127,000 as of July 25, 2005, issued in
exchange for existing RTM stock options and (5) $23,295,000 of related estimated
expenses. The total consideration represents $17,024,000 for the settlement loss
from unfavorable franchise rights and $352,480,000 for the aggregate purchase
price for RTM. The settlement loss from unfavorable franchise rights, included
in the condensed consolidated statements of operations for the three and nine
months ended October 2, 2005, was recognized in accordance with accounting
principles generally accepted in the United States of America that require that
any preexisting business relationship between the parties to a business
combination be evaluated and accounted for separately. Under this accounting
guidance, the franchise agreements acquired in the RTM Acquisition with royalty
rates below the current 4% royalty rate that the Company receives on new
franchise agreements were required to be valued and recognized as an expense and
excluded from the purchase price paid for RTM. The amount of the settlement loss
represents the estimated amount of royalties by which the royalty rate is
unfavorable over the remaining life of the franchise agreements. The average
cost of the 9,684,000 shares issued from treasury aggregated $81,542,000. The
closing price on July 25, 2005 of the Company's Class B Common Stock was used to
value the 9,684,000 shares since that was the date that the final terms of the
RTM Acquisition were agreed to and announced. The value of the vested portion of
the options to purchase 774,000 shares was determined by subtracting the
intrinsic value of the nonvested portion of the options related to future
service of the employees from the fair value of the total options calculated
using the Black-Scholes Model.
In connection with the RTM Acquisition, the Company refinanced all of the
$268,381,000 existing indebtedness of its restaurant segment and $211,974,000 of
RTM debt (see Note 4).
The following table (1) summarizes on a preliminary basis the allocation
of the purchase price of RTM to the assets acquired and liabilities assumed in
the RTM Acquisition and remains subject to finalization due to the recent date
of the acquisition and (2) provides a reconciliation to "Cost of business
acquisitions, less cash acquired and equity consideration" in the accompanying
condensed consolidated statement of cash flows for the nine months ended October
2, 2005 (in thousands):
As of
July 25, 2005
-------------
Current assets.............................................................................$ 35,366
Properties................................................................................. 332,778
Goodwill................................................................................... 423,541
Other intangible assets.................................................................... 60,842
Deferred costs and other assets............................................................ 5,078
Note receivable from non-executive officer of a subsidiary of the Company reported as a
reduction of stockholders' equity........................................................ 519
----------
Total assets acquired................................................................ 858,124
----------
Current liabilities, including current portion of long-term debt of $52,349................ 129,991
Long-term debt............................................................................. 341,757
Deferred income taxes...................................................................... 25,533
Other liabilities and deferred income...................................................... 8,363
----------
Total liabilities assumed............................................................ 505,644
----------
Net assets acquired............................................................... 352,480
Less:
Cash acquired........................................................................ (2,499)
Triarc Class B Common Stock issued to sellers........................................ (145,265)
Stock options granted to purchase Triarc Class B Common Stock to employees of RTM.... (4,127)
----------
Cost of RTM Acquisition, less cash acquired and equity consideration.............. 200,589
Other acquisitions......................................................................... 557
----------
Cost of business acquisitions, less cash acquired and equity consideration........$ 201,146
==========
The RTM Acquisition resulted in $423,541,000 of goodwill, of which
$171,900,000 will be fully deductible for income tax purposes and was assigned
entirely to the Company's restaurant segment. Such goodwill reflects the
substantial value of RTM's historically profitable restaurant business and the
Company's expectation of being able to grow RTM's restaurant business and to
improve operating efficiencies of the Company's previously existing restaurants
through economies of scale. All of the acquired identifiable intangible assets,
aggregating $60,842,000, are amortizable and principally include (1) favorable
leases of $41,349,000, and (2) reacquired rights under franchise agreements of
$18,414,000. Each of those amounts represents the fair value of the respective
intangible asset, as determined in accordance with a preliminary independent
appraisal. The acquired identifiable intangible assets have a currently
estimated weighted average amortization period of approximately 15 years,
reflecting a currently estimated weighted average of approximately 16 years for
the favorable leases and approximately 12 years for the reacquired rights under
franchise agreements.
RTM's results of operations and cash flows subsequent to the July 25, 2005
date of the RTM Acquisition have been included in the Company's condensed
consolidated statements of operations and cash flows for the three-month and
nine-month periods ended October 2, 2005, as applicable, but are not included
for the three-month and nine-month periods ended September 26, 2004. In this
regard, net sales of RTM commencing with the Company's acquisition on July 25,
2005 were $153,531,000 for the three-month and nine-month periods ended October
2, 2005. Royalties and franchise and related fees earned by the Company from RTM
through July 25, 2005 were $7,782,000 and $2,074,000 for the three-month periods
ended September 26, 2004 and October 2, 2005, respectively, and $21,988,000 and
$16,466,000 for the nine-month periods ended September 26, 2004 and October 2,
2005, respectively. Following the RTM Acquisition, royalties and franchise and
related fees from RTM of $5,772,000 were eliminated in consolidation.
Pro Forma Operating Data
The following supplemental pro forma condensed consolidated summary
operating data (the "As Adjusted Data") of the Company for each of the periods
presented herein has been prepared by adjusting the historical data as set forth
in the accompanying condensed consolidated statements of operations to give
effect to the Deerfield Acquisition and the RTM Acquisition as if they had been
consummated as of the beginning of each respective year (in thousands except per
share amounts):
Three Months Ended Nine Months Ended
September 26, 2004 September 26, 2004
--------------------------- ----------------------------
As Reported As Adjusted As Reported As Adjusted
----------- ----------- ----------- -----------
Revenues.................................................$ 85,960 $ 272,294 $ 232,616 $ 833,252
Operating profit......................................... 5,528 17,456 8,802 53,676
Income from continuing operations........................ 11,149 13,555 6,717 19,508
Net income............................................... 21,972 24,378 17,540 30,331
Basic income per share:
Class A Common Stock:
Continuing operations............................... .16 .17 .10 .25
Net income.......................................... .32 .31 .26 .39
Class B Common Stock:
Continuing operations............................... .18 .19 .11 .28
Net income.......................................... .36 .34 .29 .43
Diluted income per share:
Class A Common Stock:
Continuing operations............................... .15 .15 .09 .24
Net income.......................................... .28 .27 .24 .37
Class B Common Stock:
Continuing operations............................... .16 .17 .10 .27
Net income.......................................... .30 .30 .27 .41
Three Months Ended Nine Months Ended
October 2, 2005 October 2, 2005
--------------------------- ----------------------------
As Reported As Adjusted As Reported As Adjusted
----------- ----------- ----------- -----------
Revenues.................................................$ 240,356 $ 285,087 $ 421,776 $ 868,479
Operating profit......................................... 5,864 10,029 9,029 45,303
Loss from continuing operations.......................... (42,480) (41,784) (39,853) (30,551)
Net loss................................................. (42,480) (41,784) (39,382) (30,080)
Basic and diluted loss per share of Class A Common
Stock and Class B Common Stock:
Continuing operations............................... (.58) (.55) (.59) (.41)
Net loss............................................ (.58) (.55) (.58) (.40)
This As Adjusted Data is presented for comparative purposes only and does
not purport to be indicative of the Company's actual condensed consolidated
results of operations had the Deerfield Acquisition and the RTM Acquisition
actually been consummated as of the beginning of each of the respective years
noted above or of the Company's expected future results of operations.
During the three months ended October 2, 2005, the Company incurred
$6,559,000 of employee related relocation, severance and retention and
consulting expenses as a result of combining the Company's restaurant operations
with RTM and the relocation of the corporate office of the restaurant segment to
Atlanta, Georgia, which is where RTM is headquartered. These expenses are
included in "General and administrative, excluding depreciation and
amortization" in the condensed consolidated statements of operations for the
three and nine months ended October 2, 2005. During the quarter ending January
1, 2006 and extending into 2006 the Company expects to incur approximately
$9,000,000 of additional similar expenses.
In August 2005, the Company filed a registration statement with the SEC
that is not yet currently effective, covering the resale of the 9,684,000 shares
of the Class B Common Stock that were issued by the Company as a portion of the
purchase price for RTM, as previously disclosed.
Operating Lease Commitments
In connection with the RTM Acquisition, the Company's obligation for
future minimum rental payments for non-cancelable operating leases and the
related sublease rental receipts, as set forth in the 10-K, materially increased
by approximately $405,481,000 and $70,499,000, respectively.
(4) Long-Term Debt
In connection with the RTM Acquisition, the Company entered into a new
credit agreement (the "Credit Agreement") for its restaurant business segment.
The Credit Agreement includes a senior secured term loan facility in the
aggregate principal amount of $620,000,000 (the "Term Loan") of which
$618,450,000 is outstanding as of October 2, 2005 and a senior secured revolving
credit facility of $100,000,000, none of which is outstanding. The proceeds of
the Term Loan, together with other cash resources, were used to fund the
$175,000,000 cash portion of the purchase price for RTM and to refinance
$268,381,000 of then existing debt of the Company's restaurant segment and
$211,974,000 of RTM debt. The debt of the Company's restaurant segment that was
refinanced included $198,121,000 of insured non-recourse securitization notes,
$67,344,000 of leasehold notes, equipment notes and mortgage notes relating to
Company-owned restaurants, and $2,916,000 of other mortgage notes related to the
restaurant segment. The Term Loan is due $1,550,000 during the three months
ended January 1, 2006, $6,200,000 in each of 2006 through 2010, $294,500,000 in
2011 and $291,400,000 in 2012. However, the Term Loan requires prepayments of
principal amounts resulting from certain events and, beginning in 2007, from
excess cash flow of the restaurant segment as determined under the Credit
Agreement. The Term Loan bears interest at the Company's option at either (1)
LIBOR plus 2.00% or 2.25% depending on the leverage ratio or (2) the higher of a
base rate determined by the administrative agent for the Credit Agreement or the
Federal Funds rate plus 0.50%, in either case plus 1.00% or 1.25% depending on
the leverage ratio. However, in connection with the terms of the Credit
Agreement, the Company entered into an interest rate swap agreement (the "Swap
Agreement") during the three months ended October 2, 2005 that fixed the LIBOR
interest rate at 4.12% on $100,000,000 of the outstanding principal amount until
September 30, 2008 and subsequent to October 2, 2005 entered into two additional
interest rate swap agreements that fixed the LIBOR interest rate at 4.60% on
$105,000,000 of the outstanding principal amount until October 30, 2008. In
addition, the Company incurred $13,262,000 of estimated expenses related to the
Credit Agreement which have been deferred in "Deferred costs and other assets"
in the accompanying condensed consolidated balance sheet as of October 2, 2005
and are being amortized as interest expense using the interest rate method over
the life of the Term Loan.
The obligations under the Credit Agreement are secured by substantially
all of the assets, other than real property, of the Company's restaurant segment
and are also guaranteed by substantially all of the entities comprising the
restaurant segment. Triarc, however, is not a party to the guarantees. In
addition, the Credit Agreement contains various covenants relating to the
Company's restaurant segment, the most restrictive of which (1) require periodic
financial reporting, (2) require meeting certain leverage and interest coverage
ratio tests and (3) restrict, among other matters, (a) the incurrence of
indebtedness, (b) certain asset dispositions, (c) certain affiliate
transactions, (d) certain investments, (e) certain capital expenditures and (f)
the payment of dividends indirectly to Triarc.
The Company assumed sale-leaseback and capitalized lease obligations in
connection with the RTM Acquisition with principal amounts aggregating
approximately $142,051,000 and $40,077,000, respectively, which were not
refinanced by the Company and are included in long-term debt. These amounts
represent the fair value of such obligations, as determined in accordance with a
preliminary independent appraisal. Total future minimum noncancelable rental
payments under these obligations as of July 25, 2005 are as follows (in
thousands):
Fiscal Year Rental Payments
----------- ---------------
July 26, 2005 through January 1, 2006 .......................................................... $ 7,532
2006............................................................................................ 18,297
2007............................................................................................ 18,518
2008............................................................................................ 18,759
2009............................................................................................ 19,007
Thereafter...................................................................................... 224,317
----------
Total minimum payments.................................................................... 306,430
Residual value of land at end of lease term..................................................... 89,968
Less interest................................................................................... (214,270)
----------
Present value of minimum sale-leaseback and capitalized lease obligations....................... $ 182,128
==========
(5) Loss on Early Extinguishment of Debt
In connection with the Company's debt refinancing (see Notes 3 and 4), the
Company incurred a $35,790,000 loss on early extinguishment of debt during the
quarter ended October 2, 2005 which consisted of the following (in thousands):
Prepayment penalties .............................................................................. $ 27,439
Write-off of previously unamortized deferred financing costs....................................... 4,751
Accelerated insurance payments related to the extinguished debt.................................... 3,504
Fees and other expenses............................................................................ 96
----------
$ 35,790
==========
(6) Derivative Instruments
During September 2005, the Company entered into an interest rate swap
agreement to hedge a portion of the interest rate risk exposure under its Term
Loan. As discussed in Note 4, interest payments under the Company's Term Loan
are based on LIBOR plus a spread. To hedge this exposure, the Company entered
into the Swap Agreement. This hedge of interest rate risk relating to the
Company's Term Loan was designated and documented at inception as a cash flow
hedge and is evaluated for effectiveness at least quarterly. Effectiveness of
this hedge is calculated by comparing the fair value of the derivative to a
hypothetical derivative which would be a perfect hedge of the underlying
borrowings under the Company's Term Loan. There was no material ineffectiveness
from this hedge through October 2, 2005. At October 2, 2005, the Company
recorded an asset of $1,114,000, before income taxes of $433,000, which
represents the fair value of the excess of variable cash inflows over fixed cash
outflows for the remaining term of the hedge. The excess of cash inflows over
cash outflows largely reflects the increase in LIBOR as compared to LIBOR at the
time that we entered into the Swap Agreement. The asset is included in "Deferred
costs and other assets" and the net amount after income taxes is included in
other "Accumulated other comprehensive income" in the Company's condensed
consolidated balance sheet. The accounting for gains and losses associated with
changes in the fair value of cash flow hedges and the effect on the Company's
condensed consolidated financial statements will depend on whether the hedge is
highly effective in achieving offsetting changes in fair value of cash flows of
the liability hedged. As of October 2, 2005, the Company anticipates
reclassifying $165,000, net of income taxes of $108,000, of the balance of
derivatives classified as cash flow hedges in accumulated other comprehensive
income to results of operations in the next year (see Note 7).
(7) Comprehensive Income (Loss)
The following is a summary of the components of comprehensive income
(loss), net of income taxes and minority interests (in thousands):
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 26, October 2, September 26, October 2,
2004 2005 2004 2005
---- ---- ---- ----
Net income (loss) ........................................$ 21,972 $(42,480) $ 17,540 $ (39,382)
Net change in unrealized gains and losses on available-
for-sale securities (see below)......................... 1,053 1,665 207 (210)
Net change in unrealized gains and losses on cash flow
hedges (see below)...................................... -- 1,248 -- 1,275
Net change in currency translation adjustment............. 21 24 12 37
--------- -------- --------- ---------
Comprehensive income (loss)...............................$ 23,046 $(39,543) $ 17,759 $ (38,280)
========= ======== ========= =========
The following is a summary of the components of the net change in
unrealized gains and losses on available-for-sale securities included in
comprehensive income (loss) (in thousands):
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
September 26, October 2, September 26, October 2,
2004 2005 2004 2005
---- ---- ---- ----
Unrealized holding gains arising during the period........$ 604 $ 4,490 $ 415 $ 3,897
Reclassifications of prior period unrealized holding
(gains) losses into "Investment income (loss), net"..... 1,006 (596) (118) (2,650)
Equity in unrealized holding losses arising during the
period.................................................. (2) (1,331) (3) (1,888)
Equity in reclassifications of prior period unrealized
holding (gains) losses reported in "Other income,
net".................................................... -- (3) -- 299
--------- -------- --------- --------
1,608 2,560 294 (342)
Income tax (provision) benefit............................ (599) (937) (131) 95
Minority interests in a consolidated subsidiary........... 44 42 44 37
--------- -------- --------- --------
$ 1,053 $ 1,665 $ 207 $ (210)
========= ======== ========= ========
The following is a summary of the components of the net change in
unrealized gains and losses on cash flow hedges included in comprehensive income
(loss) (in thousands):
Three Nine
Months Months
Ended Ended
---------- ----------
October 2, October 2,
2005 2005
---- ----
Unrealized holding gains arising during the period.........................................$ 1,114 $ 1,114
Equity in unrealized holding gains arising during the period............................... 817 829
Equity in reclassifications of prior period holding losses reported in "Other income, net". 69 99
Income tax provision....................................................................... (752) (767)
--------- --------
$ 1,248 $ 1,275
========= ========
(8) Income (Loss) Per Share
Basic income (loss) per share has been computed by dividing the allocated
income or loss for the Company's Class A Common Stock and the Company's Class B
Common Stock by the weighted average number of shares of each class. Both
factors are presented in the tables below. Income for the three-month and
nine-month periods ended September 26, 2004 was allocated between the Class A
Common Stock and Class B Common Stock based on the actual dividend payment ratio
to the extent of dividends paid during the period with any excess allocated
giving effect to the current minimum stated dividend participation rate of 110%
for the Class B Common Shares compared with the Class A Common Shares. Losses
for the three-month and nine-month periods ended October 2, 2005 were allocated
equally among each weighted average outstanding share of Class A Common Stock
and Class B Common Stock, resulting in the same loss per share for each class.
The weighted average number of shares includes the weighted average effect of
the shares held in two deferred compensation trusts reported in "Deferred
compensation payable in common stock" as a component of "Stockholders' equity"
in the accompanying condensed consolidated balance sheets. These shares are not
reported as outstanding shares for balance sheet purposes.
Diluted income per share for the three-month and nine-month periods ended
September 26, 2004 has been computed by dividing the allocated income for the
Class A Common Shares and Class B Common Shares by the weighted average number
of shares of each class plus the potential common share effect on each class of
dilutive stock options, computed using the treasury stock method and for the
three-month period ended September 26, 2004 the share effect on each class of
the assumed conversion of the Company's $175,000,000 of 5% convertible notes
(the "Convertible Notes") as presented in the second table below. The income for
income per share purposes was adjusted to add back the after-tax interest of the
Convertible Notes to the allocated income for purposes of calculating diluted
income per share for the three-month period ended September 26, 2004. The
diluted income per share amounts for the three-month period ended September 26,
2004 have been retroactively restated in accordance with Issue No. 04-8 ("EITF
04-8"), "The Effect of Contingently Convertible Debt on Diluted Earnings per
Share," of the Emerging Issues Task Force of the Financial Accounting Standards
Board. EITF 04-8 became applicable in the Company's 2005 fiscal year and
requires that contingently convertible debt instruments be included in diluted
earnings per share computations, if dilutive, regardless of whether the
contingent conversion feature has been met, with retroactive restatement of
diluted earnings per share of all comparable periods presented. The shares used
to calculate diluted income per share for the nine-month period ended September
26, 2004 exclude any effect of the Company's Convertible Notes which would have
been antidilutive since the after-tax interest on the Convertible Notes per
share of Class A Common Stock and Class B Common Stock obtainable on conversion
exceeds the reported basic income from continuing operations per share. Diluted
loss per share for the three-month and nine-month periods ended October 2, 2005
was the same as basic loss per share for each share of the Class A Common Stock
and Class B Common Stock since the Company reported a net loss from continuing
operations and, therefore, the effect of all potentially dilutive securities on
the loss from continuing operations per share would have been antidilutive.
The only Company securities as of October 2, 2005 that could dilute basic
income per share for periods subsequent to October 2, 2005 are (1) outstanding
stock options which are exercisable into 3,547,000 shares and 14,107,000 shares
of the Company's Class A Common Stock and Class B Common Stock, respectively,
(2) the Convertible Notes which are convertible currently into 4,375,000 shares
and 8,750,000 shares of the Company's Class A Common Stock and Class B Common
Stock, respectively, and (3) 149,000 and 730,000 contingently issuable
Restricted Shares of the Company's Class A Common Stock and Class B Common
Stock, respectively.
Income (loss) per share has been computed by allocating the basic and
diluted income or loss as follows (in thousands):
Three Months Ended Nine Months Ended
------------------------ -----------------------
September 26, October 2, September 26,October 2,
2004 2005 2004 2005
---- ---- ---- ----
Class A Common Stock:
Basic:
Continuing operations....................................$ 3,728 $ (13,798) $ 2,149 $ (13,887)
Discontinued operations.................................. 3,666 -- 3,539 164
---------- ---------- ---------- ---------
Net income (loss)........................................$ 7,394 $ (13,798) $ 5,688 $ (13,723)
========== ========== ========== =========
Diluted:
Continuing operations....................................$ 3,728 $ (13,798) $ 2,149 $ (13,887)
Adjustment for after-tax interest expense of
Convertible Notes on continuing operations............ 517 -- -- --
---------- ---------- ---------- ---------
Adjusted continuing operations........................... 4,245 (13,798) 2,149 (13,887)
Discontinued operations.................................. 3,666 -- 3,539 164
---------- ---------- ---------- ---------
Net income (loss)........................................$ 7,911 $ (13,798) $ 5,688 $ (13,723)
========== ========== ========== =========
Class B Common Stock:
Basic:
Continuing operations....................................$ 7,421 $ (28,682) $ 4,568 $ (25,966)
Discontinued operations.................................. 7,157 -- 7,284 307
---------- ---------- ---------- ---------
Net income (loss)........................................$ 14,578 $ (28,682) $ 11,852 $ (25,659)
========== ========== ========== =========
Diluted:
Continuing operations....................................$ 7,421 $ (28,682) $ 4,568 $ (25,966)
Adjustment for after-tax interest expense of
Convertible Notes on continuing operations............ 1,008 -- -- --
---------- ---------- ---------- ---------
Adjusted continuing operations........................... 8,429 (28,682) 4,568 (25,966)
Discontinued operations.................................. 7,157 -- 7,284 307
---------- ---------- ---------- ---------
Net income (loss) .......................................$ 15,586 $ (28,682) $ 11,852 $ (25,659)
========== ========== ========== =========
The number of shares used to calculate basic and diluted income (loss) per
share were as follows (in thousands):
Three Months Ended Nine Months Ended
------------------------ -----------------------
September 26, October 2, September 26,October 2,
2004 2005 2004 2005
---- ---- ---- ----
Class A Common Stock:
Weighted average shares
Outstanding.............................................. 21,736 22,091 20,834 22,053
Held in deferred compensation trusts..................... 1,408 1,695 984 1,695
---------- ---------- ---------- ---------
Basic shares.................................................. 23,144 23,786 21,818 23,748
Dilutive effect of stock options......................... 851 -- 1,240 --
Effect of assumed conversion of Convertible Notes........ 4,375 -- -- --
---------- ---------- ---------- ---------
Diluted shares................................................ 28,370 23,786 23,058 23,748
========== ========== ========== =========
Class B Common Stock:
Weighted average shares
Outstanding.............................................. 38,241 46,052 38,662 41,012
Held in deferred compensation trusts..................... 2,816 3,390 1,967 3,390
---------- ---------- ---------- ---------
Basic shares.................................................. 41,057 49,442 40,629 44,402
Dilutive effect of stock options......................... 1,703 -- 2,479 --
Effect of assumed conversion of Convertible Notes........ 8,750 -- -- --
---------- ---------- ---------- ---------
Diluted shares................................................ 51,510 49,442 43,108 44,402
========== ========== ========== =========
(9) Discontinued Operations
Prior to 2004 the Company sold (1) the stock of the companies comprising
the Company's former premium beverage and soft drink concentrate business
segments (the "Beverage Discontinued Operations"), (2) the stock or the
principal assets of the companies comprising the former utility and municipal
services and refrigeration business segments (the "SEPSCO Discontinued
Operations") of SEPSCO, LLC, a subsidiary of the Company, and (3) substantially
all of its interests in a partnership and subpartnership comprising the
Company's former propane business segment (the "Propane Discontinued
Operations"). The Beverage, SEPSCO and Propane Discontinued Operations have been
accounted for as discontinued operations by the Company. There remain certain
obligations not transferred to the buyers of these discontinued businesses to be
liquidated.
During the three-month period ended July 3, 2005, the Company recorded an
additional gain on the disposal of the SEPSCO Discontinued Operations of
$471,000, net of $254,000 of income taxes, resulting from the gain on sale of a
former refrigeration property that had been held for sale and the reversal of a
related reserve for potential environmental liabilities associated with the
property that were assumed by the buyer.
Current liabilities relating to the discontinued operations consisted of
the following (in thousands):
January 2, October 2,
2005 2005
---- ----
Accrued expenses, including accrued income taxes, of the Beverage
Discontinued Operations.........................................................$ 12,455 $ 12,216
Liabilities relating to the SEPSCO and Propane Discontinued Operations............ 1,379 1,056
----------- -----------
$ 13,834 $ 13,272
=========== ===========
The Company expects that the liquidation of these remaining liabilities
will not have a material adverse effect on its consolidated financial position
or results of operations. To the extent any estimated amounts included in
current liabilities relating to the discontinued operations are determined to be
in excess of the requirement to liquidate the associated liability, any such
excess will be released at that time as a component of gain on disposal of
discontinued operations.
(10) Retirement Benefit Plans
The Company maintains two defined benefit plans, the benefits under which
were frozen in 1992. After recognizing a curtailment gain upon freezing the
benefits, the Company has no unrecognized prior service cost related to these
plans. The measurement date used by the Company in determining the components of
pension expense is December 31.
The components of the net periodic pension cost incurred by the Company
with respect to these plans are as follows (in thousands):
Three Months Ended Nine Months Ended
---------------------------- --------------------------
September 26, October 2, September 26, October 2,
2004 2005 2004 2005
---- ---- ---- ----
Service cost (consisting entirely of plan
expenses).......................................$ 23 $ 23 $ 68 $ 70
Interest cost..................................... 61 59 182 177
Expected return on the plans' assets.............. (71) (70) (213) (210)
Amortization of unrecognized net loss............. 8 13 24 38
------------- ----------- ----------- -----------
Net periodic pension cost.........................$ 21 $ 25 $ 61 $ 75
============= =========== =========== ===========
(11) Transactions with Related Parties
Prior to 2004 the Company provided incentive compensation of $22,500,000,
in the aggregate, to the Chairman and Chief Executive Officer and the President
and Chief Operating Officer of the Company (the "Executives") which was invested
in two deferred compensation trusts (the "Deferred Compensation Trusts") for
their benefit. Deferred compensation expense of $1,239,000 and $1,595,000 was
recognized in the nine-month periods ended September 26, 2004 and October 2,
2005, respectively, for increases in the fair value of the investments in the
Deferred Compensation Trusts. Under GAAP, the Company recognizes investment
income for any interest or dividend income on investments in the Deferred
Compensation Trusts and realized gains on sales of investments in the Deferred
Compensation Trusts, but is unable to recognize any investment income for
unrealized increases in the fair value of the investments in the Deferred
Compensation Trusts because these investments are accounted for under the cost
method of accounting. Accordingly, the Company recognized net investment income
(loss) from investments in the Deferred Compensation Trusts of $589,000 and
$(183,000) in the nine-month periods ended September 26, 2004 and October 2,
2005, respectively. The net investment income during the nine-month period ended
September 26, 2004 consisted of an $828,000 realized gain from the sale of a
cost-method investment in the Deferred Compensation Trusts, which included
increases in value prior to the nine-month period ended September 26, 2004 of
$777,000, and $11,000 of interest income, less $250,000 of investment management
fees. The net investment loss during the nine-month period ended October 2, 2005
consisted of investment management fees of $270,000, less interest income of
$87,000. Realized gains, interest income and investment management fees are
included in "Investment income (loss), net" and deferred compensation expense is
included in "General and administrative, excluding depreciation and
amortization" expenses in the accompanying condensed consolidated statements of
operations. As of October 2, 2005, the obligation to the Executives related to
the Deferred Compensation Trusts is $33,319,000 and is included in "Deferred
compensation payable to related parties" in the accompanying condensed
consolidated balance sheet. As of October 2, 2005, the assets in the Deferred
Compensation Trusts consisted of $21,501,000 included in "Investments," which
does not reflect the unrealized increase in the fair value of the investments
and $3,862,000 included in "Cash and cash equivalents" in the accompanying
condensed consolidated balance sheet. The cumulative disparity between (1)
deferred compensation expense and net recognized investment income and (2) the
obligation to the Executives and the carrying value of the assets in the
Deferred Compensation Trusts will reverse in future periods as either (1)
additional investments in the Deferred Compensation Trusts are sold and
previously unrealized gains are recognized without any offsetting increase in
compensation expense or (2) the fair values of the investments in the Deferred
Compensation Trusts decrease resulting in the recognition of a reversal of
compensation expense without any offsetting losses recognized in investment
income.
In December 2004, the Company purchased 1,000,000 shares of Deerfield
Triarc Capital Corp., a real estate investment trust (the "REIT") for which the
Company acts as investment manager, at a price of $15.00 per share before
issuance costs of $0.91 per share. These shares represented an ownership
percentage in the REIT of 3.7% at January 2, 2005. The Company accounts for its
investment in the REIT under the equity method of accounting due to the
Company's significant influence over the operational and financial policies of
the REIT, principally reflecting the Company's greater than 20% representation
on the REIT's board of directors and the management of the REIT by the Company.
In June 2005, the REIT sold 25,000,000 shares (including 679,285 shares sold by
shareholders in the REIT other than the Company and certain of its officers who
did not sell any shares) in an initial public offering at a price of $16.00 per
share before issuance costs of $1.05 per share (the "REIT IPO"). As a result of
the REIT IPO, the Company's ownership percentage in the REIT decreased to 1.9%
and the Company recorded a non-cash gain of $481,000 during the six-months ended
July 3, 2005 representing the Company's equity in the excess of the $14.95 net
per share proceeds to the REIT over the Company's carrying value per share
attributed to the decrease in the Company's ownership percentage. This gain is
included in "Gain on sale of businesses" in the accompanying condensed
consolidated statements of operations.
The Company has a note receivable of $519,000 from a selling stockholder
of RTM who became a non-executive officer of a subsidiary of the Company as a
result of the RTM Acquisition and is classified as a reduction of stockholders'
equity in the Company's condensed consolidated balance sheet as of October 2,
2005. The note bears interest at a bank base rate plus 2% (8.75% as of October
2, 2005). The note is payable in annual installments through 2013 and is secured
by 88,058 shares of the Company's Class B Common Stock that the Company issued
to the selling stockholder in connection with the RTM Acquisition.
On July 25, 2005, the Company entered into two lease arrangements through
February 2006 for RTM's corporate office facilities with entities owned by
certain selling stockholders of RTM, including a selling stockholder who became
a member of the Company's Board of Directors. The monthly rent is $54,000 plus
real estate taxes and operating costs. The Company believes the rental payments
under the leases approximate fair market value.
In connection with the RTM Acquisition, the Company entered into a
management services agreement with certain affiliates of RTM that the Company
did not acquire pursuant to which the Company will provide certain management
services, including information technology, risk management, accounting, tax and
other management services for a monthly fee of $36,000 plus out-of-pocket
expenses. This services agreement may be terminated by either party after
February 1, 2006 upon 30 days notice. The Company believes that these fees
approximate the cost to the Company of providing the management services.
The Company continues to have additional related party transactions of the
same nature and general magnitude as those described in Note 24 to the
consolidated financial statements contained in the Form 10-K.
(12) Legal and Environmental Matters
In 2001, a vacant property owned by Adams Packing Association, Inc.
("Adams"), an inactive subsidiary of the Company, was listed by the United
States Environmental Protection Agency on the Comprehensive Environmental
Response, Compensation and Liability Information System ("CERCLIS") list of
known or suspected contaminated sites. The CERCLIS listing appears to have been
based on an allegation that a former tenant of Adams conducted drum recycling
operations at the site from some time prior to 1971 until the late 1970s. The
business operations of Adams were sold in December 1992. In February 2003, Adams
and the Florida Department of Environmental Protection (the "FDEP") agreed to a
consent order that provided for development of a work plan for further
investigation of the site and limited remediation of the identified
contamination. In May 2003, the FDEP approved the work plan submitted by Adams'
environmental consultant and during 2004 the work under that plan was completed.
Adams submitted its contamination assessment report to the FDEP in March 2004.
In August 2004, the FDEP agreed to a monitoring plan consisting of two sampling
events which occurred in January and June 2005 and the results have been
submitted to the FDEP for its review, after which it will reevaluate the need
for additional assessment or remediation. Based on provisions made prior to 2004
of $1,667,000 for those costs and after taking into consideration various legal
defenses available to the Company, including Adams, Adams has provided for its
estimate of its remaining liability for completion of this matter. Through
October 2, 2005, the Company has not received any further communication from the
FDEP.
In 1998, a number of class action lawsuits were filed on behalf of the
Company's stockholders. Each of these actions named the Company, the Executives
and other members of the Company's then board of directors as defendants. In
1999, certain plaintiffs in these actions filed a consolidated amended complaint
alleging that the Company's tender offer statement filed with the SEC in 1999,
pursuant to which the Company repurchased 3,805,015 shares of its Class A Common
Stock, failed to disclose material information. The amended complaint seeks,
among other relief, monetary damages in an unspecified amount. In 2000, the
plaintiffs agreed to stay this action pending determination of a related
stockholder action that was subsequently dismissed in October 2002 and is no
longer being appealed. On October 24, 2005, the plaintiffs filed a motion to
dismiss the remaining class action lawsuit as moot, but maintaining the ability
to seek recovery of their legal fees and expenses.
In addition to the environmental matter and stockholder lawsuit described
above, the Company is involved in other litigation and claims incidental to its
current and prior businesses. Triarc and its subsidiaries have reserves for all
of their legal and environmental matters aggregating $1,300,000 as of October 2,
2005. Although the outcome of such matters cannot be predicted with certainty
and some of these matters may be disposed of unfavorably to the Company, based
on currently available information, including legal defenses available to Triarc
and/or its subsidiaries, and given the aforementioned reserves, the Company does
not believe that the outcome of such legal and environmental matters will have a
material adverse effect on its consolidated financial position or results of
operations.
(13) Business Segments
The Company manages and internally reports its operations as two business
segments: (1) the operation and franchising of restaurants ("Restaurants") and
(2) asset management (see Note 3). Restaurants include RTM effective with its
acquisition by the Company on July 25, 2005. The Company evaluates segment
performance and allocates resources based on each segment's earnings before
interest, taxes, depreciation and amortization ("EBITDA"). EBITDA has been
computed as operating profit plus depreciation and amortization, excluding
amortization of deferred financing costs ("Depreciation and Amortization").
Operating profit has been computed as revenues less operating expenses.
In computing EBITDA and operating profit, interest expense and
non-operating income and expenses have not been considered. Identifiable assets
by segment are those assets used in the Company's operations of each segment.
General corporate assets consist primarily of cash and cash equivalents,
short-term investments, receivables, non-current investments and properties.
The following is a summary of the Company's segment information (in
thousands):
Three Months Ended Nine Months Ended
---------------------------- --------------------------
September 26, October 2, September 26, October 2,
2004 2005 2004 2005
---- ---- ---- ----
Revenues:
Restaurants.........................................$ 79,045 $ 227,159 $ 225,701 $ 383,864
Asset management.................................... 6,915 13,197 6,915 37,912
----------- ----------- ----------- -----------
Consolidated revenues..........................$ 85,960 $ 240,356 $ 232,616 $ 421,776
=========== =========== =========== ===========
EBITDA:
Restaurants.........................................$ 20,837 $ 29,943 $ 52,047 $ 69,438
Asset management.................................... 964 2,576 964 8,144
General corporate................................... (11,469) (16,612) (32,590) (47,443)
----------- ----------- ----------- -----------
Consolidated EBITDA............................ 10,332 15,907 20,421 30,139
----------- ----------- ----------- -----------
Less Depreciation and Amortization:
Restaurants......................................... 2,640 7,686 6,988 13,175
Asset management.................................... 836 1,089 836 3,706
General corporate................................... 1,328 1,268 3,795 4,229
----------- ----------- ----------- -----------
Consolidated Depreciation and Amortization..... 4,804 10,043 11,619 21,110
----------- ----------- ----------- -----------
Operating profit (loss):
Restaurants......................................... 18,197 22,257 45,059 56,263
Asset management.................................... 128 1,487 128 4,438
General corporate................................... (12,797) (17,880) (36,385) (51,672)
----------- ------------ ----------- -----------
Consolidated operating profit.................. 5,528 5,864 8,802 9,029
Interest expense........................................ (5,017) (22,081) (23,655) (44,818)
Insurance expense related to long-term debt............. (934) (531) (2,883) (2,294)
Loss on early extinguishment of debt.................... -- (35,790) -- (35,790)
Investment income (loss), net........................... (3,730) 13,600 7,439 30,276
Gain on sale of businesses.............................. 35 325 57 12,989
Loss on settlement of unfavorable franchise rights...... -- (17,024) -- (17,024)
Other income, net....................................... 312 1,025 1,051 2,138
----------- ----------- ----------- -----------
Consolidated loss from continuing operations
before benefit from income taxes and
minority interests...........................$ (3,806) $ (54,612) $ (9,189) $ (45,494)
=========== =========== =========== ===========
January 2, October 2,
2005 2005
---- ----
Identifiable assets:
Restaurants..........................................................................$ 209,856 $ 1,063,574
Asset management..................................................................... 138,818 128,550
General corporate.................................................................... 718,299 1,792,668
----------- -----------
Consolidated total assets....................................................$ 1,066,973 $ 2,984,792
=========== ===========
(14) Subsequent Event
Corporate Restructuring
The Company is continuing to explore the feasibility, as well as the
risks and opportunities, of a possible corporate restructuring that may involve
the spin-off of the Company's asset management operations to the Company's
shareholders. Options for the Company's other non-restaurant assets are also
under review and could include the allocation of these other assets between the
Company's two businesses and/or a special dividend or distribution to
shareholders. The goal of the restructuring would be to enhance value to the
Company's shareholders by allowing them to hold shares in two industry-specific
public companies thereby potentially unlocking the value of both
independently-managed businesses.
On November 1, 2005, the Executives and the Company's Vice Chairman
(collectively, the "Principals") started a series of equity investment funds
(the "Funds") that are separate and distinct from the Company and that are being
managed by the Principals and other senior officers of the Company (the
"Employees") through a management company (the "Management Company") formed by
the Principals.
The Company has committed to invest $75,000,000 in an account to be
managed by the Management Company that will co-invest in parallel with the
Funds. The Principals and certain Employees have invested in the Funds and
certain Employees may invest in the Funds or in an account to be managed by the
Management Company. The Management Company has agreed not to charge the Company,
the Principals or the Employees any management fees with respect to their
investments. Further, the Principals and the Employees will not pay any
incentive fees while Triarc will pay no incentive fees for the first two years
and, thereafter, will pay lower incentive fees than those generally charged to
other investors in the Funds. The Company will be entitled to withdraw its
investment on the same terms as the Principals. A special committee comprised of
independent members of the Company's Board of Directors (the "Special
Committee") unanimously recommended the Company's investment on these terms to
the Executive Committee of the Company's Board of Directors, which in turn
unanimously approved such investment, with the Executives abstaining from the
vote.
The Principals and Employees continue to serve as officers of, and be
compensated by, the Company. The Company is making available the services of the
Principals and the Employees, as well as certain support services, to the
Management Company. The extent and length of time that these management services
will be provided and the amount and/or timing of any reimbursement of the costs
that the Company incurs for the allocable portion of these services has not yet
been determined. The Special Committee is reviewing and considering these
arrangements.
Equity Interests in Deerfield and Jurlique Investment Pty Ltd.
On November 10, 2005, the Company approved certain equity arrangements
pursuant to which the Executives and other members of management were authorized
to subscribe for equity interests ("the "Class B Units") in the Company's
interest in Deerfield and Jurlique Investment Pty Ltd. (Jurlique"), an entity in
which the Company has a 29% equity interest and a 15% voting interest. The Class
B Units consist of a capital interest portion reflecting the capital
contributions made by each employee and a profits interest portion of up to 15%
of the Company's equity interest in the net income of Deerfield and Jurlique and
up to 15% of any investment gain derived from the sale of any or all of the
Company's equity interests in Deerfield or Jurlique. The profits interest
portion of the Class B Units vest ratably on each of February 15, 2006, 2007,
and 2008. During the quarter ending January 1, 2006, the Company will record the
estimated fair value of the Class B Units as of the date of grant, in accordance
with an independent appraisal, as unearned compensation reported as a component
of "Stockholder's equity" with an equal offsetting increase in "Additional
paid-in-capital." The estimated fair value will be amortized ratably as
compensation expense over the three-year vesting period.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction and Executive Overview
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Triarc Companies, Inc., which we refer to as Triarc,
and its subsidiaries should be read in conjunction with the accompanying
condensed consolidated financial statements and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our Annual
Report on Form 10-K for the fiscal year ended January 2, 2005. Item 7 of our
2004 Form 10-K describes our contractual obligations and the application of our
critical accounting policies. There have been no significant changes as of
October 2, 2005 pertaining to these topics although there have been significant
changes in our contractual obligations resulting from the acquisition of RTM
Restaurant Group that we made on July 25, 2005 discussed below and under
"Liquidity and Capital Resources - RTM Acquisition." Certain statements we make
under this Item 2 constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. See "Special Note Regarding
Forward-Looking Statements and Projections" in "Part II - Other Information"
preceding "Item 1."
We currently operate in two business segments. We operate in the
restaurant business through our franchised and Company-owned Arby's restaurants
and, effective with the July 2004 acquisition of Deerfield & Company, LLC, which
we refer to as Deerfield, we operate in the asset management business.
On July 22, 2004 we completed the acquisition of a 63.6% capital interest
in Deerfield, in a transaction we refer to as the Deerfield Acquisition.
Deerfield, through its wholly-owned subsidiary Deerfield Capital Management LLC,
is an asset manager offering a diverse range of fixed income and credit-related
strategies to institutional investors. Deerfield provides asset management
services for investors through (1) collateralized debt obligation vehicles,
which we refer to as CDOs, and (2) investment funds and private investment
accounts, which we refer to as Funds, including Deerfield Triarc Capital Corp.,
a real estate investment trust formed in December 2004, which we refer to as the
REIT. Deerfield's results of operations, less applicable minority interests, and
cash flows are included in our consolidated results for the three-month and
nine-month periods ended September 26, 2004 subsequent to the July 22, 2004 date
of our acquisition of Deerfield and the full three-month and nine-month periods
ended October 2, 2005. See below under "Presentation of Financial Information."
On July 25, 2005 we completed the acquisition of RTM Restaurant Group,
Arby's largest franchisee with 775 Arby's restaurants in 22 states as of that
date, in a transaction we refer to as the RTM Acquisition. Commencing on July
26, 2005, our consolidated results of operations and cash flows include RTM's
results of operations and cash flows but do not include royalties and franchise
and related fees from RTM, which are now eliminated in consolidation. See below
under "Liquidity and Capital Resources - RTM Acquisition" for a more detailed
discussion of the RTM Acquisition. We refer to the 779 RTM restaurants open as
of October 2, 2005, including 4 additional restaurants opened by RTM in
September 2005, as the RTM Stores. We refer to the 233 restaurants that we
already owned before the RTM Acquisition through our subsidiary, Sybra, Inc., as
the Sybra Stores.
In our restaurant business, we derive revenues in the form of royalties
and franchise and related fees and from sales by our Company-owned restaurants.
While over 60% of our existing Arby's royalty agreements and all of our new
domestic royalty agreements provide for royalties of 4% of franchise revenues,
our average royalty rate was 3.4% for the nine months ended October 2, 2005,
excluding the RTM Stores. In our asset management business, we derive revenues
in the form of asset management and related fees from our management of CDOs and
Funds and we may expand the types of investments that we offer and manage.
We derived investment income throughout the periods presented principally
from the investment of our excess cash. In that regard, in October 2004 we
invested $100.0 million to seed a multi-strategy hedge fund, Deerfield
Opportunities Fund, LLC, which we refer to as the Opportunities Fund, which is
managed by Deerfield and currently accounted for as a consolidated subsidiary of
ours, with minority interests to the extent of participation by investors other
than us (see "Consolidation of Opportunities Fund"). When we refer to Deerfield
or the effect of the Deerfield Acquisition, we mean only Deerfield & Company,
LLC and not the Opportunities Fund. The Opportunities Fund principally invests
in various fixed income securities and their derivatives, as opportunities
arise, and employs leverage in its trading activities, including securities sold
with an obligation to purchase or under agreements to repurchase. In March 2005
we withdrew $4.8 million of our investment from the Opportunities Fund to seed
another new fund, named DM Fund, LLC, managed by Deerfield and consolidated by
us with minority interests.
Our goal is to enhance the value of our Company by increasing the revenues
of the Arby's restaurant business and Deerfield's asset management business. We
are continuing to focus on growing the number of restaurants in the Arby's
system, adding new menu offerings and implementing operational initiatives
targeted at service levels and convenience. We plan to grow Deerfield's assets
under management by utilizing the value of its historically profitable
investment advisory brand and increasing the types of assets under management,
such as the REIT, thereby increasing Deerfield's asset management fee revenues.
As discussed below under "Liquidity and Capital Resources - Investments
and Potential Acquisitions," we continue to evaluate our options for the use of
our significant cash and investment position, including business acquisitions,
repurchases of our common stock and investments. In recent years we evaluated a
number of business acquisition opportunities, including Deerfield and RTM, and
we intend to continue our disciplined search for potential business acquisitions
that we believe have the potential to create significant value to our
stockholders.
We are continuing to explore the feasibility, as well as the risks and
opportunities, of a possible corporate restructuring that may involve the
spin-off of our asset management operations to our shareholders. We are also
reviewing options for our other remaining non-restaurant net assets, which could
include the allocation of these net assets between our two businesses and/or a
special dividend or distribution to our shareholders. The goal of our
restructuring would be to enhance value to our shareholders by allowing them to
hold shares in two industry-specific public companies thereby potentially
unlocking the value of both independently-managed businesses.
In recent periods our restaurant business has experienced the following
trends:
o Growing U.S. adult population, our principal customer demographic;
o Addition of selected higher-priced quality items to menus, which
appeal more to adult tastes;
o Increased consumer preference for premium sandwiches with perceived
higher levels of freshness, quality and customization along with
increased competition in the premium sandwich category;
o Increased price competition, as evidenced by value menu concepts,
which offer comparatively lower prices on some menu items; combination
meal concepts, which offer a complete meal at an aggregate price lower
than the price of the individual food and beverage items; and use of
coupons and other price discounting;
o Increased competition among quick service restaurant competitors and
other retail food operators for available development sites, higher
development costs associated with those sites and continued tightening
in the lending markets typically used to finance new unit development;
o Increased availability to consumers of new product choices, including
low calorie, low carbohydrate and/or low fat products driven by a
greater consumer awareness of nutritional issues;
o Competitive pressures from operators outside the quick service
restaurant industry, such as the deli sections and in-store cafes of
several major grocery store chains, convenience stores and casual
dining outlets offering prepared food purchases;
o Increases in beef and other commodity costs, although in recent months
these costs have stabilized at levels we anticipate will continue in
the foreseeable future;
o Higher fuel prices which cause a decrease in many consumers'
discretionary income; and
o Legislative activity on both the federal and state level, which could
result in higher (1) wages and related fringe benefits, including
health care and other insurance costs, and (2) packaging costs.
We experience the effects of these trends directly to the extent they
affect the operations of our Company-owned restaurants and indirectly to the
extent they affect sales by our franchisees and, accordingly, impact the
royalties and franchise fees we receive from them.
In recent periods, our asset management business has experienced the
following trends, including trends prior to our entrance into the asset
management business through the Deerfield Acquisition:
o Growth in the hedge fund market as investors appear to be increasing
their investment allocations to hedge funds, with particular interest
recently in hedge strategies that focus on specific areas of growth in
domestic and foreign economies such as oil, commodities, interest
rates, equities, etc.;
o Increased competition in the hedge fund industry in the form of new
hedge funds offered by both new and established asset managers to meet
the increasing demand of hedge fund investors;
o Continued growth of the CDO market as it opens to the individual
investor, in addition to the institutional investors which it has
mainly served in the past, with CDOs that offer more simplified income
tax reporting for the investor;
o Increased competition in the fixed income investment markets resulting
in higher demand for, and costs of, investments purchased by CDOs
resulting in the need to continuously develop new investment
strategies with the goal of maintaining acceptable risk-adjusted
returns to investors; and
o Increased merger and acquisition activity, resulting in additional
risks and opportunities in the credit markets.
Presentation of Financial Information
We report on a fiscal year consisting of 52 or 53 weeks ending on the
Sunday closest to December 31. However, Deerfield, the Opportunities Fund and DM
Fund, LLC report on a calendar year ending on December 31. Our first nine-month
period of fiscal 2004 commenced on December 29, 2003 and ended on September 26,
2004, with our third quarter commencing on June 28, 2004. Our first nine-month
period of fiscal 2005 commenced on January 3, 2005 and ended on October 2, 2005
with our third quarter commencing on July 4, 2005. When we refer to the "three
months ended September 26, 2004," or the "2004 third quarter," and the "nine
months ended September 26, 2004," or the "first nine months of 2004," we mean
the periods from June 28, 2004 to September 26, 2004 and December 29, 2003 to
September 26, 2004, respectively. When we refer to the "three months ended
October 2, 2005," or the "2005 third quarter," and the "nine months ended
October 2, 2005," or the "first nine months of 2005" we mean the periods from
July 4, 2005 to October 2, 2005 and January 3, 2005 to October 2, 2005,
respectively. Each quarter contained 13 weeks and each nine-month period
contained 39 weeks. All references to years, first nine months and quarters
relate to fiscal periods rather than calendar periods, except for Deerfield, the
Opportunities Fund and DM Fund, LLC.
Results of Operations
Presented below is a table that summarizes our results of operations and
compares the amount of the change (1) between the 2004 third quarter and the
2005 third quarter and (2) between the first nine months of 2004 and the first
nine months of 2005.
Three Months Ended Nine Months Ended
---------------------------------- -----------------------------------
September 26, October 2, September 26, October 2,
2004 2005 Change 2004 2005 Change
---- ---- ------ ---- ---- ------
(In Millions)
Revenues:
Net sales................................$ 52.3 $ 206.1 $ 153.8 $ 151.7 $ 312.3 $ 160.6
Royalties and franchise and related
fees................................... 26.7 21.0 (5.7) 74.0 71.6 (2.4)
Asset management and related fees........ 6.9 13.2 6.3 6.9 37.9 31.0
--------- -------- ------- -------- --------- ---------
85.9 240.3 154.4 232.6 421.8 189.2
--------- -------- -------- -------- --------- ---------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization....................... 40.9 148.2 107.3 119.9 228.4 108.5
Cost of services, excluding depreciation
and amortization....................... 2.0 4.6 2.6 2.0 13.4 11.4
Advertising and selling.................. 4.0 15.1 11.1 12.8 24.2 11.4
General and administrative, excluding
depreciation and amortization.......... 28.7 56.5 27.8 77.5 125.7 48.2
Depreciation and amortization, excluding
amortization of deferred financing
costs.................................. 4.8 10.0 5.2 11.6 21.1 9.5
--------- -------- -------- -------- --------- ---------
80.4 234.4 154.0 223.8 412.8 189.0
--------- -------- -------- -------- --------- ---------
Operating profit..................... 5.5 5.9 0.4 8.8 9.0 0.2
Interest expense............................ (5.0) (22.1) (17.1) (23.6) (44.8) (21.2)
Insurance expense related to long-term
debt...................................... (0.9) (0.5) 0.4 (2.9) (2.3) 0.6
Loss on early extinguishment of debt........ -- (35.8) (35.8) -- (35.8) (35.8)
Investment income (loss), net............... (3.7) 13.6 17.3 7.4 30.3 22.9
Gain on sale of businesses.................. -- 0.3 0.3 -- 13.0 13.0
Loss on settlement of unfavorable franchise
rights ................................... -- (17.0) (17.0) -- (17.0) (17.0)
Other income, net........................... 0.3 1.0 0.7 1.1 2.1 1.0
--------- -------- -------- -------- --------- ---------
Loss from continuing operations before
benefit from income taxes and
minority interests................. (3.8) (54.6) (50.8) (9.2) (45.5) (36.3)
Benefit from income taxes................... 15.6 14.6 (1.0) 16.6 11.6 (5.0)
Minority interests in income of consolidated
subsidiaries.............................. (0.7) (2.5) (1.8) (0.7) (6.0) (5.3)
--------- -------- -------- -------- --------- ---------
Income (loss) from continuing
operations......................... 11.1 (42.5) (53.6) 6.7 (39.9) (46.6)
Gain on disposal of discontinued operations. 10.8 -- (10.8) 10.8 0.5 (10.3)
--------- -------- -------- -------- --------- ---------
Net income (loss)....................$ 21.9 $ (42.5) $ (64.4) $ 17.5 $ (39.4) $ (56.9)
========= ======== ======== ======== ========= =========
Three Months Ended October 2, 2005 Compared with Three Months Ended
September 26, 2004
Net Sales
Our net sales, which were generated entirely from the Company-owned
restaurants, increased $153.8 million to $206.1 million for the three months
ended October 2, 2005 from $52.3 million for the three months ended September
26, 2004, reflecting $153.5 million of net sales attributable to the RTM Stores.
Aside from the effect of the RTM Acquisition, net sales increased slightly by
$0.3 million due to a 1% growth in same-store sales of the 233 Sybra Stores in
the 2005 third quarter compared with the 2004 third quarter. When we refer to
same-store sales, we mean only sales of those restaurants which were open during
the same months in both of the comparable periods. The increase in same-store
sales reflected (1) focused value programs including multiple menu items offered
together at a discounted price, supported by print advertising, (2) improved
marketing including (a) the implementation of new menu boards focused on
combination meals, a complete meal offered at an aggregate price lower than the
price of the individual food and beverage items and (b) incremental print
advertising supporting a limited time Market Fresh(TM) offering and core menu
items during the 2005 third quarter compared with the 2004 third quarter and (3)
operational initiatives targeting continued improvement in customer service
levels and convenience. The positive effects of these factors were substantially
offset by (1) unfavorable performance in Company-owned restaurants in the
Michigan region, an area where approximately one-third of our Sybra Stores are
located and which has continued to be particularly impacted by high unemployment
and (2) higher fuel prices which caused a decrease in many consumers'
discretionary income which we believe had a negative impact on our sales during
the third quarter. The RTM Stores had lower same-store sales performance
principally reflecting new product performance in the 2005 third quarter that
was less successful than that of the 2004 third quarter, which had particularly
strong same-store sales performance with respect to the RTM Stores.
Our net sales for the fourth quarter of 2005 will be significantly higher
than the fourth quarter of 2004 as a result of the RTM Acquisition. Aside from
the RTM Acquisition, we currently anticipate higher sales from continued
positive same-store sales growth of our Sybra Stores for the 2005 fourth
quarter. However, we are currently unable to estimate the full impact on our
business of Hurricane Wilma in October 2005, which affected the operations of 17
of our RTM Stores but none of our Sybra Stores in Florida. We believe that the
higher fuel prices, although recently alleviating somewhat, will continue to
temper sales performance. We presently plan to open approximately 21 new
Company-owned restaurants during the remainder of 2005. We will evaluate whether
to close any underperforming Company-owned restaurants and continually review
the performance of each of those restaurants, particularly in connection with
the decision to renew or extend their leases. Specifically, we have 12
restaurants where the facilities leases either are scheduled for renewal or
expire during the remainder of 2005 and we currently anticipate the renewal or
extension of most of these leases.
Royalties and Franchise and Related Fees
Our royalties and franchise and related fees, which were generated entirely
from the franchised restaurants, decreased $5.7 million to $21.0 million for the
three months ended October 2, 2005 from $26.7 million for the three months ended
September 26, 2004, entirely due to a decrease in royalties and franchise and
related fees from RTM from $7.8 million in the 2004 third quarter to $2.1
million in the 2005 third quarter. This decrease was principally due to the
elimination in consolidation of $5.8 million of royalties and franchise and
related fees for the portion of the 2005 third quarter subsequent to the RTM
Acquisition. Aside from the effect of the RTM Acquisition, royalties and
franchise and related fees were relatively unchanged, reflecting (1) a $0.8
million increase in royalties from the 86 restaurants opened since September 26,
2004, with generally higher than average sales volumes, replacing the royalties
from the 57 generally underperforming restaurants closed since September 26,
2004 and (2) a $0.2 million improvement in royalties as a result of slightly
higher average royalty rates in the 2005 third quarter as compared with the 2004
third quarter, both offset by a $1.0 million reduction in royalties due to a 4%
decline in same-store sales of the franchised restaurants, excluding the RTM
Stores, during the 2005 third quarter compared with the 2004 third quarter. The
decrease in same-store sales of the franchised restaurants reflects (1) new
product performance in the 2005 third quarter that was less successful than that
of the 2004 third quarter, which had particularly strong same-store sales
performance and (2) higher fuel prices which caused a decrease in many
consumers' discretionary income which we believe had a negative impact on our
franchisees' sales. These negative effects were partially offset by the positive
effects of (1) improved marketing reflecting (a) the implementation of new menu
boards focused on combination meals and (b) more targeted local marketing
programs and (2) operational initiatives targeting continued improvement in
customer service levels and convenience. Franchise and related fees were
relatively unchanged between the three-month periods.
Our royalties and franchise and related fees will decrease significantly in
the 2005 fourth quarter as compared with the 2004 fourth quarter due to the
elimination in consolidation of royalties and franchise and related fees from
RTM in the 2005 fourth quarter, which represented $7.3 million, or 27%, of our
royalties and franchise and related fees in the 2004 fourth quarter. We expect
positive same-store sales growth of the remaining franchised restaurants for the
2005 fourth quarter, despite the decline in the 2005 third quarter, due to the
relatively lower same-store sales performance in the 2004 fourth quarter, the
anticipated performance of various initiatives such as (1) limited time offers
with discounted prices on certain premium and limited time menu items, (2) value
oriented promotions, (3) planned addition of new menu items, including
reintroduction of "sub" sandwiches, (4) limited time values primarily on some of
our roast beef sandwiches and (5) a shift toward more product oriented national
television advertising. We believe that the higher fuel prices, although
recently alleviating somewhat, will continue to temper sales performance of our
franchisees.
Asset Management and Related Fees
Our asset management and related fees, which were generated entirely from
the management of CDOs and Funds following the Deerfield Acquisition, increased
$6.3 million to $13.2 million for the three months ended October 2, 2005 from
$6.9 million for the three months ended September 26, 2004. Approximately $2.9
million of this increase was due to the effect of including Deerfield in our
results for the full 2005 third quarter but only a portion of the 2004 third
quarter. Aside from the effect of the timing of the Deerfield Acquisition, asset
management and related fees increased approximately $3.4 million principally due
to asset management fees of $3.3 million from the REIT, which commenced in
December 2004. Assets under management for the REIT increased to $757.0 million
as of October 2, 2005, upon which we receive a 1.75% per annum management fee.
Deerfield may also receive a quarterly incentive fee if a specified rate of
return is met.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization resulted
entirely from the Company-owned restaurants. Cost of sales increased $107.3
million to $148.2 million for the three months ended October 2, 2005, resulting
in a gross margin of 28%, from $40.9 million for the three months ended
September 26, 2004, resulting in a gross margin of 22%. Of this increase, $107.5
million is attributable to the RTM Stores, which had a gross margin of 30%.
Aside from the effect of the RTM Acquisition, cost of sales decreased $0.2
million, or 1%, resulting in a gross margin of 23% for the Sybra Stores in the
2005 third quarter compared with 22% for the 2004 third quarter. Cost of sales
of the Sybra Stores decreased, despite the increase in their net sales discussed
above, due to the improvement in gross margin. We define gross margin as the
difference between net sales and cost of sales divided by net sales. The
improvement of 1% in the gross margin of the Sybra Stores is primarily
attributable to (1) improved product mix reflecting higher sales of combination
meals, which result in more sales of higher margin components and are emphasized
in our new menu board marketing, (2) improved oversight and training of store
management, (3) improved operational reporting made available by the back office
and point-of-sale restaurant systems implemented in the latter part of 2004,
which facilitated reduced food waste and labor efficiencies and (4) the partial
impact of price increases implemented primarily in the second half of 2004 for
some of our menu items. The gross margin for the RTM Stores was significantly
higher than that of the Sybra Stores due to RTM's relatively more effective
operational efficiencies resulting from management and procedural advantages as
well as higher average unit sales volumes of the RTM Stores which result in more
favorable cost leverage.
We expect our gross margin for the fourth quarter of 2005 will continue to
be favorably impacted as a result of the RTM Acquisition because of the
substantially higher gross margins of the RTM Stores compared with the Sybra
Stores and, to a lesser extent, continued operational efficiency improvements in
the Sybra Stores. As we implement the most effective of the operating procedures
of RTM in the Sybra Stores, we anticipate that their operational efficiency, as
a group, will improve steadily over the next 18 to 24 months and achieve gross
margin performance closer to those of the RTM Stores.
Cost of Services, Excluding Depreciation and Amortization
Our cost of services, excluding depreciation and amortization, which
resulted entirely from the management of CDOs and Funds following the Deerfield
Acquisition, increased $2.6 million to $4.6 million for the three months ended
October 2, 2005 from $2.0 million for the three months ended September 26, 2004.
Approximately $1.1 million of this increase was due to the Deerfield Acquisition
occurring in the 2004 third quarter. Aside from the effect of the timing of the
Deerfield Acquisition, cost of services increased approximately $1.5 million due
principally to the hiring of additional personnel to support our growth in
assets under management.
Advertising and Selling
Our advertising and selling expenses increased $11.1 million entirely due
to advertising expenses for the restaurants acquired in the RTM Acquisition.
General and Administrative, Excluding Depreciation and Amortization
Our general and administrative expenses, excluding depreciation and
amortization increased $27.8 million partially reflecting general and
administrative expenses of $11.6 million of RTM. Aside from the effect of the
RTM Acquisition, general and administrative expenses increased $16.2 million
principally due to (1) $6.6 million of employee related relocation, retention
and severance and consulting costs in the 2005 third quarter in connection with
combining our existing restaurant operations with RTM and relocating the
corporate office of our restaurant segment to Atlanta, Georgia, which is where
RTM is headquartered, (2) a $5.4 million increase in employee compensation
reflecting (a) a provision for stock-based compensation in the 2005 third
quarter related to 149,000 and 731,000 shares of our contingently issuable
performance-based restricted class A and class B common stock, respectively, as
discussed below, granted on March 14, 2005, (b) higher incentive compensation
costs and (c) increased headcount, (3) $1.4 million attributable to the timing
of the Deerfield Acquisition in the 2004 third quarter, (4) $1.1 million of rent
expense recognized in the 2005 third quarter related to a new corporate office
facility for which we entered into a lease and have access but have not yet
occupied, (5) a $1.0 million charitable contribution in the 2005 third quarter
in connection with the RTM Acquisition to The Arby's Foundation, Inc., a
not-for-profit charitable foundation, and (6) a $0.7 million increase in
deferred compensation expense. Deferred compensation expense of $0.2 million in
the 2004 third quarter and $0.9 million in the 2005 third quarter represents the
increase in the fair value of investments in two deferred compensation trusts,
which we refer to as the Deferred Compensation Trusts, for the benefit of our
Chairman and Chief Executive Officer and our President and Chief Operating
Officer, whom we refer to as the Executives, as explained in more detail below
under "Loss From Continuing Operations Before Benefit from Income Taxes and
Minority Interests."
The provision for stock-based compensation related to the restricted stock
was $2.2 million during the 2005 third quarter and may vary significantly during
the fourth quarter of 2005. These restricted shares vest ratably over three
years, subject to meeting, in each case, certain class B common share market
price targets of between $12.09 and $16.09 per share, or to the extent not
previously vested, on March 14, 2010 subject to meeting a class B common share
market price target of $18.50 per share. The provision for stock-based
compensation during the fourth quarter of 2005 will vary depending on the market
price of our class B common stock in relation to the market price targets upon
which vesting of the restricted shares is contingent and will be adjusted based
on the market price of the class B common stock at the end of the quarter.
We expect to incur approximately $7.0 million of additional costs in the
2005 fourth quarter, as well as $2.0 million in 2006, relating to the employee
related relocation, severance and retention and consulting costs discussed above
and corporate office relocation costs in connection with combining our existing
restaurant operations with RTM and relocating the corporate office of our
restaurant segment discussed above.
We are required to adopt Statement of Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" which we refer to as SFAS 123(R), no
later than our 2006 fiscal first quarter. As a result, we will be required to
measure the cost of employee services received in exchange for an award of
equity instruments, including grants of employee stock options and restricted
stock, based on the fair value of the award rather than its intrinsic value, the
method we are currently using. We currently expect that the adoption of this
accounting policy will materially increase the amount of compensation expense
recognized over the periods that the respective stock options and restricted
stock vest. Had we used the fair value alternative under the original Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," our pretax compensation expense using the Black-Scholes-Merton
option pricing model would have been $3.5 million higher for the 2005 third
quarter, or $2.2 million on an after-tax basis as set forth in the pro forma
disclosure in Note 2 to our accompanying condensed consolidated financial
statements. Although we still are evaluating the requirements of SFAS 123(R), we
expect that the adoption of SFAS 123(R) will have a material effect on our
consolidated results of operations and income (loss) per share.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $5.2 million due entirely to depreciation and
amortization of RTM.
Interest Expense
Interest expense increased $17.1 million reflecting (1) $6.1 million of
interest expense in the 2005 third quarter on debt securities sold with an
obligation to purchase or under agreements to repurchase in connection with the
use of leverage in the Opportunities Fund, which did not commence until October
2004, (2) the release in the 2004 third quarter of $4.3 million of interest
accruals no longer required upon the finalization by the Internal Revenue
Service of its examination of our Federal income tax returns for the years ended
December 31, 2000 and December 30, 2001, which we refer to as the IRS
Examination, which did not recur in the 2005 third quarter, (3) a $4.0 million
net increase in interest expense due to the July 2005 refinancing, which we
refer to as the Refinancing, of most of our restaurant segment's debt, including
some of the debt acquired of RTM and (4) $2.7 million of interest expense
relating to $182.1 million of sale-leaseback and capitalized lease obligations
of RTM which we acquired but which were not refinanced. The net increase in
interest expense due to the Refinancing, as discussed in more detail below and
under "Liquidity and Capital Resources - New Credit Agreement," reflects a
$351.6 million net increase in our level of new debt compared with our previous
debt that was refinanced due to (1) the refinancing of $212.0 million of
acquired debt of RTM and (2) $139.6 million of new debt proceeds used to fund a
portion of the purchase price in the RTM Acquisition and to pay related fees and
expenses, including $31.0 million related to the early extinguishment of debt
discussed below under "Loss on Early Extinguishment of Debt." This effect on
interest expense of the $351.6 million increased level of debt is partially
offset by the effect of the lower interest rate on the new debt.
Insurance Expense Related to Long-Term Debt
Insurance expense related to long-term debt decreased $0.4 million due to
its settlement upon the repayment of the related debt as part of the
Refinancing. All insurance costs relating to periods subsequent to the debt
repayment were paid in connection with the Refinancing and reported in "Loss on
early extinguishment of debt."
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt of $35.8 million in the three
months ended October 2, 2005 resulted from the Refinancing and consisted of
$27.4 million of prepayment penalties, $4.8 million of write-offs of previously
unamortized deferred financing costs, $3.5 million of insurance payments related
to the extinguished debt and $0.1 million of fees and other expenses.
Investment Income (Loss), Net
The following table summarizes and compares the major components of
investment income (loss), net:
Three Months Ended
---------------------------
September 26, October 2,
2004 2005 Change
---- ---- ------
(In Millions)
Interest income...........................................$ 3.3 $ 11.5 $ 8.2
Recognized net gains (losses)............................. (4.0) 2.0 6.0
Other than temporary unrealized losses.................... (3.7) (0.2) 3.5
Distributions, including dividends........................ 0.9 0.5 (0.4)
Other..................................................... (0.2) (0.2) --
---------- -------- ---------
$ (3.7) $ 13.6 $ 17.3
========== ======== =========
Interest income increased $8.2 million primarily due to an increase in
average rates on higher average balances of our interest-bearing investments
from 1.9% in the 2004 third quarter to 3.7% in the 2005 third quarter. The
higher average balances of our interest-bearing investments was due to the use
of leverage in the Opportunities Fund. However, the average balances of our
interest-bearing investments, net of related leveraging liabilities, decreased
principally due to the liquidation of some of our investments to provide cash
for the RTM Acquisition in July 2005. The increase in the average rates was
principally due to our investing through the Opportunities Fund in some higher
yielding, but more risk-inherent, debt securities with the objective of
improving the overall return on our interest-bearing investments, and the
general increase in the money market and short-term interest rate environment.
Our recognized net gains (losses) include (1) realized gains and losses on sales
of our available-for-sale securities and our investments accounted for under the
cost method of accounting and (2) realized and unrealized gains and losses on
changes in the fair values of our trading securities, including derivatives, and
our securities sold short with an obligation to purchase. The $6.0 million
improvement in our recognized net gains from recognized net losses was
principally due to $4.6 million of losses realized on the sale of two of our
available-for sale securities in the 2004 third quarter which did not recur in
the 2005 third quarter. All of these recognized gains and losses may vary
significantly in future periods depending upon the timing of the sales of our
investments or the changes in the value of our investments, as applicable. Our
other than temporary unrealized losses decreased $3.5 million reflecting the
recognition of $3.7 million of impairment charges in the 2004 third quarter
based on significant declines in market values of some of our more risk-inherent
available-for-sale debt securities, two available-for-sale investments in large
public companies and a cost method investment, compared with $0.2 million of
other than temporary unrealized losses in the 2005 third quarter. Any other than
temporary unrealized losses are dependent upon the underlying economics and/or
volatility in the value of our investments in available-for-sale securities and
cost-method investments and may or may not recur in future periods.
As of October 2, 2005, we had unrealized holding gains and (losses) on
available-for-sale marketable securities before income taxes and minority
interests of $9.2 million and $(1.1) million, respectively, included in
accumulated other comprehensive income. We evaluated the unrealized losses to
determine whether these losses were other than temporary and concluded that they
were not. Should either (1) we decide to sell any of these investments with
unrealized losses or (2) any of the unrealized losses continue such that we
believe they have become other than temporary, we would recognize the losses on
the related investments at that time.
Loss on Settlement of Unfavorable Franchise Rights
During the three months ended October 2, 2005, we recognized a loss on
settlement of unfavorable franchise rights of $17.0 million in connection with
the RTM Acquisition. This charge was recognized in accordance with accounting
principles generally accepted in the United States of America that require any
preexisting business relationship between the parties to a business combination
be evaluated and accounted for separately. Under this accounting guidance, the
franchise agreements acquired in the RTM Acquisition with royalty rates below
the current 4% royalty rate that we receive on new franchise agreements were
required to be valued and recognized as an expense and excluded from the
purchase price paid for RTM. The amount of the settlement loss represents the
estimated amount of royalties by which the royalty rate is unfavorable over the
remaining life of the franchise agreements.
Other Income, Net
Other income, net increased $0.7 million reflecting $0.4 million
attributable to RTM and $0.3 million of equity in earnings of the REIT, in which
we made an investment in December 2004.
Loss From Continuing Operations Before Benefit From Income Taxes and
Minority Interests
Our loss from continuing operations before benefit from income taxes and
minority interests increased $50.8 million to $54.6 million for the three months
ended October 2, 2005 from $3.8 million for the three months ended September 26,
2004 reflecting the loss on early extinguishment of debt of $35.8 million and
the loss on settlement of unfavorable franchise rights of $17.0 million, both in
connection with the RTM Acquisition, as well as the effect of the other
variances discussed in the captions above.
As discussed above, we recognized deferred compensation expense of $0.2
million in the 2004 third quarter and $0.9 million in the 2005 third quarter,
within general and administrative expenses, for increases in the fair value of
investments in the Deferred Compensation Trusts. Under accounting principles
generally accepted in the United States of America, we recognize investment
income for any interest or dividend income on investments in the Deferred
Compensation Trusts and realized gains on sales of investments in the Deferred
Compensation Trusts, but are unable to recognize any investment income for
unrealized increases in the fair value of the investments in the Deferred
Compensation Trusts because these investments are accounted for under the cost
method of accounting. We recognized net investment loss from investments in the
Deferred Compensation Trusts of $0.1 million in both the 2004 and 2005 third
quarters consisting of investment management fees. During both the 2004 and 2005
third quarters, interest and dividend income and related gains on sales of
investments related to investments in the Deferred Compensation Trusts were less
than $0.1 million. The cumulative disparity between deferred compensation
expense and net recognized investment income will reverse in future periods as
either (1) additional investments in the Deferred Compensation Trusts are sold
and previously unrealized gains are recognized without any offsetting increase
in compensation expense or (2) the fair values of the investments in the
Deferred Compensation Trusts decrease resulting in the recognition of a reversal
of compensation expense without any offsetting losses recognized in investment
income.
Benefit From Income Taxes
The benefit from income taxes represented an effective rate of 27% for the
three months ended October 2, 2005. The effective benefit rate in the 2005 third
quarter is lower than the Federal statutory rate of 35% due principally to (1)
$15.4 million of the loss on settlement of unfavorable franchise rights
discussed above that is not tax deductible, (2) the effect of non-deductible
compensation costs and (3) state income taxes, net of Federal income tax
benefit, due to the differing mix of pretax income or loss among the
consolidated entities which file state tax returns on an individual company
basis. These effects are partially offset by the effect of minority interests in
income of consolidated subsidiaries which are not taxable to us but which are
not deducted from the pretax loss used to calculate the effective tax rate. We
had a benefit from income taxes for the three months ended September 26, 2004
which greatly exceeded our pretax loss due to the release of $14.6 million of
income tax reserves related to our continuing operations which were no longer
required upon the finalization of the IRS Examination and a state income tax
examination and the expiration of the statute of limitations for examinations of
certain state income tax returns.
Minority Interests in Income of Consolidated Subsidiaries
The minority interests in income of consolidated subsidiaries increased
$1.8 million, reflecting $1.0 million due to participation of investors other
than us in the Opportunities Fund which did not commence until October 2004,
$0.5 million due to increased income of Deerfield and $0.3 million due to the
timing of the Deerfield Acquisition in the 2004 third quarter.
Gain on Disposal of Discontinued Operations
During the three months ended September 26, 2004, we recorded an additional
gain of $10.8 million on the disposal of our former beverage businesses
resulting from the release of income tax reserves which were no longer required
upon finalization of the IRS Examination and the expiration of the statute of
limitations for examinations of certain state income tax returns.
Net Income (Loss)
Our net income (loss) declined $64.4 million to a net loss of $42.5 million
for the three months ended October 2, 2005 from net income of $21.9 million for
the three months ended September 26, 2004 principally reflecting the after-tax
effects of $21.8 million from the loss on early extinguishment of debt and $16.4
million from the loss on settlement of unfavorable franchise rights, both in
connection with the RTM Acquisition, and the release of $14.6 million and $10.8
million of income tax reserves relating to continuing operations and
discontinued operations, respectively, in the 2004 third quarter which did not
recur in the 2005 third quarter.
Nine Months Ended October 2, 2005 Compared with Nine Months Ended
September 26, 2004
Net Sales
Our net sales, which were generated entirely from the Company-owned
restaurants, increased $160.6 million to $312.3 million for the nine months
ended October 2, 2005 from $151.7 million for the nine months ended September
26, 2004, reflecting $153.5 million of net sales attributable to the RTM Stores.
Aside from the effect of the RTM Acquisition, net sales increased $7.1 million
principally due to a growth in same-store sales of the Sybra Stores of
approximately 5% in the first nine months of 2005 compared with the first nine
months of 2004. The increase in same-store sales reflected (1) introductions of
new Market FreshTM wraps and sandwiches and other menu items since the third
quarter of 2004, (2) improved marketing including (a) an increase in print media
advertising, primarily couponing, and other marketing initiatives in the 2005
first quarter, (b) the implementation of new menu boards focused on combination
meals, (c) more focused value programs including multiple menu items offered
together at a discounted price supported by local marketing programs during the
2005 second and third quarters compared with the same quarters of 2004 and (d) a
redesigned national television advertising campaign which appeared to be more
effective in the 2005 first half and (3) operational initiatives targeting
continued improvement in customer service levels and convenience. The positive
effects of these factors were partially offset by (1) unfavorable performance in
Company-owned restaurants in the Michigan region during the 2005 third quarter,
an area where approximately one-third of our Sybra Stores are located and which
continues to be particularly impacted by high unemployment and (2) higher fuel
prices which caused a decrease in many consumers' discretionary income which we
believe had a negative impact on our sales during the 2005 third quarter.
Our net sales for the fourth quarter of 2005 will be significantly higher
than the fourth quarter of 2004 as a result of the RTM Acquisition. Aside from
the RTM Acquisition, we currently anticipate higher sales from continued
same-store sales growth for the Sybra Stores, although at a lesser rate than the
approximate 5% experienced during the first nine months of 2005, and planned
openings of Company-owned restaurants, all as discussed in the comparison of the
three-months. However, we are currently unable to estimate the full impact on
our business of Hurricane Wilma, as also discussed in the comparison of the
three-month periods.
Royalties and Franchise and Related Fees
Our royalties and franchise and related fees, which were generated entirely
from the franchised restaurants, decreased $2.4 million to $71.6 million for the
nine months ended October 2, 2005 from $74.0 million for the nine months ended
September 26, 2004, reflecting a $5.5 million decrease in royalties and
franchise and related fees from RTM from $22.0 million in the first nine months
of 2004 million to $16.5 million in the first nine months of 2005. This decrease
was principally due to the elimination in consolidation of $5.8 million of
royalties and franchise and related fees for the portion of the 2005 third
quarter subsequent to the RTM Acquisition. Aside from the effect of the RTM
Acquisition, royalties and franchise and related fees increased $3.1 million,
reflecting (1) a $1.9 million increase in royalties from the 86 restaurants
opened since September 26, 2004, with generally higher than average sales
volumes, replacing the royalties from the 57 generally underperforming
restaurants closed since September 26, 2004, (2) a $0.6 million improvement in
royalties as a result of slightly higher average royalty rates and (3) a $0.6
million increase in royalties due to a 1% increase in same-store sales of the
franchised restaurants, excluding the RTM Stores, in the first nine months of
2005 as compared with the first nine months of 2004. The increase in same-store
sales of the franchised restaurants reflects (1) new Market Fresh wraps and
sandwiches and other menu items introduced since the third quarter of 2004
discussed above under "Net Sales," (2) improved marketing reflecting (a) the
implementation of new menu boards focused on combination meals, (b) more
targeted and value oriented local marketing programs and (c) a redesigned
national television advertising campaign in 2005 which appeared to be more
effective in the 2005 first half and (3) operational initiatives targeting
continued improvement in customer service levels and convenience. Partially
offsetting these positive effects were (1) new product performance in the 2005
third quarter that was less successful than that of the 2004 third quarter,
which had particularly strong same-store sales performance and (2) higher fuel
prices which caused a decrease in many consumers' discretionary income which we
believe had a negative impact on our franchisees' sales in the 2005 third
quarter. Franchise and related fees were relatively unchanged between the
nine-month periods.
Our royalties and franchise and related fees will decrease significantly
in the 2005 fourth quarter as compared with the 2004 fourth quarter due to the
elimination in consolidation of royalties and franchise and related fees from
RTM in the 2005 fourth quarter partially offset by expected same-store sales
growth of the remaining franchised restaurants for the 2005 fourth quarter, all
as discussed in the comparison of the three-month periods.
Asset Management and Related Fees
Our asset management and related fees, which were generated entirely from
the management of CDOs and Funds following the Deerfield Acquisition, increased
$31.0 million to $37.9 million for the nine months ended October 2, 2005 from
$6.9 million for the nine months ended September 26, 2004. Approximately $27.6
million of this increase was due to the effect of including Deerfield in our
results following the July 22, 2004 acquisition date, which makes the prior
period non-comparable. Aside from this effect, asset management and related fees
increased approximately $3.4 million due principally to the increase in assets
under management of the REIT, as discussed in the comparison of the three-month
periods.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization resulted
entirely from the Company-owned restaurants. Cost of sales increased $108.5
million to $228.4 million for the nine months ended October 2, 2005, resulting
in a gross margin of 27%, from $119.9 million for the nine months ended
September 26, 2004, resulting in a gross margin of 21%. Of this increase, $107.5
million is attributable to the RTM Stores, which had a gross margin of 30%.
Aside from the effect of the RTM Acquisition, cost of sales increased $1.0
million, or 1%, resulting in a gross margin of 24% for the first nine months of
2005 compared with 21% for the first nine months of 2004. The increase in cost
of sales of the Sybra Stores is due to their increase in net sales discussed
above. The improvement of 3% in gross margin of the Sybra Stores is primarily
attributable to (1) improved product mix reflecting higher sales of combination
meals, which result in more sales of higher margin components and are emphasized
in our new menu board marketing, (2) improved oversight and training of store
management, (3) improved operational reporting made available by the back office
and point-of-sale restaurant systems implemented in the latter part of 2004,
which facilitated reduced food waste and labor efficiencies and (4) the partial
impact of price increases implemented primarily in the second half of 2004 for
some of our menu items. Partially offsetting these improvements were higher
costs related to incentive compensation as a result of improved performance of
the Sybra Stores. The gross margin for the RTM Stores was significantly higher
than that of the Sybra Stores as discussed in the comparison of the three-month
periods.
We expect our gross margin for the fourth quarter of 2005 will continue to
be favorably impacted as a result of the RTM Acquisition and, to a lesser
extent, continued improvement in the Sybra Stores, all as discussed in the
comparison of the three-month periods.
Cost of Services, Excluding Depreciation and Amortization
Our cost of services, excluding depreciation and amortization, which
resulted entirely from the management of CDOs and Funds following the Deerfield
Acquisition, increased $11.4 million to $13.4 million for the nine months ended
October 2, 2005 from $2.0 million for the nine months ended September 26, 2004.
Approximately $9.9 million of this increase was due to the effect of including
Deerfield in our results following the July 22, 2004 acquisition date, which
makes the prior period non-comparable. Aside from this effect, cost of services
increased approximately $1.5 million due principally to the hiring of additional
personnel to support our growth in assets under management.
Advertising and Selling
Our advertising and selling expenses increased $11.4 million almost
entirely due to advertising expenses for the restaurants acquired in the RTM
Acquisition.
General and Administrative, Excluding Depreciation and Amortization
Our general and administrative expenses, excluding depreciation and
amortization, increased $48.2 million partially reflecting general and
administrative expenses of $11.6 million of RTM. Aside from the effect of the
RTM Acquisition, general and administrative expenses increased $36.6 million
principally due to (1) a $15.9 million increase in employee compensation
reflecting (a) higher incentive compensation costs, (b) a provision for
stock-based compensation in the first nine months of 2005 related to 149,000 and
731,000 shares of our contingently issuable performance-based restricted class A
and class B common stock, respectively, as discussed below, granted on March 14,
2005 and (c) increased headcount, (2) $11.8 million attributable to the effect
of the Deerfield Acquisition occurring in the 2004 third quarter, (3) $6.6
million of employee related relocation, severance and retention and consulting
expenses in the 2005 third quarter in connection with combining our existing
restaurant operations with RTM and relocating the corporate office of our
restaurant segment to Atlanta, Georgia, (4) $1.1 million of rent expense
recognized in the 2005 third quarter related to a new corporate office facility
for which we entered into a lease and have access but have not yet occupied, (5)
a $1.0 million charitable contribution in the 2005 third quarter to The Arby's
Foundation, Inc. and (6) a $0.4 million increase in deferred compensation
expense. Deferred compensation expense of $1.2 million in the first nine months
of 2004 and $1.6 million in the first nine months of 2005 represents the
increase in the fair value of investments in the Deferred Compensation Trusts
for the benefit of the Executives, as explained in more detail below under "Loss
From Continuing Operations Before Benefit from Income Taxes and Minority
Interests."
The provision for stock-based compensation related to the restricted stock
was $4.5 million during the first nine months of 2005 and, as explained in more
detail in the comparison of the three-month periods, may vary significantly
during the 2005 fourth quarter. Also, as explained in more detail in the
comparison of the three-month periods, we currently expect that the adoption of
SFAS 123(R) no later than our 2006 first quarter will materially increase the
amount of compensation expense recognized over the periods that our outstanding
stock options and restricted stock vest.
We expect to incur approximately $7.0 million of additional costs in the
2005 fourth quarter, as well as $2.0 million in early 2006, in connection with
combining our existing restaurant operations with RTM and relocating the
corporate office of our restaurant segment, as discussed above and in the
comparison of the three-month periods.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs increased $9.5 million, principally reflecting $5.2 million of
depreciation and amortization of RTM and $2.8 million attributable to the timing
of the Deerfield Acquisition in the 2004 third quarter. Aside from the effects
of the RTM Acquisition and Deerfield Acquisition, depreciation and amortization
increased $1.5 million primarily due to an increase in depreciation and
amortization of properties and amortization of software including amounts
related to our back office and point-of-sale restaurant systems installed in the
second half of 2004.
Interest Expense
Interest expense increased $21.2 million reflecting (1) $11.0 million of
interest expense in the first nine months of 2005 on debt securities sold with
an obligation to purchase or under agreements to repurchase in connection with
the use of leverage in the Opportunities Fund, which did not commence until
October 2004, (2) the release in the 2004 third quarter of $4.3 million of
interest accruals no longer required upon the finalization of the IRS
Examination which did not recur in the first nine months of 2005, (3) a $4.0
million net increase in interest expense due to the Refinancing, as discussed in
more detail in the comparison of the three-month periods and under "Liquidity
and Capital Resources - New Credit Agreement" and (4) $2.7 million of interest
expense relating to $182.1 million of sale-leaseback and capitalized lease
obligations of RTM which we acquired but which were not refinanced. These
increases were partially offset by a $1.4 million decrease attributable to lower
outstanding amounts of a majority of our long-term debt during the first half of
2005 prior to the Refinancing.
Insurance Expense Related to Long-Term Debt
Insurance expense related to long-term debt decreased $0.6 million
principally due to its settlement upon the repayment of the related debt as part
of the Refinancing. All insurance costs relating to periods subsequent to the
debt repayment were paid in connection with the Refinancing and reported in
"Loss on early extinguishment of debt."
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt of $35.8 million in the nine
months ended October 2, 2005 resulted from the Refinancing and is discussed in
more detail in the comparison of the three-month periods.
Investment Income, Net
The following table summarizes and compares the major components of
investment income, net:
Nine Months Ended
---------------------------
September 26, October 2,
2004 2005 Change
---- ---- ------
(In Millions)
Interest income.............................................$ 11.7 $ 27.3 $ 15.6
Other than temporary unrealized losses...................... (6.5) (0.5) 6.0
Recognized net gains........................................ 0.4 2.6 2.2
Distributions, including dividends.......................... 2.4 1.5 (0.9)
Other....................................................... (0.6) (0.6) --
--------- -------- ---------
$ 7.4 $ 30.3 $ 22.9
========= ======== =========
Interest income increased $15.6 million principally due to an increase in
average rates on higher average balances of our interest-bearing investments
from 2.4% in the first nine months of 2004 to 3.5% in the first nine months of
2005. The higher average balances of our interest-bearing investments was due to
the use of leverage in the Opportunities Fund. However, the average balances of
our interest-bearing investments, net of related leveraging liabilities,
decreased principally due to the liquidation of some of our investments to
provide cash for the Deerfield Acquisition in July 2004 and the RTM Acquisition
in July 2005. The increase in the average rates was principally due to our
investing through the Opportunities Fund in some higher yielding, but more
risk-inherent, debt securities with the objective of improving the overall
return on our interest-bearing investments and the general increase in the money
market and short-term interest rate environment. Our other than temporary
unrealized losses, as discussed in more detail in the comparison of the
three-month periods, decreased $6.0 million reflecting the recognition of $6.5
million of impairment charges in the first nine months of 2004 based on
significant declines in the market values of some of our higher yielding
available-for-sale debt securities, two available-for-sale investments in large
public companies and a cost investment, compared with $0.5 million of other than
temporary unrealized losses in the first nine months of 2005 on our investments.
Our recognized net gains, as discussed in more detail in the comparison of the
three-month periods, increased $2.2 million principally reflecting $4.6 million
of losses realized on the sales of two of our available-for-sale securities in
the first nine months of 2004 which did not recur in the first nine months of
2005 partially offset by decreases during the first nine months of 2005 in net
realized and unrealized gains and losses on securities sold short with an
obligation to purchase of $1.5 million and realized gains on sales of
cost-method investments of $1.6 million. During the first nine months of 2004
our recognized net gains included a $0.8 million realized gain from the sale of
a cost-method investment held in the Deferred Compensation Trusts as discussed
in more detail below under "Loss from Continuing Operations Before Benefit From
Income Taxes and Minority Interests" while there was no similar gain in the
first nine months of 2005. All of these recognized gains and losses may vary
significantly in future periods depending upon the timing of the sales of our
investments, including investments in the Deferred Compensation Trusts, or the
changes in the value of our investments, as applicable.
As of October 2, 2005, we had pretax unrealized holding gains and (losses)
on available-for-sale marketable securities before income taxes and minority
interests of $9.2 million and $(1.1) million, respectively, included in
accumulated other comprehensive income. We evaluated the unrealized losses to
determine whether these losses were other than temporary and concluded that they
were not. Should either (1) we decide to sell any of these investments with
unrealized losses or (2) any of the unrealized losses continue such that we
believe they have become other than temporary, we would recognize the losses on
the related investments at that time.
Gain on Sale of Businesses
The gain on sale of businesses of $13.0 million for the first nine months
of 2005 consists of (1) $11.7 million of gains on sales of a portion of our
investment in Encore Capital Group, Inc., an equity investee of ours which we
refer to as Encore, and (2) $1.3 million of non-cash gains from (a) our equity
in the net proceeds to both the REIT and Encore from their sales of stock,
including exercises of stock options and shares issued for an Encore business
acquisition, over the portion of our respective carrying values allocable to our
decrease in ownership percentages and (b) the amortization of deferred gain on a
restricted Encore stock award to a then officer of ours. In accordance with our
accounting policy, we recognize a non-cash gain or loss upon sale by an equity
investee of any previously unissued stock to third parties to the extent of the
decrease in our ownership of the investee to the extent realization of the gain
is reasonably assured.
Loss on Settlement of Unfavorable Franchise Rights
During the nine months ended October 2, 2005, we recognized a loss on
settlement of unfavorable franchise rights of $17.0 million resulting from
royalty rates that were less than the current standard 4% rate in some of the
franchise agreements acquired in the RTM Acquisition, as discussed in more
detail in the comparison of the three-month periods.
Other Income, Net
Other income, net increased $1.0 million principally reflecting (1) $0.4
million of other income attributable to RTM, (2) the effect of $0.8 million of
costs recognized in the 2004 first quarter related to a proposed business
acquisition that we decided not to pursue and which did not recur in the 2005
period, (3) $0.7 million of equity in earnings of the REIT, in which we made an
investment in December 2004 and (4) a $0.3 million recovery in the 2005 first
half upon collection of a fully-reserved non-trade note receivable of Sybra
which predated our December 2002 acquisition of Sybra, all partially offset by
$1.5 million of costs recognized in the 2005 first half related to our decision
not to pursue a certain financing alternative in connection with the RTM
Acquisition.
Loss From Continuing Operations Before Benefit from Income Taxes and
Minority Interests
Our loss from continuing operations before benefit from income taxes and
minority interests increased $36.3 million to $45.5 million for the nine months
ended October 2, 2005 from $9.2 million for the nine months ended September 26,
2004 reflecting the loss on early extinguishment of debt of $35.8 million and
the loss on settlement of unfavorable franchise rights of $17.0 million, both in
connection with the RTM Acquisition, partially offset by the gain on sale of
businesses of $13.0 million, as well as the effect of the other variances
discussed in the captions above.
As discussed above, we recognized deferred compensation expense of $1.2
million in the first nine months of 2004 and $1.6 million in the first nine
months of 2005, within general and administrative expenses, for increases in the
fair value of investments in the Deferred Compensation Trusts. Under accounting
principles generally accepted in the United States of America, we recognize
investment income for any interest or dividend income on investments in the
Deferred Compensation Trusts and realized gains on sales of investments in the
Deferred Compensation Trusts, but are unable to recognize any investment income
for unrealized increases in the fair value of the investments in the Deferred
Compensation Trusts because these investments are accounted for under the cost
method of accounting. We recognized net investment income from investments in
the Deferred Compensation Trusts of $0.5 million in the first nine months of
2004 and net investment losses of $0.2 million in the first nine months of 2005.
The net investment income during the 2004 first half consisted of a $0.8 million
realized gain from the sale of a cost-method investment in the Deferred
Compensation Trusts referred to above under "Investment Income, Net," which
represented increases in value prior to that period, less $0.3 million of
investment management fees. The net investment loss during the first nine months
of 2005 consisted of investment management fees of $0.3 million, less interest
income of $0.1 million. The cumulative disparity between deferred compensation
expense and net recognized investment income will reverse in future periods as
either (1) additional investments in the Deferred Compensation Trusts are sold
and previously unrealized gains are recognized without any offsetting increase
in compensation expense or (2) the fair values of the investments in the
Deferred Compensation Trusts decrease resulting in the recognition of a reversal
of compensation expense without any offsetting losses recognized in investment
income.
Benefit From Income Taxes
The benefit from income taxes represented an effective rate of 26% for the
nine months ended October 2, 2005. The effective benefit rate in the first nine
months of 2005 is lower than the Federal statutory rate of 35% due principally
to (1) the effect of the non-deductible portion of $15.4 million of the loss on
settlement of unfavorable franchise rights discussed above, (2) the effect of
non-deductible compensation costs and (3) state income taxes, net of Federal
income tax benefit, due to the differing mix of pretax income or loss among the
consolidated entities which file state tax returns on an individual company
basis. These effects are partially offset by the effect of minority interests in
income of consolidated subsidiaries which are not taxable to us but which are
not deducted from the pretax loss used to calculate the effective tax rate. We
had a benefit from income taxes for the first nine months of 2004 which greatly
exceeded our pretax loss due to the release of $14.6 million of income tax
reserves related to our continuing operations which were no longer required upon
finalization of the IRS Examination and a state income tax examination and the
expiration of the statute of limitations for examinations of certain state
income tax returns.
Minority Interests in Income of Consolidated Subsidiaries
The minority interests in income of consolidated subsidiaries increased
$5.3 million, reflecting $3.3 million due to the timing of the Deerfield
Acquisition in the 2004 third quarter, which makes the first nine months
non-comparable, $1.5 million due to participation of investors other than us in
the Opportunities Fund which did not commence until October 2004 and $0.5
million due to increased income of Deerfield.
Gain on Disposal of Discontinued Operations
During the first nine months of 2004, we recorded an additional gain of
$10.8 million on the disposal of our former beverage businesses, as discussed in
more detail in the comparison of the three-month periods. During the first nine
months of 2005, we recorded an additional gain of $0.5 million on the disposal
of the former utility and municipal services and refrigeration business segments
of a wholly-owned subsidiary, resulting from the gain on sale of a former
refrigeration property that had been held for sale and the reversal of a related
reserve for potential environmental liabilities associated with the property
that were assumed by the buyer.
Net Income (Loss)
Our net income (loss) declined $56.9 million to a net loss of $39.4 million
for the nine months ended October 2, 2005 from net income of $17.5 million for
the nine months ended September 26, 2004 principally reflecting the after-tax
effects of $21.8 million from the loss on early extinguishment of debt and $16.4
million from the loss on settlement of unfavorable franchise rights, both in
connection with the RTM Acquisition, and the release of $14.6 million and $10.8
million of income tax reserves relating to continuing operations and
discontinued operations, respectively, in the first nine months of 2004 which
did not recur in the first nine months of 2005, all partially offset by an $8.3
million after-tax effect of the gain on sale of businesses in the first nine
months of 2005.
Liquidity and Capital Resources
Cash Flows from Continuing Operating Activities
Our consolidated operating activities from continuing operations used cash
and cash equivalents, which we refer to in this discussion as cash, of $509.1
million during the nine months ended October 2, 2005 principally reflecting a
net loss of $39.4 million and net operating investment adjustments of $490.9
million.
The net operating investment adjustments principally reflect net purchases
of trading securities and net settlements of trading derivatives, which were
principally funded by proceeds from net sales of repurchase agreements and the
net proceeds from securities sold short. Under accounting principles generally
accepted in the United States of America, the net purchases of trading
securities and the net settlements of trading derivatives must be reported in
continuing operating activities in the accompanying condensed consolidated
statements of cash flows. However, the net sales of repurchase agreements and
the net proceeds from securities sold short are reported in continuing investing
activities in the accompanying condensed consolidated statements of cash flows.
The cash used by changes in operating assets and liabilities reflects an $11.1
million decrease in trade and other receivables primarily resulting from
collections of asset management incentive fees receivable. Other adjustments
were principally due to non-cash adjustments for depreciation and amortization
of $23.2 million and minority interests in income of consolidated subsidiaries
of $6.0 million, partially offset by a deferred tax benefit of $13.1 million and
the classification of a gain on sale of businesses of $13.0 million as an
investing activity.
Excluding the effect of the net purchases of trading securities and net
settlements of trading derivatives, which represent the discretionary investment
of excess cash, our continuing operating activities used cash of $20.9 million
in the first nine months of 2005. We expect positive cash flows from continuing
operating activities for the fourth quarter of 2005, excluding the effect, if
any, of net sales or purchases of trading securities, reflecting improved
operating results before net non-cash charges since we do not expect certain
significant charges related to the RTM Acquisition and a related debt
refinancing (see "New Credit Agreement" below) to recur in the 2005 fourth
quarter.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$365.9 million at October 2, 2005, reflecting a current ratio, which equals
current assets divided by current liabilities, of 1.3:1. Working capital at
October 2, 2005 decreased $98.0 million from $463.9 million at January 2, 2005,
primarily resulting from the excess of $94.6 million of current liabilities
assumed over current assets acquired in the acquisition of RTM (see below).
Our total capitalization at October 2, 2005 was $1,410.9 million,
consisting of stockholders' equity of $406.0 million, long-term debt of $996.3
million, including current portion, and notes payable of $8.6 million. Our total
capitalization at October 2, 2005 increased $608.8 million from $802.1 million
at January 2, 2005 principally due to (1) the net increase in long-term debt,
including current portion, of $512.6 million primarily due to the long-term debt
assumed in the acquisition of RTM and the increase in long-term debt in
connection with a refinancing of the Company's long-term debt and (2) the
issuance from treasury of 9,684,000 shares of our Class B Common Stock for a
portion of the purchase price for RTM with a fair value aggregating $145.3
million, partially offset by our net loss of $39.4 million.
RTM Acquisition
On July 25, 2005, we completed the acquisition of substantially all of the
equity interests or the assets of entities comprising RTM. RTM was the largest
franchisee of Arby's restaurants with 775 Arby's in 22 states as of the date of
acquisition. The total consideration in connection with the RTM Acquisition is
currently estimated to be $369.5 million, subject to a post-closing adjustment,
consisting of (1) $175.0 million in cash, (2) 9,684,000 shares of our class B
common stock issued from treasury with a fair value of $145.3 million as of July
25, 2005 based on the closing price of our class B common stock on that date of
$15.00 per share, (3) the payment of $21.8 million of debt, including related
accrued interest and prepayment penalties, that was not an obligation of the
entities included in the RTM Acquisition (4) the vested portion of stock options
to purchase 774,000 shares of our class B common stock with a fair value of $4.1
million as of July 25, 2005, issued in exchange for existing RTM stock options
and (5) $23.3 million of related estimated expenses. The total consideration
represents $17.0 million for the settlement loss from unfavorable franchise
rights and $352.5 million for the aggregate purchase price of RTM. The
settlement loss is discussed above in "Results of Operations" - "Loss on
Settlement of Unfavorable Franchise Rights." RTM's results of operations and
cash flows subsequent to the July 25, 2005 date of the RTM Acquisition have been
included in our condensed consolidated results of operations and cash flows.
New Credit Agreement
In connection with the RTM Acquisition, we entered into a new credit
agreement, which we refer to as the Credit Agreement, for our restaurant
business segment. The Credit Agreement includes a senior secured term loan
facility in the aggregate principal amount of $620.0 million, which we refer to
as the Term Loan, of which $618.5 million is outstanding as of October 2, 2005
and a senior secured revolving credit facility of $100.0 million, none of which
is outstanding. The proceeds of the Term Loan, together with other cash
resources, were used to fund the $175.0 million cash portion of the purchase
price for RTM and to refinance $268.4 million of then existing debt of our
restaurant segment and $212.0 million of RTM debt. The $268.4 million of debt of
our restaurant segment that was refinanced consisted of $198.1 million of
insured non-recourse securitization notes, $67.4 million of leasehold notes,
equipment notes and mortgage notes and $2.9 million of other mortgage notes. The
Term Loan is due $1.6 million during the 2005 fourth quarter, $6.2 million in
each of 2006 through 2010, $294.5 million in 2011 and $291.4 million in 2012.
However, the Term Loan requires prepayments of principal amounts resulting from
certain events and, beginning in 2007, from excess cash flow of the restaurant
segment as determined under the Credit Agreement. The Term Loan bears interest
at our option at either (1) LIBOR plus 2.00% or 2.25% depending on the leverage
ratio or (2) the higher of a base rate determined by the administrative agent
for the Credit Agreement or the Federal Funds rate plus 0.50%, in either case
plus 1.00% or 1.25% depending on the leverage ratio. However, in connection with
the terms of the Credit Agreement, we entered into an interest rate swap
agreement during the 2005 third quarter that fixed the LIBOR interest rate at
4.12% on $100.0 million of the outstanding principal amount until September 30,
2008 and subsequent to October 2, 2005 we entered into two additional interest
rate swap agreements that fixed the LIBOR interest rate at 4.60% on $105.0
million of the outstanding principal amount until October 30, 2008. In addition,
we incurred $13.3 million of estimated expenses related to the Credit Agreement
which have been deferred and are being amortized as interest expense using the
interest rate method over the life of the Term Loan.
The obligations under the Credit Agreement are secured by substantially
all of the assets, other than real property, of our restaurant segment and are
also guaranteed by substantially all of the entities comprising the restaurant
segment. Triarc, however, is not a party to the guarantees.
Convertible Notes
We have outstanding $175.0 million of 5% convertible notes due 2023, which
we refer to as the Convertible Notes, which do not have any scheduled principal
repayments prior to 2023. However, the Convertible Notes are redeemable at our
option commencing May 20, 2010 and at the option of the holders on May 15, 2010,
2015 and 2020 or upon the occurrence of a fundamental change, as defined,
relating to us, in each case at a price of 100% of the principal amount of the
Convertible Notes plus accrued interest.
Sale-Leaseback Obligations
We have outstanding $145.1 million of sale-leaseback obligations as of
October 2, 2005, which relate to RTM and are due through 2027, of which $0.3
million is due in the 2005 fourth quarter.
Capitalized Lease Obligations
We have outstanding $40.5 million of capitalized lease obligations as of
October 2, 2005, which principally relate to RTM and extend through 2030.
Other Long-Term Debt
We have a secured bank term loan payable through 2008 with an outstanding
principal amount of $9.4 million as of October 2, 2005. We also have a secured
promissory note payable through 2006 with an outstanding principal amount of
$7.8 million as of October 2, 2005.
Notes Payable
We have outstanding $8.6 million of notes payable as of October 2, 2005
which relate to Deerfield and are secured by short-term investments in preferred
shares of CDOs with a carrying value of $15.2 million as of October 2, 2005.
These notes must be repaid from a portion or all of the distributions on, or
sales proceeds from, those investments and a portion of the total asset
management fees received from the respective CDOs.
Revolving Credit Facilities
Our $100.0 million revolving credit facility is currently fully available
for borrowing.
Debt Repayments and Covenants
Our total scheduled long-term debt and notes payable repayments during the
2005 fourth quarter, are $5.2 million consisting of $1.6 million under our Term
Loan, $0.3 million relating to sale-leaseback obligations, $0.3 million relating
to capitalized leases, $0.8 million under our secured bank term loan, $0.6
million under our secured promissory note and $1.6 million expected to be paid
under our notes payable.
Our Credit Agreement contains various covenants relating to our restaurant
segment, the most restrictive of which (1) require periodic financial reporting,
(2) require meeting certain leverage and interest coverage ratio tests, and (3)
restrict, among other matters, (a) the incurrence of indebtedness, (b) certain
asset dispositions, (c) certain affiliate transactions, (d) certain investments,
(e) certain capital expenditures and (f) the payment of dividends to Triarc. We
were in compliance with all of these covenants as of October 2, 2005.
Contractual Obligations
The only significant changes to our contractual obligations since January
2, 2005, as disclosed in Item 7 of our 2004 Form 10-K, resulted from the RTM
Acquisition on July 25, 2005 and our debt refinancing. The table below
summarizes the increases and (decreases) to the expected payments under our
contractual obligations as of January 2, 2005 resulting from the RTM Acquisition
and our debt refinancing.
Fiscal Years
-------------------------------------------------------
2005 2006-2007 2008-2009 After 2009 Total
---- --------- --------- ---------- -----
(In Millions)
Long-term debt (a)........................$ (10.1) $ (56.0) $ (64.8) $ 482.5 $ 351.6
Sale-leaseback obligations (b)............ 0.4 2.4 3.4 45.9 52.1
Capitalized leases obligations (c)........ 0.3 1.6 2.3 35.9 40.1
Operating leases (d)...................... 20.4 84.5 70.0 238.9 413.8
-------- --------- --------- --------- ----------
Total...................................$ 11.0 $ 32.5 $ 10.9 $ 803.2 $ 857.6
======== ========= ========= ========= ==========
(a) Excludes sale-leaseback and capitalized lease obligations, which are
shown separately in the table, and interest.
(b) Excludes interest and residual value of land at end of lease term of
$90.0 million.
(c) Excludes interest.
(d) Represents the future minimum rental obligations including $8.4 million
of unfavorable lease amounts we have provided and which will not be
included in rent expense in future periods. In addition, these amounts
have not been decreased by $70.5 million of related sublease rental
receipts.
Guarantees and Commitments
Our wholly-owned subsidiary, National Propane Corporation, which we refer
to as National Propane, retains a less than 1% special limited partner interest
in our former propane business, now known as AmeriGas Eagle Propane, L.P., which
we refer to as AmeriGas Eagle. National Propane agreed that while it remains a
special limited partner of AmeriGas Eagle, it would indemnify the owner of
AmeriGas Eagle for any payments the owner makes related to the owner's
obligations under certain of the debt of AmeriGas Eagle, aggregating
approximately $138.0 million as of October 2, 2005, if AmeriGas Eagle is unable
to repay or refinance such debt, but only after recourse by the owner to the
assets of AmeriGas Eagle. National Propane's principal asset is an intercompany
note receivable from Triarc in the amount of $50.0 million as of October 2,
2005. We believe it is unlikely that we will be called upon to make any payments
under this indemnity. Either National Propane or AmeriGas Propane L.P., which we
refer to as AmeriGas Propane, may require AmeriGas Eagle to repurchase the
special limited partner interest. However, we believe it is unlikely that either
party would require repurchase prior to 2009 as either AmeriGas Propane would
owe us tax indemnification payments if AmeriGas Propane required the repurchase
or we would accelerate payment of deferred taxes of $36.1 million as of October
2, 2005, associated with the sale, prior to 2004, of our former propane business
if National Propane required the repurchase.
Triarc guaranteed mortgage notes payable through 2015 related to 355
restaurants we sold to RTM in 1997. As a result of our debt refinancing, on July
26, 2005 the mortgage notes were repaid and, accordingly, we no longer have the
related guarantee. RTM also assumed substantially all of the associated lease
obligations, although Arby's, LLC remained contingently liable if RTM did not
make the required lease payments. As a result of the RTM Acquisition, we are now
directly responsible for these lease obligations, which aggregated approximately
$48.0 million as of October 2, 2005.
Subsequent to October 2, 2005, we entered into an agreement with a finance
company to provide $25 million of financing to support store-remodeling efforts
of our franchisees. We are providing credit support for this program of up to $5
million in the aggregate by effectively guaranteeing the first $5 million of any
potential losses to the finance company on funds advanced under the program. In
order to borrow under the program, franchisees will be subject to review and
approval by both the finance company and us. Franchisees must meet minimum
capitalization requirements, agree to restrictions on changes in capitalization
and provide periodic financial reporting to participate in the program.
Capital Expenditures
Cash capital expenditures amounted to $13.8 million during the first nine
months of 2005. We expect that cash capital expenditures will be approximately
$23.0 million during the 2005 fourth quarter principally relating to (1) the
opening of 21 new Company-owned restaurants and remodeling some of our existing
restaurants, (2) leasehold improvements for the restaurant segment's recently
leased corporate office facility and (3) maintenance capital expenditures for
our Company-owned restaurants. We have $10.7 million of outstanding commitments
for these capital expenditures as of October 2, 2005.
Investments and Potential Acquisitions
In July 2004 we acquired a 25% equity interest, with a 14.3% general
voting interest, in Jurlique, a privately held Australian skin and beauty
products company, for $25.6 million, including expenses of $0.4 million. In July
2004 we paid $13.3 million, including expenses of $0.4 million, and in July 2005
we made the final payment of $12.3 million. On July 28, 2005, we made an
additional investment in Jurlique of $4.5 million increasing our equity interest
to 29.0%, with a 15.0% general voting interest. We are accounting for Jurlique
under the cost method since our voting stock interest of 15.0% as of October 2,
2005, does not provide us the ability to exercise significant influence over
Jurlique's operating and financial policies. In addition, in 2004 we entered
into a put and call arrangement on a portion of our investment whereby we have
limited the overall foreign currency risk of holding the investment through July
2007.
As of October 2, 2005, we had $538.5 million of cash and cash equivalents,
restricted cash equivalents, investments other than investments held in deferred
compensation trusts and receivables from sales of investments, net of
liabilities related to investments. This amount includes $95.2 million invested
in the Opportunities Fund and $4.8 million in DM Fund, LLC, which are both
managed by Deerfield and consolidated by us and which we have agreed not to
withdraw before October 4, 2006. We continue to evaluate strategic opportunities
for the use of our significant cash and investment position, including
additional business acquisitions, a potential corporate restructuring as
discussed above under "Introduction and Executive Overview," repurchases of
Triarc common stock (see "Treasury Stock Purchases" below) and investments.
Dividends
On March 15, 2005 and June 15, 2005, we paid regular quarterly cash
dividends of $0.065 and $0.075 per share, respectively, and on September 15,
2005 we paid regular quarterly cash dividends of $0.08 and $0.09 per share on
our class A and class B common stock, respectively, aggregating $15.9 million,
including $1.2 million of dividends paid on our class A and class B common stock
held in two deferred compensation trusts. On November 10, 2005, we declared
regular quarterly cash dividends of $0.08 and $0.09 per share on our class A and
class B common stock, respectively, to holders of record on December 2, 2005 and
payable on December 15, 2005. We currently intend to continue to declare and pay
quarterly cash dividends; however, there can be no assurance that any dividends
will be declared or paid in the future or of the amount or timing of such
dividends, if any. Our total cash requirement for cash dividends for the 2005
fourth quarter, based on the number of our class A and class B common shares
outstanding as of October 31, 2005, would be $6.6 million, including $0.4
million of dividends on our class A and class B common stock held in the two
deferred compensation trusts.
Treasury Stock Purchases
Our management is currently authorized, when and if market conditions
warrant and to the extent legally permissible, to repurchase through June 30,
2006 up to a total of $50.0 million of our class A and class B common stock.
However, due to the previously announced potential corporate restructuring,
previously discussed above under "Introduction and Executive Overview," we
expect to be precluded from repurchasing shares at certain times. We did not
make any treasury stock purchases during the first nine months of 2005 and we
cannot assure you that we will repurchase any shares under this program in the
future.
Universal Shelf Registration Statement
In December 2003, the Securities and Exchange Commission declared
effective a Triarc universal shelf registration statement in connection with the
possible future offer and sale, from time to time, of up to $2.0 billion of our
common stock, preferred stock, debt securities and warrants to purchase any of
these types of securities. Unless otherwise described in the applicable
prospectus supplement relating to the offered securities, we anticipate using
the net proceeds of each offering for general corporate purposes, including
financing of acquisitions and capital expenditures, additions to working capital
and repayment of existing debt. We have not presently made any decision to issue
any specific securities under this universal shelf registration statement.
Cash Requirements
Our consolidated cash requirements for continuing operations for the 2005
fourth quarter, exclusive of operating cash flow requirements, consist
principally of (1) a maximum of an aggregate $50.0 million of payments for
repurchases of our class A and class B common stock for treasury under our
current stock repurchase program, (2) cash capital expenditures of approximately
$23.0 million, (3) regular quarterly cash dividends aggregating approximately
$6.6 million, (4) scheduled debt principal repayments aggregating $5.2 million
and (5) the cost of additional business acquisitions, if any. We anticipate
meeting all of these requirements through (1) the use of our liquid net current
assets, (2) cash flows from continuing operating activities, if any, (3) our
$100.0 million revolving credit facility and (4) if necessary for any business
acquisitions and if market conditions permit, borrowings including proceeds from
sales, if any, of up to $2.0 billion of our securities under the universal shelf
registration statement.
Consolidation of Opportunities Fund
We consolidate the Opportunities Fund since we currently have a majority
voting interest of 77.9%. Our voting interest decreased from 95.2% at July 3,
2005 due to investments from third party investors during the 2005 third quarter
and we continue to market the Opportunities Fund to other investors. Should the
sales of equity interests in the Opportunities Fund result in us owning less
than a majority voting interest, we would no longer consolidate the
Opportunities Fund. However, no assurance can be given that this will occur. If
this does occur, we will account for our investment in the Opportunities Fund
under the equity method of accounting on a prospective basis from the date of
deconsolidation.
Legal and Environmental Matters
In 2001, a vacant property owned by Adams Packing Association, Inc., which
we refer to as Adams Packing, an inactive subsidiary of ours, was listed by the
United States Environmental Protection Agency on the Comprehensive Environmental
Response, Compensation and Liability Information System, which we refer to as
CERCLIS, list of known or suspected contaminated sites. The CERCLIS listing
appears to have been based on an allegation that a former tenant of Adams
Packing conducted drum recycling operations at the site from some time prior to
1971 until the late 1970's. The business operations of Adams Packing were sold
in December 1992. In February 2003, Adams Packing and the Florida Department of
Environmental Protection, which we refer to as the Florida DEP, agreed to a
consent order that provided for development of a work plan for further
investigation of the site and limited remediation of the identified
contamination. In May 2003, the Florida DEP approved the work plan submitted by
Adams Packing's environmental consultant and during 2004 the work under that
plan was completed. Adams Packing submitted its contamination assessment report
to the Florida DEP in March 2004. In August 2004, the Florida DEP agreed to a
monitoring plan consisting of two sampling events which occurred in January and
June 2005 and the results have been submitted to the Florida DEP for its review,
after which it will reevaluate the need for additional assessment or
remediation. Based on provisions made prior to 2004 of $1.7 million for those
costs and after taking into consideration various legal defenses available to
us, including Adams Packing, Adams Packing has provided for its estimate of its
remaining liability for completion of this matter. Through October 2, 2005, we
have not received any further communication from the FDEP.
In 1998, a number of class action lawsuits were filed on behalf of our
stockholders. Each of these actions named us, the Executives and other members
of our then board of directors as defendants. In 1999, certain plaintiffs in
these actions filed a consolidated amended complaint alleging that our tender
offer statement filed with the Securities and Exchange Commission in 1999,
pursuant to which we repurchased 3,805,015 shares of our class A common stock,
failed to disclose material information. The amended complaint seeks, among
other relief, monetary damages in an unspecified amount. In 2000, the plaintiffs
agreed to stay this action pending determination of a related stockholder action
that was subsequently dismissed in October 2002 and is no longer being appealed.
On October 24, 2005, the plaintiffs filed a motion to dismiss the remaining
class action lawsuit as moot, but maintaining the ability to seek recovery of
their legal fees and expenses.
In addition to the environmental matter and stockholder lawsuit described
above, we are involved in other litigation and claims incidental to our current
and prior businesses. We and our subsidiaries have reserves for all of our legal
and environmental matters aggregating $1.3 million as of October 2, 2005.
Although the outcome of these matters cannot be predicted with certainty and
some of these matters may be disposed of unfavorably to us, based on currently
available information, including legal defenses available to us and/or our
subsidiaries, and given the aforementioned reserves, we do not believe that the
outcome of these legal and environmental matters will have a material adverse
effect on our consolidated financial position or results of operations.
Seasonality
Our continuing operations are not significantly impacted by seasonality.
However, our restaurant revenues are somewhat lower in our first quarter.
Further, while our asset management business is not directly affected by
seasonality, our asset management revenues are higher in our fourth quarter as a
result of our revenue recognition accounting policy for incentive fees related
to the Funds which are based upon performance and are recognized when the
amounts become fixed and determinable upon the close of a performance period.
Recently Issued Accounting Pronouncements
In March 2004, the Financial Accounting Standards Board, which we refer to
as the FASB, ratified the consensus reached by the Emerging Issues Task Force on
issue 03-1, "The Meaning of Other-Than-Temporary Impairment and its Application
to Certain Investments," which we refer to as EITF 03-1. EITF 03-1 provides
guidance on evaluating whether an investment is other-than-temporarily impaired.
The recognition and measurement provisions of EITF 03-1, which were to be
effective for periods beginning after June 15, 2004, were delayed by the FASB
pending further guidance. During the period of delay, we will continue to
evaluate our investments as required by existing authoritative guidance,
including Securities and Exchange Commission Staff Accounting Bulletin Topic 5M,
"Other Than Temporary Impairment of Certain Investments in Debt and Equity
Securities." We do not expect that the recognition and measurement provisions of
EITF 03-1 will have a significant effect on our consolidated financial position
or results of operations if and when they become effective, since the principles
we use to measure any other than temporary impairment losses are generally
consistent with those proposed in EITF 03-1.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment," which we refer to as
SFAS 123(R), which revises SFAS No. 123, "Accounting for Stock-Based
Compensation", which we refer to as SFAS 123, and supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
which we refer to as APB 25. The requirements of SFAS 123(R) are similar to
those of SFAS 123, except that SFAS 123(R) generally requires companies to
measure the cost of employee services received in exchange for a grant of equity
instruments, including grants of employee stock options and restricted stock,
based on the fair value of the award using an appropriate fair value
option-pricing model. We currently use the intrinsic value method of measuring
these grants under APB 25, which will no longer be an alternative to the fair
value method under SFAS 123(R). In April 2005, the Securities and Exchange
Commission adopted an amendment to Rule 4-01(a) of Regulation S-X that defers
the required effective date of SFAS 123(R) for us to no later than our first
fiscal quarter of 2006. Upon adoption of SFAS 123(R), we currently expect to use
the modified prospective application method, which applies to new grants and to
grants modified, repurchased, or cancelled after the effective date of SFAS
123(R). Under this method, the fair value of all grants vesting on or after the
adoption date will be included in the determination of our results of
operations. The total estimated compensation cost relating to nonvested grants
that will be recognized commencing on January 1, 2006 is $17.9 million, which
will be amortized to expense over the current vesting periods of the grants
through our third fiscal quarter of 2008 assuming no changes are made to the
current vesting. Any employee stock compensation grants on or after January 2,
2006 will be valued in accordance with SFAS 123(R). Although we are still
evaluating the requirements of SFAS 123(R), we expect that the adoption of SFAS
123(R) will have a material effect on our consolidated results of operations and
income (loss) per share.
In May 2005, the FASB issued Statement of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections", which we refer to as SFAS
154. SFAS 154 replaces Accounting Principles Board Opinion No. 20, "Accounting
Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements" and changes the requirements for the accounting for and reporting of
a change in accounting principle. SFAS 154 applies to all voluntary changes in
accounting principles and to changes required by an accounting pronouncement in
the unusual case when specific transition provisions are not provided by the
accounting pronouncement. SFAS 154 requires retrospective application to prior
periods' financial statements for a change in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. Under SFAS 154, a change in the method of applying an
accounting principle would also be considered a change in accounting principle.
SFAS 154 is effective commencing with our first fiscal quarter of 2006. We
presently do not believe that the adoption of SFAS 154 will have any immediate
effect on our consolidated financial position or results of operations since we
do not currently anticipate changing any accounting methods or principles except
for the adoption of SFAS 123(R) which provides specific transition provisions.
In July 2005, the FASB issued FASB Staff Position No. APB 18-1,
"Accounting by an Investor for Its Proportionate Share of Accumulated Other
Comprehensive Income of an Investee Accounted for under the Equity Method in
Accordance with APB Opinion No. 18 upon a Loss of Significant Influence," which
we refer to as FSP 18-1. Under FSP 18-1 an investor's proportionate share of an
investee's equity adjustments for other comprehensive income or loss should be
offset against the carrying value of the investment at the time significant
influence is lost. To the extent that the offset results in a carrying value of
the investment that is less than zero, an investor should (a) reduce the
carrying value of the investment to zero and (b) record the remaining balance in
its results of operations. FSP 18-1 is effective commencing with our 2005 fourth
quarter. We presently do not believe that the adoption of FSP 18-1 will have any
immediate effect on our consolidated financial position or results of operations
since we do not currently expect to lose significant influence over our equity
method investments. Furthermore, should we lose significant influence over our
equity method investments, since the proportional share of our investee's equity
adjustments for other comprehensive loss is not significant and is significantly
below the carrying value of those investments, the effect of adopting FSP 18-1
would not have a material effect on our consolidated financial position or
results of operations.
In October 2005, the FASB issued FASB Staff Position No. FAS 13-1,
"Accounting for Rental Costs during a Construction Period," which we refer to as
FSP 13-1. FSP 13-1 addresses rental costs associated with land or building
operating leases that are incurred during a construction period and address
whether a lessee may capitalize such rental costs. FAS 13-1 requires that such
rental costs be recognized as rental expense and not capitalized. FSP 13-1 is
effective commencing with our first fiscal quarter of 2006. Currently, we are
recognizing any such costs as rental expense and, accordingly, believe that the
adoption of FSP 13-1 will not have any effect on our consolidated financial
position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This "Quantitative and Qualitative Disclosures about Market Risk" has been
presented in accordance with Item 305 of Regulation S-K promulgated by the
Securities and Exchange Commission and should be read in conjunction with "Item
7A. Quantitative and Qualitative Disclosures about Market Risk" in our annual
report on Form 10-K for the fiscal year ended January 2, 2005. Item 7A of our
Form 10-K describes in more detail our objectives in managing our interest rate
risk with respect to long-term debt, as referred to below, our commodity price
risk, our equity market risk and our foreign currency risk.
Certain statements we make under this Item 3 constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. See
"Special Note Regarding Forward-Looking Statements and Projections" in "Part II
- - Other Information" preceding "Item 1."
We are exposed to the impact of interest rate changes, changes in
commodity prices, changes in the market value of our investments and, to a
lesser extent, foreign currency fluctuations. In the normal course of business,
we employ established policies and procedures to manage our exposure to these
changes using financial instruments we deem appropriate. We had no significant
changes in our management of, or our exposure to, commodity price risk, equity
market risk or foreign currency risk during the nine months ended October 2,
2005.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to limit
their impact on our earnings and cash flows. We have historically used interest
rate cap and/or interest rate swap agreements on a portion of our variable-rate
debt to limit our exposure to the effects of increases in short-term interest
rates on our earnings and cash flows. As of October 2, 2005, our notes payable
and long-term debt, including current portion, aggregated approximately $1.0
billion and consisted of $627.9 million of variable-rate debt, $182.8 million of
fixed-rate debt, $185.6 million of capitalized lease and sale-leaseback
obligations and $8.6 million of variable-rate notes payable. We continue to have
an interest rate swap agreement, with an embedded written call option, in
connection with our variable-rate bank loan of which $9.4 million principal
amount was outstanding as of October 2, 2005, which effectively establishes a
fixed interest rate on this debt so long as the one-month London Interbank
Offered Rate (LIBOR) is below 6.5%. In addition, in connection with our
acquisition of RTM Restaurant Group on July 25, 2005, we borrowed $620.0 million
under a new variable-rate seven-year senior secured term loan facility of which
$618.5 million is outstanding as of October 2, 2005. We used a substantial
portion of the term loan to refinance $268.4 million of our existing fixed-rate
debt and $212.0 million of RTM debt that we assumed. The term loan currently
bears interest at LIBOR plus 2.25%. In connection with the terms of the related
credit agreement, we entered into an interest rate swap agreement during the
three months ended October 2, 2005 that fixed the LIBOR interest rate at 4.12%
on $100.0 million of the outstanding principal amount until September 30, 2008
and subsequent to October 2, 2005 we entered into two additional interest rate
swap agreements that fixed the LIBOR interest rate at 4.60% on an additional
$105.0 million of the outstanding principal amount until October 30, 2008. The
interest rate swap agreements related to the term loans were designated as cash
flow hedges and, accordingly, are recorded at fair value with changes in fair
value recorded through the accumulated other comprehensive income component of
stockholders' equity in our accompanying condensed consolidated balance sheet to
the extent of the effectiveness of these hedges. Any ineffective portion of the
change in fair value of these hedges, of which there was none significant in the
period ended October 2, 2005, would be recorded in our results of operations.
The fair value of our fixed-rate debt will increase if interest rates decrease.
In addition to our fixed-rate and variable-rate debt, our investment portfolio
includes debt securities that are subject to interest rate risk with remaining
maturities which range from less than ninety days to approximately thirty-one
years. See below for a discussion of how we manage this risk. The fair market
value of our investments in fixed-rate debt securities will decline if interest
rates increase.
Foreign Currency Risk
We had no significant changes in our management of, or our exposure to,
foreign currency fluctuations during the first nine months of 2005. However, in
July 2005 we paid the second half of the purchase price in Australian dollars
for our 2004 investment in Jurlique International Pty Ltd., an Australian
company, and settled a forward contract whereby we had fixed the exchange rate
for payment of this liability. In addition, on July 28, 2005 we made an
additional $4.5 million investment in Jurlique, thus increasing our exposure to
foreign currency risk. Our existing put and call arrangement on a portion of our
original cost related to this investment, whereby we have limited the overall
foreign currency risk of holding the investment through July 5, 2007, does not
relate to the additional $4.5 million investment.
Overall Market Risk
We balance our exposure to overall market risk by investing a portion of
our portfolio in cash and cash equivalents with relatively stable and
risk-minimized returns. We periodically interview and select asset managers to
avail ourselves of potentially higher, but more risk-inherent, returns from the
investment strategies of these managers. We also seek to identify alternative
investment strategies that may earn higher returns with attendant increased risk
profiles for a portion of our investment portfolio. We regularly review the
returns from each of our investments and may maintain, liquidate or increase
selected investments based on this review and our assessment of potential future
returns. We are continuing to adjust our asset allocation to increase the
portion of our investments that offers the opportunity for higher, but more risk
inherent, returns. In that regard, in October 2004 we invested $100.0 million to
seed a new multi-strategy hedge fund, Deerfield Opportunities Fund, LLC, which
we refer to as the Opportunities Fund, which is managed by a subsidiary of ours
and is currently consolidated by us with minority interests to the extent of
participation by investors other than us. The Opportunities Fund invests
principally in various fixed income securities and their derivatives, as
opportunities arise. Further, the Opportunities Fund employs leverage in its
trading activities, including securities sold with an obligation to purchase or
under agreements to repurchase as well as the effective leverage represented by
the notional amounts of its various derivatives. The investments of the
Opportunities Fund are subject to interest rate risk and the inherent credit
risk related to the underlying creditworthiness of the various issuers. The
Opportunities Fund uses hedging strategies, including the derivatives it holds
and other asset/liability management strategies, to generally minimize its
overall interest rate risk while retaining an acceptable level of credit risk as
part of its technical trading strategies. The Opportunities Fund monitors its
overall credit risk and attempts to maintain an acceptable level of exposure
through diversification of credit positions by industry, credit rating and
individual issuer concentrations. In March 2005 we withdrew $4.8 million of our
investment from the Opportunities Fund to seed another new fund managed by
Deerfield and consolidated by us with minority interests. As of October 2, 2005,
the derivatives held in our short-term investment trading portfolios,
principally through the Opportunities Fund, consisted of (1) credit default
swaps, (2) bank loan total return swaps, (3) an option on an interest rate swap,
(4) options on foreign currency contracts and a foreign stock market index, (5)
futures contracts relating to interest rates, foreign currencies and United
States government debt securities and (6) forward contracts on foreign
currencies. We did not designate any of these strategies as hedging instruments
and, accordingly, all of these derivative instruments were recorded at fair
value with changes in fair value recorded in our results of operations.
We maintain investment holdings of various issuers, types and maturities.
As of October 2, 2005 these investments were classified in our condensed
consolidated balance sheet as follows (in thousands):
Cash equivalents included in "Cash and cash equivalents"...................................$ 223,531
Short-term investments..................................................................... 808,951
Investment settlements receivable.......................................................... 197,004
Current and non-current restricted cash equivalents........................................ 446,836
Non-current investments.................................................................... 89,826
-------------
$ 1,766,148
=============
Certain liability positions related to investments:
Investment settlements payable..........................................................$ (176,739)
Securities sold under agreements to repurchase ......................................... (497,633)
Securities sold with an obligation to purchase included in "Other liability positions
related to short-term investments".................................................. (537,267)
Derivatives held in trading portfolios in liability positions included in "Other
liability positions related to short-term investments".............................. (1,796)
-------------
$ (1,213,435)
=============
Our cash equivalents are short-term, highly liquid investments with
maturities of three months or less when acquired and consisted principally of
cash in mutual fund and bank money market accounts, securities purchased under
agreements to resell the following day collateralized by United States
government debt securities, interest-bearing brokerage and bank accounts with a
stable value, United States government debt securities and commercial paper of
high credit-quality entities.
At October 2, 2005 our investments were classified in the following
general types or categories (in thousands):
Carrying Value
At Fair ----------------------
Type At Cost Value (d) Amount Percent
---- ------- -------- ------ -------
Cash equivalents (a)............................$ 223,531 $ 223,531 $ 223,531 13%
Investment settlements receivable (b)........... 197,004 197,004 197,004 11%
Restricted cash equivalents..................... 446,836 446,836 446,836 25%
Investments accounted for as:
Available-for-sale securities (c).......... 119,239 127,355 127,355 7%
Trading securities......................... 626,365 632,592 632,592 36%
Trading derivatives........................ 745 3,271 3,271 --%
Securities purchased under agreements to resell. 23,640 23,677 23,677 2%
Non-current investments held in deferred
compensation trusts accounted for at cost..... 21,501 29,485 21,501 1%
Other current and non-current investments in
investment limited partnerships and similar
investment entities accounted for at cost..... 23,511 36,722 23,511 2%
Other current and non-current investments
accounted for at:
Cost....................................... 40,659 45,139 40,659 2%
Equity..................................... 14,602 35,234 19,820 1%
Fair value ................................ 6,391 6,391 6,391 --%
----------- ----------- ----------- ----
Total cash equivalents and long investment
positions.....................................$ 1,744,024 $ 1,807,237 $ 1,766,148 100%
=========== =========== =========== ====
Certain liability positions related to
investments:
Investment settlements payable (b).........$ (176,739) $ (176,739) $ (176,739) N/A
Securities sold under agreements to
repurchase.............................. (496,552) (497,633) (497,633) N/A
Securities sold with an obligation to
purchase................................ (529,756) (537,267) (537,267) N/A
Derivatives held in trading portfolios in
liability positions..................... -- (1,796) (1,796) N/A
----------- ----------- -----------
$(1,203,047) $(1,213,435) $(1,213,435)
=========== =========== ===========
(a) Includes $6,280,000 of cash equivalents held in deferred compensation
trusts.
(b) Represents unsettled security trades as of October 2, 2005 principally in
the Opportunities Fund.
(c) Includes $15,180,000 of preferred shares of collateralized debt obligation
vehicles, which we refer to as CDOs, which, if sold, would require us to
use the proceeds to repay our related notes payable of $8,619,000.
(d) There can be no assurance that we would be able to sell certain of these
investments at these amounts.
Our marketable securities are reported at fair market value and are
classified and accounted for either as "available-for-sale" or "trading" with
the resulting net unrealized holding gains or losses, net of income taxes,
reported either as a separate component of comprehensive income or loss
bypassing net income or net loss, or included as a component of net income or
net loss, respectively. Our investments in preferred shares of CDOs are
accounted for similar to debt securities and are classified as
available-for-sale. Investment limited partnerships and similar investment
entities and other current and non-current investments in which we do not have
significant influence over the investees are accounted for at cost. Derivative
instruments held in trading portfolios are similar to and classified as trading
securities which are accounted for as described above. Realized gains and losses
on investment limited partnerships and similar investment entities and other
current and non-current investments recorded at cost are reported as investment
income or loss in the period in which the securities are sold. Investments in
which we have significant influence over the investees are accounted for in
accordance with the equity method of accounting under which our results of
operations include our share of the income or loss of the investees. Our
investments accounted for under the equity method consist of non-current
investments in (1) a public company and (2) a real estate investment trust
managed by a subsidiary of ours. We also hold restricted stock and stock options
in the real estate investment trust that we manage, which we received as
stock-based compensation and account for at fair value. We review all of our
investments in which we have unrealized losses and recognize investment losses
currently for any unrealized losses we deem to be other than temporary. The
cost-basis component of investments reflected in the table above represents
original cost less a permanent reduction for any unrealized losses that were
deemed to be other than temporary.
Sensitivity Analysis
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. Our estimate of market
risk exposure is presented for each class of financial instruments held by us at
October 2, 2005 for which an immediate adverse market movement causes a
potential material impact on our financial position or results of operations. We
believe that the adverse market movements described below represent the
hypothetical loss to future earnings and do not represent the maximum possible
loss nor any expected actual loss, even under adverse conditions, because actual
adverse fluctuations would likely differ. In addition, since our investment
portfolio is subject to change based on our portfolio management strategy as
well as market conditions, these estimates are not necessarily indicative of the
actual results which may occur.
The following tables reflect the estimated market risk exposure as of
October 2, 2005 based upon assumed immediate adverse effects as noted below (in
thousands):
Trading Purposes:
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
-------- --------- ---------- -------------
Equity securities............................................... $ 11,704 $ (15) $ (1,170) $ --
Debt securities................................................. 620,888 (17,316) -- --
Trading derivatives in asset positions.......................... 3,271 (844) (266) (384)
Trading derivatives in liability positions...................... (1,796) (46) -- (61)
The sensitivity analysis of financial instruments held for trading
purposes assumes (1) an instantaneous 10% adverse change in the equity markets
in which we are invested, (2) an instantaneous one percentage point adverse
change in market interest rates and (3) an instantaneous 10% adverse change in
the foreign currency exchange rates versus the United States dollar, each from
their levels at October 2, 2005, with all other variables held constant.
The interest rate risk with respect to our debt securities and trading
derivatives reflects the effect of the assumed adverse interest rate change on
the fair value of each of those securities or derivative positions and does not
reflect any offsetting of hedged positions. The adverse effects on the fair
values of the respective securities and derivatives were determined based on
market standard pricing models applicable to those particular instruments. Those
models consider variables such as coupon rate and frequency, maturity date(s),
yield and, in the case of derivatives, volatility, price of the underlying
instrument, strike price, expiration, prepayment assumptions and probability of
default.
Other Than Trading Purposes:
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
----- --------- ---------- -------------
Cash equivalents....................................$ 223,531 $ (6) $ -- $ --
Investment settlements receivable................... 197,004 -- -- --
Restricted cash equivalents......................... 446,836 (7) -- --
Available-for-sale equity securities................ 44,974 -- (4,497) --
Available-for-sale asset-backed securities.......... 25,699 (2,184) -- --
Available-for-sale preferred shares of CDOs......... 20,611 (1,008) -- --
Available-for-sale United States government and
government agency debt securities................ 12,697 (50) -- --
Available-for-sale commercial paper................. 10,858 (21) -- --
Available-for-sale debt mutual fund................. 8,744 (219) -- --
Available-for-sale corporate debt securities, other
than commercial paper............................ 3,772 (132) -- --
Securities purchased under agreements to resell..... 23,677 (58) -- --
Investment in Jurlique.............................. 30,164 -- (3,016) (1,696)
Other investments................................... 81,718 (1,665) (5,773) (42)
Interest rate swap in an asset position............. 1,114 (2,606) -- --
Foreign currency put and call arrangement in a net
liability position............................... (605) -- -- (1,211)
Investment settlements payable...................... (176,739) -- -- --
Securities sold under agreements to repurchase...... (497,633) (152) -- --
Securities sold with an obligation to purchase...... (537,267) (16,722) (1,067) --
Notes payable and long-term debt, excluding
capitalized lease and sale-leaseback obligations. (819,259) (36,195) -- --
Interest rate swap agreement in a payable position.. (27) (118) -- --
The sensitivity analysis of financial instruments held at October 2, 2005
for purposes of other than trading assumes (1) an instantaneous one percentage
point adverse change in market interest rates, (2) an instantaneous 10% adverse
change in the equity markets in which we are invested and (3) an instantaneous
10% adverse change in the foreign currency exchange rates versus the United
States dollar, each from their levels at October 2, 2005, with all other
variables held constant. The equity price risk reflects the impact of a 10%
decrease in the carrying value of our equity securities, including those in
"Other investments" in the table above. The sensitivity analysis also assumes
that the decreases in the equity markets and foreign exchange rates are other
than temporary. We have not reduced the equity price risk for available-for-sale
investments and cost investments to the extent of unrealized gains on certain of
those investments, which would limit or eliminate the effect of the indicated
market risk on our results of operations and, for cost investments, our
financial position.
Our investments in debt securities and preferred shares of CDOs with
interest rate risk had a range of remaining maturities and, for purposes of this
analysis, were assumed to have weighted average remaining maturities as follows:
Range Weighted Average
----- ----------------
Cash equivalents (other than money market funds
and interest-bearing brokerage and bank accounts
and securities purchased under agreements to resell)................... 7 days - 65 days 23 days
Restricted cash equivalents............................................... 24 days - 27 days 27 days
Asset-backed securities...................................................2 1/2 years - 31 years 8 1/2 years
CDOs underlying preferred shares.......................................... 2 years - 7 1/2 years 4 1/2 years
United States government and government agency debt
securities............................................................. 1 month - 1 year 4 3/4 months
Commercial paper..........................................................24 days - 4 3/4 months 2 1/3 months
Debt mutual fund.......................................................... 1 day - 35 years 2 1/2 years
Corporate debt securities, other than commercial paper.................... 3 1/2 years 3 1/2 years
Debt securities included in other investments (principally
held by investment limited partnerships and similar
investment entities)................................................... (a) 10 years
(a) Information is not available for the underlying debt investments of these
entities.
The interest rate risk reflects, for each of these investments in debt
securities and the preferred shares of CDOs, the impact on our results of
operations. Assuming we reinvest in similar securities at the time these
securities mature, the effect of the interest rate risk of an increase of one
percentage point above the existing levels would continue beyond the maturities
assumed. The interest rate risk for our preferred shares of CDOs excludes those
portions of the CDOs for which the risk has been fully hedged. Our cash
equivalents and restricted cash equivalents included $214.6 million and $437.5
million, respectively, of mutual fund and bank money market accounts and/or
interest-bearing brokerage and bank accounts which are designed to maintain a
stable value and securities purchased under agreements to resell the following
day which, as a result, were assumed to have no interest rate risk.
The interest rate risk presented with respect to our securities purchased
under agreements to resell, securities sold under agreements to repurchase and
securities sold with an obligation to repurchase, which are all financial
instruments held almost entirely by the Opportunities Fund, represents the
potential impact an adverse change in interest rates of one percentage point
would have on the fair value of those respective instruments and on our
financial position and results of operations. The securities purchased under
agreements to resell and the securities sold under agreements to repurchase,
although bearing fixed rates, have short maturities ranging from overnight for
most of the securities sold under agreements to repurchase to 105 days for the
securities purchased under agreements to resell, which significantly limit the
effect of a change in interest rates on the respective fair values of these
instruments. The securities sold with an obligation to repurchase represent
$526.6 million of fixed income securities, with a weighted-average remaining
maturity of 8 1/3 years, and $10.7 million of equity securities. The adverse
effects on the fair value of the respective instruments were determined based on
market standard pricing models applicable to those particular instruments which
consider variables such as coupon rate and frequency, maturity date(s), yield
and prepayment assumptions.
The interest rate risk presented with respect to our notes payable and
long-term debt, excluding capitalized lease and sale-leaseback obligations,
represents the potential impact an increase in interest rates of one percentage
point has on our results of operations and therefore relates only to our $636.5
million of variable-rate notes payable and long-term debt outstanding as of
October 2, 2005 which had a weighted average remaining maturity of approximately
six years and not our fixed rate debt as discussed below. However, as discussed
above under "Interest Rate Risk," we have two interest rate swap agreements, one
with an embedded written call option, on a portion of our variable-rate debt.
The interest rate risk of our variable-rate debt presented in the table above
excludes the $100.0 million for which we designated an interest rate swap
agreement as a cash flow hedge for the term of the swap agreement. As interest
rates decrease, the fair market values of the interest rate swap agreements and
the written call option all decrease, but not necessarily by the same amount in
the case of the written call option and related interest rate swap agreement.
The interest rate risks presented with respect to the interest rate swap
agreements represent the potential impact the indicated change has on the net
fair value of the swap agreements and embedded written call option and on our
financial position and, with respect to the interest rate swap agreement with
the embedded written call option which was not designated as a cash flow hedge,
also our results of operations. We previously presented interest rate risk with
respect to our notes payable and long-term debt based on the potential impact a
decrease in interest rates of one percentage point would have on the fair value
of our fixed-rate debt, which represented the majority of our long-term debt
prior to the acquisition of RTM in July 2005. We still have $182.8 million of
fixed-rate debt as of October 2, 2005 for which a potential impact of a decrease
in interest rates of one percentage point would have a negative impact of $10.2
million on the fair value of such debt, which is not reflected in the table
above since a majority of our debt is now variable-rate debt for which interest
rate risk is calculated based on the potential effect on our results of
operations.
The foreign currency risk presented for our investment in Jurlique as of
October 2, 2005 excludes the portion of risk that is hedged by the foreign
currency put and call arrangement and by the portion of Jurlique's operations
which are denominated in United States dollars. The foreign currency risk
presented with respect to the foreign currency put and call arrangement
represents the potential impact the indicated change has on the net fair value
of each of these respective financial instruments and on our financial position
and results of operations and has been determined by an independent
broker/dealer. For investments held since January 2, 2005 in investment limited
partnerships and similar investment entities, all of which are accounted for at
cost, and other non-current investments included in "Other investments" in the
table above, the sensitivity analysis assumes that the investment mix for each
such investment between equity versus debt securities and securities denominated
in United States dollars versus foreign currencies was unchanged since that date
since more current information was not readily available. The analysis also
assumed that the decrease in the equity markets and the change in foreign
currency were other than temporary with respect to these investments. To the
extent such entities invest in convertible bonds which trade primarily on the
conversion feature of the securities rather than on the stated interest rate,
this analysis assumed equity price risk but no interest rate risk. The foreign
currency risk presented excludes those investments where the investment manager
has fully hedged the risk.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chairman and Chief
Executive Officer and our Executive Vice President and Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this quarterly report. Based on
that evaluation, our Chairman and Chief Executive Officer and our Executive Vice
President and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act was recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission.
Change in Internal Control Over Financial Reporting
As a result of our acquisition of the RTM Restaurant Group ("RTM") in
the third quarter of fiscal 2005 (see Part II, Item 5 below), we incorporated
internal controls over financial reporting to include consolidation of RTM's
results of operations, as well as acquisition related accounting and
disclosures. There were no other changes in our internal control over financial
reporting made during our most recent fiscal quarter that materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
Inherent Limitations on Effectiveness of Controls
There are inherent limitations in the effectiveness of any control
system, including the potential for human error and the circumvention or
overriding of the controls and procedures. Additionally, judgments in
decision-making can be faulty and breakdowns can occur because of simple error
or mistake. An effective control system can provide only reasonable, not
absolute, assurance that the control objectives of the system are adequately
met. Accordingly, our management, including our Chairman and Chief Executive
Officer and our Executive Vice President and Chief Financial Officer, does not
expect that our control system can prevent or detect all error or fraud.
Finally, projections of any evaluation or assessment of effectiveness of a
control system to future periods are subject to the risks that, over time,
controls may become inadequate because of changes in an entity's operating
environment or deterioration in the degree of compliance with policies or
procedures.
Part II. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Quarterly Report on Form 10-Q and oral statements made from time
to time by representatives of the Company may contain or incorporate by
reference certain statements that are not historical facts, including, most
importantly, information concerning possible or assumed future results of
operations of Triarc Companies, Inc. and its subsidiaries (collectively "Triarc"
or the "Company"), and those statements preceded by, followed by, or that
include the words "may," "believes," "plans," "expects," "anticipates," or the
negation thereof, or similar expressions, that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). All statements that address operating performance,
events or developments that are expected or anticipated to occur in the future,
including statements relating to revenue growth, earnings per share growth or
statements expressing general optimism about future operating results, are
forward-looking statements within the meaning of the Reform Act. These
forward-looking statements are based on our current expectations, speak only as
of the date of this Form 10-Q and are susceptible to a number of risks,
uncertainties and other factors. Our actual results, performance and
achievements may differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. For those
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Reform Act. Many important factors could affect our
future results and could cause those results to differ materially from those
expressed in the forward-looking statements contained herein. Such factors
include, but are not limited to, the following:
o competition, including pricing pressures, the potential impact of
competitors' new units on sales by Arby's(R) restaurants;
o consumers' perceptions of the relative quality, variety and value of the
food products we offer;
o success of operating initiatives;
o development costs;
o advertising and promotional efforts;
o brand awareness;
o the existence or absence of positive or adverse publicity;
o new product and concept development by us and our competitors, and market
acceptance of such new product offerings and concepts;
o changes in consumer tastes and preferences, including changes resulting
from concerns over nutritional or safety aspects of beef, poultry, french
fries or other foods or the effects of food-borne illnesses such as "mad
cow disease" and avian influenza or "bird flu";
o changes in spending patterns and demographic trends;
o adverse economic conditions, including high unemployment rates, in
geographic regions that contain a high concentration of Arby's
restraurants;
o the business and financial viability of key franchisees;
o the timely payment of franchisee obligations due to us;
o availability, location and terms of sites for restaurant development by us
and our franchisees;
o the ability of our franchisees to open new restaurants in accordance with
their development commitments, including the ability of franchisees to
finance restaurant development;
o delays in opening new restaurants or completing remodels;
o anticipated or unanticipated restaurant closures by us and our franchisees;
o our ability to identify, attract and retain potential franchisees with
sufficient experience and financial resources to develop and operate Arby's
restaurants;
o changes in business strategy or development plans, and the willingness of
our franchisees to participate in our strategy;
o business abilities and judgment of our and our franchisees' management and
other personnel;
o availability of qualified restaurant personnel to us and to our
franchisees;
o our ability, if necessary, to secure alternative distribution of supplies
of food, equipment and other products to Arby's restaurants at competitive
rates and in adequate amounts, and the potential financial impact of any
interruptions in such distribution;
o changes in commodity (including beef), labor, supplies and other operating
costs and availability and cost of insurance;
o adverse weather conditions;
o significant reductions in our client assets under management (which would
reduce our advisory fee revenue), due to such factors as weak performance
of our investment products (either on an absolute basis or relative to our
competitors or other investment strategies), substantial illiquidity or
price volatility in the fixed income instruments that we trade, loss of key
portfolio management or other personnel, reduced investor demand for the
types of investment products we offer, and loss of investor confidence due
to adverse publicity;
o increased competition from other asset managers offering similar types of
products to those we offer;
o pricing pressure on the advisory fees that we can charge for our investment
advisory services;
o difficulty in increasing assets under management, or efficiently managing
existing assets, due to market-related constraints on trading capacity or
lack of potentially profitable trading opportunities;
o our removal as investment manager of one or more of the collateral debt
obligation vehicles (CDOs) or other accounts we manage, or the reduction in
our CDO management fees because of payment defaults by issuers of the
underlying collateral;
o availability, terms (including changes in interest rates) and deployment of
capital;
o changes in legal or self-regulatory requirements, including franchising
laws, investment management regulations, accounting standards,
environmental laws, overtime rules, minimum wage rates and taxation rates;
o the costs, uncertainties and other effects of legal, environmental and
administrative proceedings;
o the impact of general economic conditions on consumer spending or
securities investing, including a slower consumer economy, rising energy
and gasoline prices and the effects of war or terrorist activities;
o our ability to identify appropriate acquisition targets in the future and
to successfully integrate acquisitions into our existing operations; and
o other risks and uncertainties affecting us and our subsidiaries referred to
in our Annual Report on Form 10-K for the fiscal year ended January 2, 2005
(see especially "Item 1. Business--Risk Factors" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations")
and in our other current and periodic filings with the Securities and
Exchange Commission, all of which are difficult or impossible to predict
accurately and many of which are beyond our control.
All future written and oral forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. New risks
and uncertainties arise from time to time, and it is impossible for us to
predict these events or how they may affect us. We assume no obligation to
update any forward-looking statements after the date of this Quarterly Report on
Form 10-Q as a result of new information, future events or developments, except
as required by federal securities laws. In addition, it is our policy generally
not to make any specific projections as to future earnings, and we do not
endorse any projections regarding future performance that may be made by third
parties.
Item 1. Legal Proceedings
As discussed in our Annual Report on Form 10-K for the fiscal year
ended January 2, 2005 (the "Form 10-K"), in 1998 a number of class action
lawsuits were filed on behalf of our stockholders. Each of these actions named
Triarc, Messrs. Nelson Peltz, our Chairman and Chief Executive Officer and a
director of Triarc, and Peter W. May, our President and Chief Operating Officer
and a director of Triarc, and the other then directors of Triarc as defendants.
In 1999, certain plaintiffs in these actions filed a consolidated amended
complaint alleging that our tender offer statement filed with the Securities and
Exchange Commission in 1999, pursuant to which we repurchased 3,805,015 shares
of our Class A Common Stock, failed to disclose material information. The
amended complaint seeks, among other relief, monetary damages in an unspecified
amount. In 2000, the plaintiffs agreed to stay this action pending determination
of a related stockholder action that was subsequently dismissed in October 2002
and is no longer being appealed. On October 24, 2005, plaintiffs filed a motion
asking the court to dismiss the action as moot, but to retain jurisdiction for
the limited purpose of considering a subsequent application by plaintiffs for
legal fees and expenses.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to repurchases
of shares of our common stock by us and our "affiliated purchasers" (as defined
in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended)
during the third fiscal quarter of 2005:
Issuer Repurchases of Equity Securities
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
Total Number of Shares Approximate Dollar
Purchased As Part of Value of Shares That
Total Number of Average Price Paid Per Publicly Announced Plan May Yet Be Purchased
Period Shares Purchased (1) Share (1) Under the Plan (2)
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
July 4, 2005 1 Class A $16.00 (Class A) 1 Class A $49,999,954
through 2 Class B, Series 1 $14.87 (Class B, Series 1) 2 Class B, Series 1
July 31, 2005
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
August 1, 2005
through --- --- --- $49,999,954
August 28, 2005
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
August 29, 2005
through --- --- --- $49,999,954
October 2, 2005
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
Total 1 Class A $16.00 (Class A) 1 Class A $49,999,954
2 Class B, Series 1 $14.87 (Class B, Series 1) 2 Class B, Series 1
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
(1) On December 16, 2004, we announced that our existing stock repurchase
program, which was originally approved by our board of directors on January
18, 2001, had been extended until June 30, 2006 and that the amount
available under the program had been replenished to permit the purchase of
up to $50 million of our Class A Common Stock and Class B Common Stock.
During the third fiscal quarter of 2005, we repurchased one share of Class
A Common Stock and two shares of Class B Common Stock, Series 1.
Item 5. Other Information.
RTM Acquisition
As previously reported, on July 25, 2005, the Company completed its
acquisition of RTM Restaurant Group ("RTM"). RTM is the largest Arby's(R)
franchisee, with 775 Arby's restaurants in 22 states. The Company, through its
subsidiaries, is the franchisor of the Arby's restaurant system and, as a result
of the transaction, is the owner and operator of over 1,000 Arby's restaurants
located in the United States.
Total consideration in the RTM acquisition consisted of $175 million
in cash, subject to post closing adjustment, plus approximately 9.7 million
shares of the Company's Class B Common Stock, Series 1, and options to purchase
approximately 774,000 shares of the Company's Class B Common Stock, Series 1
(weighted average exercise price of $8.92), which were issued in replacement of
existing RTM stock options. The combined value of the shares and options issued
by the Company in connection with the RTM acquisition was approximately $150
million, based on a closing price of $15.00 per share on July 25, 2005. In
connection with the RTM acquisition, Arby's Restaurant Group, Inc. ("ARG"), a
wholly owned subsidiary of the Company, also assumed approximately $400 million
of RTM net debt, including approximately $180 million of RTM capitalized lease
and financing obligations.
The Company provided $135 million in cash to fund the acquisition. ARG
funded the remaining cash needed to complete the acquisition, including
transaction costs, and refinanced substantially all of its and RTM's existing
indebtedness, with the proceeds from a new $720 million credit facility
(consisting of a $620 million senior term loan B facility and a $100 million
senior revolving credit facility, with a $30 million subfacility for letters of
credit). This refinancing included the repayment of approximately $234 million
of RTM third-party debt and approximately $71 million of ARG third-party debt as
well as the defeasance of the Arby's Franchise Trust, 7.44% insured non-recourse
securitization notes (total principal amount of $198 million), which was
redeemed in full on August 22, 2005, and the payment of related prepayment
penalties.
Potential Corporate Restructuring
The Company is continuing to explore the feasibility, as well as the risks
and opportunities, of a possible corporate restructuring that may involve the
spin-off of the Company's asset management operations to the Company's
shareholders. Options for the Company's other non-restaurant assets are also
under review and could include the allocation of these other assets between the
Company's two businesses and/or a special dividend or distribution to
shareholders. The goal of the restructuring would be to enhance value to the
Company's shareholders by allowing them to hold shares in two industry-specific
public companies thereby potentially unlocking the value of both
independently-managed businesses. There can be no assurance that the corporate
restructuring will occur or the terms or timing of such restructuring if it does
occur. As of the date hereof, the Company's Board of Directors has not reached
any definitive conclusions concerning the scope, benefits or timing of the
corporate restructuring.
If the corporate restructuring is completed, following a transition
period, it is currently anticipated that Arby's would be led by its current
President and Chief Executive Officer, Douglas N. Benham, and the Arby's
management team, and that Deerfield & Company would be led by its current
Chairman and Chief Executive Officer, Gregory H. Sachs, and the Deerfield
management team. In addition, Nelson Peltz and Peter W. May, currently Triarc's
Chairman and Chief Executive Officer and President and Chief Operating Officer,
respectively, who together beneficially owned an aggregate of approximately
30.9% of the shares of Triarc's Class A Common Stock and Class B Common Stock,
Series 1, as of November 1, 2005, would continue to be large shareholders and
directors of the two new public companies. It is also currently anticipated that
Messrs. Peltz and May would be Chairman and Vice Chairman, respectively, of
Arby's, that Mr. Peltz would continue in his role as Chairman of Deerfield
Triarc Capital Corp. ("DTCC"), a publicly traded mortgage REIT managed by
Deerfield Capital Management LLC ("Deerfield"), an indirect majority-owned
subsidiary of the Company, and that Messrs. Peltz and May and Triarc's current
Vice Chairman, Edward P. Garden, would continue in their roles on the DTCC
investment committee.
On November 1, 2005, Nelson Peltz and Peter May (the "Executives") and
the Company's Vice Chairman (collectively, the "Principals") started a series of
equity investment funds (the "Funds") that are separate and distinct from the
Company and that are being managed by the Principals and other senior officers
of the Company (the "Employees") through a management company (the "Management
Company") formed by the Principals.
The Company has committed to invest $75,000,000 in an account to be
managed by the Management Company that will co-invest substantially in parallel
with the Funds (subject to legal, tax or regulatory constraints). The Principals
and certain Employees have invested in the Funds and certain Employees may
invest in the Funds or in an account to be managed by the Management Company.
The Management Company has agreed not to charge the Company, the Principals or
the Employees any management fees with respect to their investments. Further,
the Principals and the Employees will not pay any incentive fees while the
Company will pay no incentive fees for the first two years and, thereafter, will
pay lower incentive fees than those generally charged to other investors in the
Funds. The Company will be entitled to withdraw its investment on the same terms
as the Principals. A special committee comprised of independent members of the
Company's Board of Directors (the "Special Committee") unanimously recommended
the Company's investment on these terms to the Executive Committee of the
Company's Board of Directors, which in turn unanimously approved such
investment, with the Executives abstaining from the vote.
The Principals and Employees continue to serve as officers of, and be
compensated by, the Company. The Company is making available the services of the
Principals and the Employees, as well as certain support services, to the
Management Company. The extent and length of time that these management services
will be provided and the amount and/or timing of any reimbursement of the costs
that the Company incurs for the allocable portion of these services has not yet
been determined. The Special Committee is reviewing and considering these
arrangements.
Equity Arrangements
On November 10, 2005, the Compensation Committee of the Board of
Directors of the Company unanimously approved certain equity arrangements
pursuant to which the Company's management was authorized to subscribe for
equity interests in the Company's holdings of Deerfield & Company LLC
("Deerfield") and Jurlique International Pty Ltd. ("Jurlique"). The terms and
conditions of such awards are set forth in (i) an Amended and Restated Limited
Liability Company Agreement (the "Deerfield LLC Agreement") of Triarc Deerfield
Holdings, LLC ("Triarc Deerfield Holdco"), which is the entity through which the
Company owns equity interests in Deerfield, (ii) an Amended and Restated Limited
Liability Company Agreement (the "Jurl LLC Agreement") of Jurl Holdings, LLC
("Jurl Holdco"), which is the entity through which the Company owns equity
interests in Jurlique and (iii) subscription agreements to be entered into with
respect to each such award. Except as set forth below, the Deerfield LLC
Agreement and the Jurl LLC Agreement are substantially identical in all material
respects. Set forth below are brief descriptions of the material terms and
conditions of these agreements. The descriptions set forth below do not purport
to be complete and are qualified in their entirety by reference to the actual
agreements which are being filed as exhibits to this filing.
Members of the Company's senior management team, including Nelson
Peltz, Peter W. May, Edward P. Garden, Brian L. Schorr and Francis T. McCarron
(collectively, the "Executive Recipients"), along with other members of
management (collectively, such additional members, along with the Executive
Recipients, are referred to as the "Management Employees"), are eligible to
subscribe for the equity interests. Pursuant to the Deerfield LLC Agreement and
the Jurl LLC Agreement, each Management Employee who subscribes will be issued
membership units in Triarc Deerfield Holdco and Jurl Holdco, respectively (the
"Class B Units"), which entitle such holder to participate more directly in the
appreciation of the Company's ownership interests in Deerfield and Jurlique,
respectively.
The Class B Units are divided into two parts, (i) a capital interest
portion, reflecting the capital contributions made by each Management Employee
to subscribe for his or her Class B Units, and (ii) a profits interest portion,
which reflects a holder's right to share, in the aggregate, up to 15% of the net
income generated by Deerfield or Jurlique (subject to a 8% preferred return to
the Company) and up to 15% of any investment gain derived from the sale of any
or all of the equity interests in Deerfield or Jurlique that are owned by the
Company (subject to a return of the Company's invested capital and a preferred
return of 8%). However, in the case of the Company's interest in Deerfield, if
the Company contributes additional capital to Triarc Deerfield Holdco to fund
the purchase or redemption of membership interests in Deerfield that are held by
third parties, the Class B Units do not share in any net income that is
attributable to, or any appreciation of, the additional Deerfield interests that
are so acquired. Subject to the preceding sentence, the Executive Recipients
will be entitled to share in the following percentages of the net income and
investment gain generated by Deerfield or Jurlique (subject to a return of the
Company's invested capital and preferred return): (A) Deerfield: Peltz - 5.1%,
May - 1.875%; Garden - 4.65%, Schorr -1.35%; and McCarron - 1.05%; and (B)
Jurlique: Peltz - 6.75%; May - 2.55%; Garden - 2.25%; Schorr - 1.35%; and
McCarron - 1.05%.
As long as a Triarc Change of Control (as defined below) has not
occurred, 25% of any net after-tax distributions otherwise payable to the
Management Employees will be retained by the Company and distributed on the
second anniversary of the date such amounts have been retained as long as there
have not been any write downs of the equity interests held by the Company in
Deerfield or Jurlique, as the case may be. All or a portion of such retained
amounts will be distributed to the Company if there has been a write down
relating to the investment by the Company in Deerfield or Jurlique, as the case
may be. In addition, upon a Triarc Change of Control, all retained amounts will
be distributed to the Management Employees. A "Triarc Change of Control" means
(i) the acquisition by any person or entity (other than the Executives and their
affiliates) of beneficial ownership, directly or indirectly, of more than 50% of
the combined voting power of the Company's outstanding securities entitled to
vote generally in the election of directors or (ii) a majority of the directors
of the Company being individuals who are not nominated by the Company's board.
Following a liquidation of Triarc Deerfield Holdco or Jurl Holdco, as
the case may be, a sale of all or substantially all of the Company's interest in
Deerfield or Jurlique or a Restructuring Event (as defined below), Management
Employees who have received aggregate distributions in excess of the amounts
that they would otherwise have been entitled to, are required to refund the
overage to the Company. Any retained amounts described in the preceding
paragraph will be applied against this giveback obligation. The giveback
obligation of the Management Employees is reduced over time depending on when
such obligation arises. The giveback obligation is as follows: (i) prior to
February 15, 2011, 100%; (ii) on or after February 15, 2011 to and including
February 14, 2012, 66-2/3%; (iii) on or after February 15, 2012 and to and
including February 14, 2013, 33-1/3%; and (iv) on or after February 15, 2013,
0%.
Pursuant to the subscription agreements to be entered into by each
Management Employee and Triarc Deerfield Holdco and Jurl Holdco, as the case may
be, with respect to the issuance of Class B Units, the profits interest portion
of the Class B Units is subject to a three-year vesting schedule, vesting
one-third on each of February 15, 2006, February 15, 2007 and February 15, 2008.
Vesting will be accelerated to 100% upon the occurrence of a Restructuring Event
or a Triarc Change of Control. If a Management Employee resigns from the Company
and its subsidiaries, then he or she will forfeit the unvested profits interest
portion of his or her Class B Units, except that if such resignation occurs on
or prior to the third anniversary of the acquisition by the Company of Deerfield
or Jurlique, as the case may be, such Management Employee will only be entitled
to 50% of the vested profits interest portion of his or her Class B Units. If a
Management Employee is terminated for cause, he or she will forfeit all of the
profits interest portion of his or her Class B Units, vested or unvested. If a
Management Employee dies, suffers a permanent disability, is terminated without
cause or is otherwise constructively terminated, he or she will be entitled to
the vested profits interest portion of his or her Class B Units.
On the fifth, seventh and eighth anniversary of the date of the
acquisition of the equity interests in Deerfield or Jurlique, the Company will
conduct a fair market valuation of its interest in these companies. Based on the
valuations, each Management Employee has the right to require the Company to
purchase from such Management Employee (i) in the case of the fifth year
valuation, up to 50% of the vested profits interest portion of his or her Class
B Units, as long as such Units have been held for more than two years, (ii) in
the case of the seventh year valuation, (taking into account any Units sold
following the fifth year valuation) up to 75% of the vested profits interest
portion of his or her Class B Units, as long as such Units have been held for
more than two years, and (iii) in the case of the eighth year valuation, all of
such Management Employee's vested Class B Units (both the capital interest and
the profits interest portions), as long as such Units have been held for more
than two years. The purchase price will be based on the valuation made in the
applicable year, as if the equity interests in Deerfield or Jurlique, as the
case may be, were sold by the Company for an amount equal to such valuation and
the distributions that would be received by members of Triarc Deerfield Holdco
or Jurl Holdco, as applicable, assuming a hypothetical liquidation of the
holding company on a fair market value basis. Payment may be made by the
Company, at its election, in cash or in a combination of cash and a two year
interest bearing promissory note.
If the Company wishes to transfer 15% or more of its membership
interests in Triarc Deerfield Holdco or Jurl Holdco to any third party, then
each Management Employee is entitled to tag along rights. If the Company wishes
to transfer at least 80% of its membership interests in Triarc Deerfield Holdco
or Jurl Holdco to any third party, then the Company has the right to require the
Management Employees to transfer a pro rata portion of their Class B Units to
the third party purchaser.
If the Company decides to spin off or otherwise restructure Deerfield
or Jurlique, as the case may be, with the ultimate objective of distributing to
the stockholders of the Company the economic benefit of 85% or more of the
equity interests in such companies that are represented by the Company's
membership interests in the respective holding companies (a "Restructuring
Event"), the Class B Units will be converted into the equity securities of the
entity that is formed to effect the restructuring and the profits interest
portion of the Units will be automatically extinguished. Such conversion will be
based on the Company's good faith estimate of the fair market value of the new
entity and the distributions that would be made by Triarc Deerfield Holdco or
Jurl Holdco, as the case may be, assuming a hypothetical liquidation of such
holding company on a fair market value basis and the application of any giveback
obligation.
If a Management Employee ceases to be employed by the Company or any
of its subsidiaries or a Triarc Trigger Event occurs (as defined below), the
Company has the right to require the Management Employee to sell the capital
interest portion and the vested profits interest portion of his or her Class B
Units to the Company at their fair market value. Payment may be made by the
Company, at its election, in cash or in a combination of cash and a two-year
interest bearing promissory note. A "Triarc Trigger Event" means (i) the
acquisition by any person or entity of beneficial ownership, directly or
indirectly, of more than 35% of the combined voting power of the Company's
outstanding securities entitled to vote generally in the election of directors,
provided that the Executives and their affiliates beneficially own, directly or
indirectly, less than 30% of the combined voting power of the Company's
outstanding securities entitled to vote generally in the election of directors,
(ii) a majority of the directors of the Company being individuals who are not
nominated by the Company's board, (iii) a liquidation or dissolution of the
Company, or (iv) the merger or consolidation of the Company with another person
or entity or the sale of all or substantially all of the assets of the Company
(other than to the Executives or any of their affiliates), provided that in the
case of a merger or consolidation, the Company's shareholders do not receive
securities representing at least a majority of the combined voting power of the
surviving person or entity.
If a Management Employee ceases to be employed by the Company or its
affiliates, he or she has the right to require the Company to purchase the
capital interest portion of his or her Class B Units for a cash purchase price
at fair market value, except that if the Management Employee is terminated for
cause, then the purchase price will be the lower of cost and fair market value.
Item 6. Exhibits.
2.1 Side Letter Agreement to the RTMRG Merger Agreement, dated as of July 25,
2005, by and among Triarc Companies, Inc., Arby's Acquisition Co., Arby's
Restaurant, LLC, RTM Restaurant Group, Inc. and Russell V. Umphenour, Jr.,
Dennis E. Cooper and J. Russell Welch, incorporated herein by reference to
Exhibit 2.2 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC
file no. 1-2207).
2.2 First Amendment to Membership Interest Purchase Agreement, dated as of July
25, 2005, by and among Triarc Companies, Inc. Arby's Restaurant Group,
Inc., each of the members of RTM Acquisition Company, L.L.C. and Russell V.
Umphenour, Jr., Dennis E. Cooper and J. Russell Welch, incorporated herein
by reference to Exhibit 2.4 to Triarc's Current Report on Form 8-K dated
July 25, 2005 (SEC file no. 1-2207).
2.3 First Amendment to Asset Purchase Agreement, dated as of July 25, 2005, by
and among Triarc Companies, Inc., Arby's Restaurant Group, Inc., RTMMC
Acquisition, LLC, RTM Management Company, L.L.C., each of the members of
RTM Management Company, L.L.C. and Russell V. Umphenour, Jr., Dennis E.
Cooper and J. Russell Welch, incorporated herein by reference to Exhibit
2.6 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file
no. 1-2207).
3.1 Certificate of Incorporation of Triarc Companies, Inc., as currently in
effect, incorporated herein by reference to Exhibit 3.1 to Triarc's Current
Report on Form 8-K dated June 9, 2004 (SEC file no. 1-2207).
3.2 By-laws of Triarc Companies, Inc., as currently in effect, incorporated
herein by reference to Exhibit 3.1 to Triarc's Current Report on Form 8-K
dated November 5, 2004 (SEC file no. 1-2207).
3.3 Certificate of Designation of Class B Common Stock, Series 1, dated as of
August 11, 2003, incorporated herein by reference to Exhibit 3.3 to
Triarc's Current Report on Form 8-K dated August 11, 2003 (SEC file no.
1-2207).
4.1 Registration Rights Agreement, dated as of July 25, 2005, among Triarc
Companies, Inc. and certain stockholders of Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 4.1 to Triarc's Current Report
on Form 8-K dated July 25, 2005 (SEC file no. 1-2207).
4.2 First Supplemental Indenture, dated as of July 13, 2005, among Arby's
Franchise Trust, Ambac Assurance Corporation, as Insurer and as Controlling
Party, and BNY Midwest Trust Company, as Indenture Trustee, incorporated
herein by reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K
dated July 25, 2005 (SEC file no. 1-2207).
10.1 Credit Agreement, dated as of July 25, 2005, among Arby's Restaurant Group,
Inc., Arby's Restaurant Holdings, LLC, Triarc Restaurant Holdings, LLC, the
Lenders and Issuers party thereto, Citicorp North America, Inc., as
Administrative Agent and Collateral Agent, Bank of America Securities LLC
and Credit Suisse, Cayman Islands Branch, as joint lead arrangers and joint
book-running managers, Bank of America, N.A. and Credit Suisse, Cayman
Islands Branch, as co-syndication agents, and Wachovia Bank, National
Association, Suntrust Bank and GE Capital Franchise Finance Corporation, as
co-documentation agents, incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file no.
1-2207).
10.2 Employment Agreement, dated July 25, 2005, by and between Douglas N. Benham
and Arby's Restaurant Group, Inc., incorporated herein by reference to
Exhibit 10.2 to Triarc's Current Report on Form 8-K dated July 25, 2005
(SEC file no. 1-2207).
10.3 Investment Management Agreement dated as of November 14, 2005 between
TCMG-MA, LLC and Trian Fund Management, L.P.*
10.4 Amended and Restated Limited Liability Company Agreement of Jurl Holdings,
LLC dated as of November 10, 2005 by and among Triarc Acquisition, LLC and
the Class B members party thereto. *
10.5 Amended and Restated Limited Liability Company Agreement of Triarc
Deerfield Holdings, LLC dated as of November 10, 2005 by and among Triarc
Companies, Inc., Madison West Associates Corp. and the Class B members
party thereto. *
10.6 Form of Triarc Deerfield Holdings, LLC Class B Unit Subscription Agreement*
10.7 Form of Jurl Holdings, LLC Class B Unit Subscription Agreement*
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
32.1 Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an
exhibit to this report on Form 10-Q. *
- -----------------------
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIARC COMPANIES, INC.
Registrant)
Date: November 14, 2005 By: /s/FRANCIS T. MCCARRON
------------------------------
Francis T. McCarron
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
Date: November 14, 2005 By: /s/FRED H. SCHAEFER
------------------------------
Fred H. Schaefer
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Exhibit Index
Exhibit
No. Description
- ------- -----------
2.1 Side Letter Agreement to the RTMRG Merger Agreement, dated as of July 25,
2005, by and among Triarc Companies, Inc., Arby's Acquisition Co., Arby's
Restaurant, LLC, RTM Restaurant Group, Inc. and Russell V. Umphenour, Jr.,
Dennis E. Cooper and J. Russell Welch, incorporated herein by reference to
Exhibit 2.2 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC
file no. 1-2207).
2.2 First Amendment to Membership Interest Purchase Agreement, dated as of July
25, 2005, by and among Triarc Companies, Inc. Arby's Restaurant Group,
Inc., each of the members of RTM Acquisition Company, L.L.C. and Russell V.
Umphenour, Jr., Dennis E. Cooper and J. Russell Welch, incorporated herein
by reference to Exhibit 2.4 to Triarc's Current Report on Form 8-K dated
July 25, 2005 (SEC file no. 1-2207).
2.3 First Amendment to Asset Purchase Agreement, dated as of July 25, 2005, by
and among Triarc Companies, Inc., Arby's Restaurant Group, Inc., RTMMC
Acquisition, LLC, RTM Management Company, L.L.C., each of the members of
RTM Management Company, L.L.C. and Russell V. Umphenour, Jr., Dennis E.
Cooper and J. Russell Welch, incorporated herein by reference to Exhibit
2.6 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file
no. 1-2207).
3.1 Certificate of Incorporation of Triarc Companies, Inc., as currently in
effect, incorporated herein by reference to Exhibit 3.1 to Triarc's Current
Report on Form 8-K dated June 9, 2004 (SEC file no. 1-2207).
3.2 By-laws of Triarc Companies, Inc., as currently in effect, incorporated
herein by reference to Exhibit 3.1 to Triarc's Current Report on Form 8-K
dated November 5, 2004 (SEC file no. 1-2207).
3.3 Certificate of Designation of Class B Common Stock, Series 1, dated as of
August 11, 2003, incorporated herein by reference to Exhibit 3.3 to
Triarc's Current Report on Form 8-K dated August 11, 2003 (SEC file no.
1-2207).
4.1 Registration Rights Agreement, dated as of July 25, 2005, among Triarc
Companies, Inc. and certain stockholders of Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 4.1 to Triarc's Current Report
on Form 8-K dated July 25, 2005 (SEC file no. 1-2207).
4.2 First Supplemental Indenture, dated as of July 13, 2005, among Arby's
Franchise Trust, Ambac Assurance Corporation, as Insurer and as Controlling
Party, and BNY Midwest Trust Company, as Indenture Trustee, incorporated
herein by reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K
dated July 25, 2005 (SEC file no. 1-2207).
10.1 Credit Agreement, dated as of July 25, 2005, among Arby's Restaurant Group,
Inc., Arby's Restaurant Holdings, LLC, Triarc Restaurant Holdings, LLC, the
Lenders and Issuers party thereto, Citicorp North America, Inc., as
Administrative Agent and Collateral Agent, Bank of America Securities LLC
and Credit Suisse, Cayman Islands Branch, as joint lead arrangers and joint
book-running managers, Bank of America, N.A. and Credit Suisse, Cayman
Islands Branch, as co-syndication agents, and Wachovia Bank, National
Association, Suntrust Bank and GE Capital Franchise Finance Corporation, as
co-documentation agents, incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file no.
1-2207).
10.2 Employment Agreement, dated July 25, 2005, by and between Douglas N. Benham
and Arby's Restaurant Group, Inc., incorporated herein by reference to
Exhibit 10.2 to Triarc's Current Report on Form 8-K dated July 25, 2005
(SEC file no. 1-2207).
10.3 Investment Management Agreement dated as of November 14, 2005 between
TCMG-MA, LLC and Trian Fund Management, L.P. *
10.4 Amended and Restated Limited Liability Company Agreement of Jurl Holdings,
LLC dated as of November 10, 2005 by and among Triarc Acquisition, LLC and
the Class B members party thereto. *
10.5 Amended and Restated Limited Liability Company Agreement of Triarc
Deerfield Holdings, LLC dated as of November 10, 2005 by and among Triarc
Companies, Inc, Madison West Associates Corp. and the Class B members party
thereto. *
10.6 Form of Triarc Deerfield Holdings, LLC Class B Unit Subscription Agreement*
10.7 Form of Jurl Holdings, LLC Class B Unit Subscription Agreement*
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
32.1 Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an
exhibit to this report on Form 10-Q. *
- -----------------------
* Filed herewith.
Exhibit 10.3
INVESTMENT MANAGEMENT AGREEMENT
This Investment Management Agreement ("Agreement") between
TCMG-MA, LLC (the "Investor") and Trian fund Management, L.P., a Delaware
limited partnership (the "Investment Manager"), is entered into as of the 14th
day of November, 2005.
WHEREAS, the Investment Manager serves as (i) the management
company for Trian Partners, L.P. (the "US Fund"), Trian Partners, Ltd. (the
"Offshore Fund"), Trian Partners Master Fund, L.P. (the "Offshore Master Fund"),
Trian Partners (Non-ERISA), Ltd. (the "Non-ERISA Fund") and Trian Partners
Master Fund (Non-ERISA), L.P. (the "Non-ERISA Master Fund", and collectively,
the "Funds"); and (ii) the investment manager of Trian Partners Parallel Fund I,
L.P. ("Account I") and such other investment vehicles and managed accounts
formed to invest substantially in parallel with the Funds, subject to tax and
regulatory considerations ("Parallel Vehicles" and, together with the Funds and
Account I, the "Other Accounts"); and
WHEREAS, the Investor desires to retain the Investment
Manager, of which Mr. Nelson Peltz, Mr. Peter May and Mr. Edward Garden (the
"Principals") serve as officers and portfolio managers, to act as discretionary
investment manager with respect to the Account (as defined below) and the
Investment Manager desires to be so retained.
In consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. The Investor hereby appoints the Investment Manager as
its discretionary investment manager with respect to the Account, and the
Investment Manager hereby accepts such appointment, pursuant to the provisions
of this Agreement. The "Account" shall mean a separate investment account of,
and in the name of, the Investor comprised of all of the cash and assets held
by the Custodians (as defined below) plus any investments, reinvestments and
proceeds of the sale thereof, including without limitation, all dividends and
interest on investments, and all appreciation thereof, net of withdrawals
therefrom.
2. The Investor hereby commits to invest an amount equal to
$75 million in the Account (such amount, the "Capital Commitment"). The Investor
will be required to contribute the entire Capital Commitment to the Account on
or about December 1, 2005 (the "Contribution Date").
3. (a) The Investor acknowledges and agrees that the
Account will be invested substantially in parallel with the Other Accounts
(subject to legal, tax or regulatory constraints) and that in investing the
assets of the Account the Investment Manager will follow an investment strategy
("Investment Strategy") substantially similar to the investment strategy of the
U.S. Fund (as previously provided to the Investor).
(b) In furtherance of the foregoing, the Investor
acknowledges that the Investment Manager may invest the assets of the Account,
on margin or otherwise, in securities and other financial instruments of United
States and non-United States entities, including, without limitation: capital
stock; preferred stock; shares of beneficial interest; partnership interests and
similar financial instruments; bonds, bank debt and other fixed income
investments, notes and debentures (whether subordinated, convertible or
otherwise); currencies; commodities; interest rate, currency, commodity, equity
and other derivative products (including, without limitation: (i) futures
contracts (and options thereon) relating to stock indicies, currencies, United
States government securities and securities of foreign governments, other
financial instruments and all other commodities, (ii) swaps, options, warrants,
repurchase agreements, reverse repurchase agreements, caps collars, floors and
forward rate agreements, (iii) spot and forward currency transactions and (iv)
agreements relating to or securing such transactions); equipment lease
certificates; equipment trust certificates; loans; accounts and notes receivable
and payable held by trade or other creditors; bankruptcy and trade claims;
contract and other claims; executory contracts; participations; mutual funds;
money market funds and other cash equivalents; obligations of the United States
or any state thereof, foreign governments and instrumentalities of any of them;
commercial paper; certificates of deposit; bankers' acceptances; trust receipts;
investments in other physical assets; private equity and debt transactions and
other obligations and instruments or evidences of indebtedness of whatever kind
or nature, in each case, of any person, corporation, government or other entity
whatsoever, whether or not publicly traded or readily marketable (all such items
being called herein a "Security" or "Securities"), and to sell Securities short
and cover such sales. The Investor further acknowledges and agrees that the
Investment Manager shall not invest more than 40% of the net asset value of the
Account in non-U.S. Securities.
(c) The investor acknowledges that the Account, the
U.S. Fund, the Offshore Master Fund, the Non-ERISA Master Fund and Parallel
Vehicles (collectively, the "ROFR Investors") shall have a right of first
refusal ("ROFR") with respect to their respective pro rata shares (as determined
by the Investment Manager) of all investment opportunities presented to the
Account or to the Principals that meet the investment objective of the Account;
provided, that such right shall not extend to: (i) investments in excess of 50%
of the outstanding voting securities of businesses relating to the quick service
restaurant industry (as long as (x) Triarc Companies, Inc. ("Triarc") continues
to control the outstanding equity interests of businesses in such industry, (y)
one or more of the Principals serves as a director of Triarc, and (z) the
Principals directly or indirectly own in the aggregate in excess of 10% of
Triarc's common equity); (ii) investments presented to members of the Investment
Manager's investment team in their individual capacities as directors of
corporations or under other similar circumstances where pre-existing fiduciary
duties apply; or (iii) investments below $15 million, all of which investments
described in clauses (i)-(iii) may, at the option of the Principals, be offered
to the Account (provided that the ROFR shall apply to any such investment
referred to in clauses (i) and (ii) above that is rejected by such corporation
or other fiduciary entity).
4. The Investor acknowledges and agrees that assets of the
Account shall be valued for purposes of determining the Performance Fee (as
defined below) as follows:
(a) Securities that are listed on a securities exchange
shall be valued at their last sales prices on the date of determination on the
primary securities exchange on which such Securities shall have traded on such
date (or, in the event that the date of determination is not a date upon which a
securities exchange was open for trading, on the last prior date on which such
securities exchange was so open not more than 10 days prior to the date of
determination). Securities that are not listed on an exchange but are traded
over-the-counter shall be valued at the mean between the last "bid" and "asked"
price for such security on such date, unless included in the NASDAQ National
Market System, in which case they shall be valued based upon their last sales
prices (if such prices are available); provided that, if the last sales price of
a Security does not fall between the last "bid" and "asked" price for such
Security on such date, then the Investment Manager shall value such Security at
the mean between the last "bid" and "asked" price for such Security on such
date. Securities not denominated in U.S. dollars shall be translated into U.S.
dollars at prevailing exchange rates as the Investment Manager may determine in
good faith. Assets held in a Segregated Sub-Account (as defined below) will be
valued: (i) in the case of investments in Securities that are listed on a
securities exchange or traded over-the-counter, in the manner describe above as
of the last day of the immediately preceding quarter; and (ii) in the case of
all other investments, at cost (any such valuation pursuant to clauses (i) and
(ii) above, a "Value"). Securities that are difficult to value, including
illiquid Securities of the type referred to in clause (i) above, will be valued
as the Investment Manager may determine in good faith.
(b) All other assets of the Account (except goodwill,
which shall not be taken into account) shall be assigned such value as the
Investment Manager may determine in good faith.
(c) If the Investment Manager determines in its sole
discretion that the valuation of any Securities pursuant to Section 4(a) (other
than Securities valued pursuant to clause (ii) thereof) does not fairly
represent market value, the Investment Manager may value such Securities as it
determines in good faith and shall set forth the basis of such valuation in
writing in the Account's records.
(d) All values assigned to Securities and other assets
by the Investment Manager pursuant to this Section 4 shall be final and
conclusive as to the Investor.
5. The Investor acknowledges and agrees that liabilities of
the Account shall be determined using generally accepted accounting principles,
as a guideline, applied on a consistent basis; provided, however, that the
Investment Manager in its discretion may provide reserves for estimated accrued
expenses, liabilities or contingencies, including general reserves for
unspecified contingencies (even if such reserves are not in accordance with
generally accepted accounting principles).
6. All matters concerning the valuation of Securities and
other assets, liabilities, profits and losses of the Account, and accounting
procedures, not expressly provided for by the terms of this Agreement, shall be
determined by the Investment Manager whose determination shall be final and
conclusive as to the Investor.
7. (a) No management fee shall be due to the Investment
Manager in respect of the services provided hereunder by the Investment Manager.
(b) 100% of all broken deal and 50% of all transaction
and advisory fees received by or otherwise payable to the Investment Manager or
its Affiliates in connection with the Account's share of an actual or
prospective investment will be paid to the Account (as reasonably determined by
the Investment Manager based on the proportion of the actual or prospective
investment therein made or to be made by the Account versus that made by Other
Accounts).
8. (a) During the 24-month period commencing on the
Contribution Date (the "Waiver Period"), no performance fee shall be charged to
the Investor in respect of the Account. Thereafter, an annual performance fee
(the "Performance Fee") equal to 15% of the net unrealized and realized
appreciation of the Account (excluding Segregated Investments (as defined
below)) during each calendar year (starting immediately after the expiration of
the Waiver Period) shall be paid to the Investment Manager after adjustment for
any additional capital contributions and/or withdrawals from the Account by the
Investor; provided, that no Performance Fee due in respect of any calendar year
shall be paid to the Investment Manager until all net losses of the Account from
any prior calendar year have been recouped.
(b) From time to time, the Investment Manager may
determine that certain assets in the Account lack a readily assessable market
value and/or are intended to be longer term investments and should, therefore,
be held until the resolution of a special event or circumstance. Such illiquid
and/or longer term investments ("Segregated Investments") may be held in a
"Segregated Sub-Account". Segregated Investments may, but are not expected to,
comprise more than 25% of the net asset value of the Account. Whenever a
Segregated Investment is realized or the Investment Manager determines, at its
sole discretion, that such Segregated Investment should no longer be maintained
in a Segregated Sub-Account, the Segregated Investment shall be transferred out
of the Segregated Sub-Account and 100% of the unrealized appreciation or
depreciation (if any) of such Segregated Investment will be applied to the
Account for purposes of calculating the Performance Fee.
(c) Any Performance Fee due the Investment Manager
shall be paid within 30 days from December 31 of each calendar year.
(d) Any Performance Fee due in respect of a period that
is shorter than one year shall be calculated pro rata based on the number of
days in such period, assuming a 365-day year.
(e) The Investment Manager shall have the right to
amend, without the consent of the Investor, this Section 8 so that the
Performance Fee therein provided conforms to any applicable requirements of the
Securities and Exchange Commission (the "SEC") and other regulatory authorities;
provided, however, that no such amendment shall increase the Performance Fee
that otherwise would be charged to the Investor.
9. The Investment Manager shall have full discretion and
authority, without obtaining any prior approval from the Investor, as the
Investor's agent and attorney-in-fact, and at the Investor's expense:
(a) to make all investment decisions in respect of the
Account;
(b) to invest the Account in Securities in accordance
with the Investment Strategy;
(c) to give instructions to the Custodians relating to
investment decisions in respect of the Account;
(d) to complete, execute and return documentation on
behalf of the Investor relating to Securities to be bought or sold for the
Investor pursuant to this Agreement including any proxy solicitation or related
materials distributed by the issuer of any Security held in the Account; and.
(e) in furtherance of the foregoing, to do anything
that the Investment Manager shall deem requisite, appropriate or advisable in
connection therewith, including, without limitation, the selection of such
brokers, dealers and others as the Investment Manager shall determine.
10. The Investment Manager is not authorized to take custody
or possession of any cash or Securities constituting a part of the Account. The
Investor shall appoint Goldman, Sachs & Co. and Morgan Stanley & Co.
Incorporated or any of their now or hereafter existing affiliated entities as a
custodian (each a "Custodian" and together the "Custodians") for the assets of
the Account. All trades shall be executed in the name of "TCMG-MA, LLC" and
deposited with the Custodians. The Investment Manager shall have no
responsibility or liability with respect to the acts, omissions or other conduct
of the Custodians.
11. The Investor shall provide such certificates, limited
powers of attorney or other documentation reasonably requested by the Custodians
or any broker through which the Investment Manager may be authorized to cause
the purchase and sale of securities in connection with the performance of the
Investment Manager's duties hereunder.
12. The Investor hereby irrevocably constitutes and appoints
the Investment Manager as its agent and attorney-in-fact to, in its discretion,
vote, tender, exercise or convert any Securities in the Account and to execute
proxies, waivers, consents and other instruments with respect to the foregoing;
and to endorse, transfer or deliver such Securities and to participate in or
consent to any class action, plan of reorganization, merger, combination,
consolidation, liquidation or similar plan with reference to such securities
(collectively, the "Discretionary Acts"). The Investment Manager shall not incur
any liability to the Investor by reason of any exercise of, or failure to
exercise, discretion with respect to the Discretionary Acts. The Investment
Manager will exercise its discretion with respect to the Discretionary Acts and
take such action with respect to the Discretionary Acts as it determines in good
faith to be in the best interest of the Investor. The Investor agrees to (i)
provide such documentation and (ii) take such necessary action, as may be
requested by the Investment Manager in order to facilitate the performance of
the Discretionary Acts.
13. (a) The Investment Manager hereby confirms that Messrs.
Peltz and May and/or entities (other than the Investor) controlled by them have
committed to invest at least $75 million in aggregate in the U.S. Fund and the
Parallel Vehicles.
(b) The Investor represents, warrants and agrees that:
(i) The retention of the Investment Manager by the
Investor as investment manager with respect to the investment of all assets held
in the Account is authorized by the Limited Liability Company Agreement of the
Investor.
(ii) The execution, delivery and performance of this
Agreement does not violate any obligation by which the Investor or its property
is bound, whether arising by contract, operation of law or otherwise.
(iii) This Agreement has been duly authorized by
appropriate action and when executed and delivered will be a legal, valid and
binding agreement of the Investor, enforceable against the Investor in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
of general application relating to or affecting the rights and remedies of
creditors and by general principles of equity), and the Investor will deliver to
the Investment Manager such evidence of such authority as the Investment Manager
may reasonably require, whether by way of a certified resolution or otherwise.
(iv) The Investor is an "accredited investor" as that
term is defined in Rule 501(a) of the Securities Act of 1933, as amended, a
"qualified purchaser" as that term is defined in Section 2(a)(51) of the
Investment Company Act of 1940, as amended, and a "qualified client" as defined
in Rule 205-3 of the Investment Advisers Act of 1940, as amended.
(v) The foregoing representations and warranties shall
continue during the term of this Agreement, and if at any time during the term
of this Agreement any event has occurred that would make any of the foregoing
representations and warranties untrue or inaccurate in any material respect, the
Investor will promptly notify the Investment Manager of such event and inform
the Investment Manager of the representations and warranties that are no longer
true.
14. (a) The Investor understands that the Investment
Manager will perform investment advisory services for other investment vehicles
and accounts, including the Other Accounts. Nothing in this Agreement shall be
deemed to impose upon the Investment Manager any obligation to purchase or sell
for the Account any Security that the Investment Manager, its principals,
affiliates or employees may purchase or sell for its or their own accounts or
for the account of any other client, if in the sole discretion of the Investment
Manager, such transaction or investment appears unsuitable, impractical or
undesirable for the Account. Furthermore, the Investor acknowledges that the
portfolios, as well as the performance, of the Account and the Other Accounts
will differ as a result of differing capital flows (i.e., differences in the
amount and timing of contributions and withdrawals) as well as because of
different tax and regulatory considerations.
(b) The Investor acknowledges that other clients of the
Investment Manager and clients of the Investment Manager's affiliates, and
affiliates, officers, directors, and employees of any of them may have an
interest in a security whose purchase or sale is recommended or that is
purchased, sold or otherwise traded by the Investment Manager on behalf of the
Investor. Accordingly, the Investor agrees that the Investment Manager may
engage in transactions on behalf of the Investor that may be inconsistent with
transactions recommended to, or engaged in by the Investment Manager on behalf
of other clients of the Investment Manager or clients of the Investment
Manager's affiliates, or transactions engaged in by the affiliates, officers,
directors or employees of any of them.
(c) The Investor acknowledges and agrees that the
Investment Manager may cause the Account, either alone or together with other
members of a group (including the U.S. Fund, the Offshore Master Fund, the
Non-ERISA Master Fund and any Parallel Vehicles), to acquire a "control"
position in the Securities of a company in which the Account is invested, and
may secure the appointment of persons selected by the Investment Manager or
other members of the group to such company's management team or board of
directors. In so doing, the Investor acknowledges and agrees that the Investment
Manager may acquire fiduciary duties to such company and to the other
shareholders of such company; and that these fiduciary duties may compel the
Investment Manager to take actions that, while in the best interests of such
company and/or its shareholders, may not be in the best interests of the
Investor. Accordingly, the Investor acknowledges and agrees that the Investment
Manager may have a conflict of interest between the fiduciary duties (if any)
that it owes to such companies and their shareholders, on the one hand, and
those that it owes to the Investor, on the other hand.
15. The Investor agrees that the Investment Manager shall
not be under any duty with regard to any assets, securities, funds or other
property held by the Investor that are not part of the Account.
16. Subject to the Investment Manager's right to comply with
any demand of any legal, regulatory or taxing authority having jurisdiction over
the Investment Manager, the Investment Manager shall treat as confidential all
information pertaining to the Account and the Investor shall treat the advice of
the Investment Manager and its other actions in respect thereof in the same
manner.
17. Until further written notice from the Investor to the
Investment Manager, the individuals whose names and specimen signatures are
designated to the Investment Manager in writing shall be the only persons
authorized to direct the Investment Manager. Any such written notice must
contain the names and specimen signatures of the individuals who are authorized
to act on behalf of the Investor and must be signed by one of the persons
previously designated to the Investment Manager as an authorized person. Any
instructions from the Investor or any such authorized individuals shall be made
in writing, or orally and confirmed in writing as soon as practicable
thereafter. The Investment Manager shall be entitled to rely upon any notice,
designation, instruction, direction, request or other communication given it
hereunder (whether given in writing by letter, fax, email, order or other
document, or orally by telephone or in person) without being required to
determine the authenticity or correctness thereof, provided the Investment
Manager believes such notice, designation, instruction, direction, request or
other communication to be genuine or given by a person duly authorized.
18. Instructions of the Investment Manager to the Investor
shall be made in writing, or orally and confirmed in writing as soon as
practicable thereafter. The Investment Manager shall instruct all brokers or
dealers executing orders on behalf of the Account to forward to the Investor
copies of all brokerage or dealer confirmations promptly in written or
electronic form after execution of all transactions.
19. The Investment Manager cannot and does not insure any
increase in the value of the Account. Additionally, the Investor acknowledges
that none of the Investment Manager, its affiliates, and any of their respective
shareholders, members, partners, directors, officers and employees (each, an
"Indemnified Party" and collectively, the "Indemnified Parties") shall be liable
to the Investor for (i) any acts or omissions arising out of, related to or in
connection with the Account or any entity in which it has an interest, any
transaction or activity relating to the Account or any entity in which it has an
interest, any investment or proposed investment made or held, or to be made or
held by the Account, or this Agreement or any similar matter, unless such action
or inaction was made in bad faith or constitutes fraud, willful misconduct or
gross negligence or (ii) any act or omission of any broker or agent of any
Indemnified Party, provided that the selection, engagement or retention of such
broker or agent was not made by the Indemnified Party seeking exculpation in bad
faith and does not constitute fraud, willful misconduct or gross negligence of
the Indemnified Party seeking exculpation. Each of the Indemnified Parties may
consult with counsel and accountants in respect of the Account's affairs and be
fully protected and justified in any action or inaction that is taken in
accordance with the advice or opinion of such counsel or accountants, provided
that their selection of such counsel or accountants was not made in bad faith
and does not constitute fraud, willful misconduct or gross negligence of the
Indemnified Party seeking exculpation.
20. The Investor acknowledges that to the fullest extent
permitted by law, the Investor shall indemnify and hold harmless, solely from
the Account's assets, each Indemnified Party from and against any loss, cost or
expense suffered or sustained by an Indemnified Party by reason of (i) any acts,
omissions or alleged acts or omissions arising out of or in connection with the
Account, or any entity in which it has an interest, any investment or proposed
investment made or held, or to be made or held by the Account, or this Agreement
or any similar matter (collectively, "Covered Acts"), including, without
limitation, any judgment, award, settlement, reasonable attorneys' fees and
other costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding, or claim, provided that such acts, omissions or
alleged acts or omissions upon which such actual or threatened action,
proceeding or claim are based were not made in bad faith or did not constitute
fraud, willful misconduct or gross negligence by the Indemnified Party seeking
indemnification, or (ii) any acts or omissions, or alleged acts or omissions, of
any broker or agent of any Indemnified Party (collectively, "Covered Broker
Acts"), provided that the selection, engagement or retention of such broker was
not made by the Indemnified Party seeking indemnification in bad faith and does
not constitute fraud, willful misconduct or gross negligence of the Indemnified
Party seeking indemnification. The Account shall advance to any Indemnified
Party reasonable attorneys' fees and other costs and expenses incurred in
connection with the defense of any action or proceeding that arises out of any
Covered Act or any Covered Broker Act, whether or not the provisos of (i) or
(ii) apply. In the event that such an advance is made by the Investor, the
Indemnified Party shall agree to reimburse the Investor for such fees, costs and
expenses to the extent that it shall be finally determined by non-appealable
order of a court of competent jurisdiction that it was not entitled to
indemnification. In no event shall the Investor have any liability under this
Section 20 in excess of the assets in the Account.
21. (a) The Investor understands that during the 36-month
period commencing on the Contribution Date (the "Lock-up Period"), it may
withdraw all or a portion of the assets in the Account (excluding any portion
thereof allocated to a Segregated Sub-Account) at the end of any fiscal quarter
on 65 days' notice to the Investment Manager; provided, however, that in the
event of a Triggering Withdrawal (as defined below), the Investor will not
withdraw prior to the Trigger Withdrawal Date (as defined below).
(b) (i) A "Triggering Withdrawal" means any direct or
indirect withdrawal by an Affiliated Investor (as defined below), including the
Investor, during the Lock-up Period (other than a withdrawal of an incentive
allocation from the U.S. Fund, the Offshore Master Fund or the Non-ERISA Master
Fund) that would cause the aggregate amounts invested by the Affiliated
Investors (including the value of their pro rata share in any segregated
investment or sub-accounts) in the Funds, the Account and any Parallel Vehicles
to be below an amount equal to the Affiliated Investment (as defined below)
reduced by any losses thereon.
(ii) A "Trigger Withdrawal Date" shall mean a day at
the end of the fiscal quarter, on which the Non-Affiliated Investors (as defined
below) may be eligible to withdraw or redeem certain specified amounts from
their investments in the Funds following a Triggering Withdrawal, as set forth
in a written notice from the Investment Manager or its affiliates to the
Non-Affiliated Investors.
(iii) "Affiliate" shall mean, with respect to any
Person, any Person controlling, controlled by or under common control with, such
Person. "Person" shall mean any individual, partnership, limited liability
company, corporation, trust or other entity.
(iv) "Affiliated Investors" shall mean the Principals,
the general partner of the U.S. Fund and/or their respective Affiliates.
"Non-Affiliated Investors" shall mean investors not affiliated with the
Principals, the general partner of the U.S. Fund and/or their respective
Affiliates.
(v) "Affiliated Investment" shall mean aggregate
investments by the Affiliated Investors in the U.S. Fund, the Offshore Master
Fund, the Non-ERISA Master Fund, Account I, the Account and/or any Parallel
Vehicles equal to the lesser of (x) 10% of the aggregate capital commitments of
all Non-Affiliated Investors in the U.S. Fund, the Non-ERISA Fund and the
Offshore Fund committed on the initial closing of such Funds, and (y) $200
million.
(c) Subject to the provisions set forth below, upon the
expiration of the Lock-up Period, the Investor shall have the right to withdraw
capital from the Account on December 31 of each year subject to 90 days' written
notice delivered to the Investment Manager.
(d) Payment of any withdrawal proceeds shall be made in
cash (or in kind if the Investment Manager reasonably determines that cash
payments are impractical) within 30 days of the withdrawal date; provided,
however, that if the Investor elects to withdraw 90% or more of the net asset
value of the Account (excluding for this purpose the Segregated Sub-Account),
the Investor shall receive an amount equal to at least 90% of its estimated
withdrawal proceeds (excluding its pro rata share in any Segregated Sub-Account
and computed on the basis of unaudited data as of the withdrawal date) within 30
days after the withdrawal date and the balance of the withdrawal shall be paid
(subject to audit adjustments) within 30 days after completion of the audit of
the Account for the year in which such withdrawal occurs. No interest will be
paid on any balance due after a withdrawal date. The Investor will retain its
interest in any Segregated Sub-Account until there is a realization of the
investment in such account or the Investment Manager determines that the
investment should no longer be maintained in the Segregated Sub-Account. Upon
such realization or determination, the investment or its proceeds will be
distributed to the Investor (net of any accrued Performance Fees with respect to
the Segregated Sub-Account) within 60 days of the end of the accounting period
in which such event occurs.
(e) In the event that the aggregate withdrawal requests
(other than pursuant to Section 21(f)) made by the Investor and investors in the
Other Accounts for any withdrawal date exceed 20% of the total net asset value
of all such accounts as of such date (excluding the value of any segregated
investments), the Investment Manager may, in its sole discretion, (i) satisfy
the Investor's withdrawal request, or (ii) reduce the Investor's withdrawal
request so that only 20% (such limitation, the "Gate") (or more, at the sole
discretion of the Investment Manager) of the net asset value of the Account
(excluding the value of any Segregated Investments) is withdrawn on such
withdrawal date. A withdrawal request that is not satisfied in full as of the
intended withdrawal date because of the foregoing restrictions will be satisfied
at the immediately following withdrawal date; provided, however, that the
withdrawal request will be fully satisfied (subject to the suspension provisions
described in Section 21(h)) no later than the last day of the twelfth full month
following the initial withdrawal date to which the withdrawal request relates.
Until the withdrawal date as of which a withdrawal becomes effective, the
Account will remain at risk. Notwithstanding the foregoing, the Investment
Manager agrees that it will not provide investors in Other Accounts with any
relief from the "gate" restriction applicable to such investors unless the
Investment Manager provides the same relief to the Account.
(f) The Investor shall have the right to withdraw
assets from the Account (without being subject to the Gate) if both Nelson Peltz
and Peter W. May: (i) die; (ii) are unable, by reason of illness or injury, to
perform their duties as officers of the Investment Manager for 90 consecutive
days; or (iii) for any reason other than death, illness or injury, cease to
perform their duties as officers of the Investment Manager. Upon the occurrence
of such an event, the Investment Manager will promptly notify the Investor.
During the 90-day period following notice of such an event (the "Suspension
Period"), no withdrawals shall be made. Upon the receipt of at least 30 days'
written notice prior to the end of the Suspension Period, the Investor may
withdraw assets from the Account as of the last day of the first full month
after the expiration of such Suspension Period (without being subject to the
Gate). Upon exercise of such special withdrawal right, the Investor will be paid
90% of its estimated withdrawal request (determined as of the end of such
calendar month), such amount to be paid promptly following the end of such
calendar month. The balance of the Investor's withdrawal request will be paid
(subject to audit adjustments) to the Investor within 30 days after completion
of a special audit of the Account as of the end of such calendar month.
(g) The Investment Manager may, in its sole discretion,
require the Investor to withdraw all or any part of the assets from the Account
at any time, for any reason or no reason, upon 5 days' prior written notice. The
Investment Manager also may require the Investor to withdraw all of the assets
from the Account immediately in the event that the Investment Manager, in its
sole discretion, determines that any representations or warranties made by the
Investor under Section 13(b) are no longer true.
(h) The Investment Manager may suspend withdrawal
rights, in whole or in part: (i) during any period when any stock exchange or
over-the-counter market on which the Account's investments are quoted, traded or
dealt in is closed, other than for ordinary holidays and weekends, or during
periods in which dealings are restricted or suspended; (ii) during the existence
of any state of affairs as a result of which, in the opinion of the Investment
Manager, disposal of the Account's investments would not be reasonably
practicable; (iii) during any breakdown in the means of communication normally
employed in determining the price or value of the Account's assets or
liabilities, or of current prices in any stock market as aforesaid, or when for
any other reason the prices or values of any assets or liabilities of the
Account cannot reasonably be promptly and accurately ascertained; (iv) during
any period when the transfer of funds involved in the realization or acquisition
of any investments cannot, in the opinion of the Investment Manager, be effected
at normal rates of exchange; or (v) where such withdrawal would impede a pending
tender offer, proxy contest, shareholder vote or other hostile action with
respect to an issuer. Upon the determination by the Investment Manager that any
of the above-mentioned conditions no longer applies, withdrawal rights shall be
promptly reinstated, and any pending withdrawal requests shall be honored as of
the end of the fiscal quarter following such determination.
(i) The Investment Manager may waive notice
requirements and require or permit withdrawals under such other circumstances as
it approves.
22. The Investment Manager agrees to provide the Investor
monthly position and activity reports in sufficient detail to allow the Investor
and/or its affiliates to record, value and confirm the activity that took place
within the Account during the prior month in the financial statements of the
Investor and/or its affiliates. The Investment Manager agrees to (i) establish
and implement all accounting, financial reporting and bookkeeping policies and
procedures and prepare and deliver to the Investor and/or its affiliates all
tax, accounting, financial and other information, in such form and manner and at
such times as the Investor and/or its affiliates may request to enable the
Investor and/or its affiliates to satisfy their tax, accounting, financial
reporting, bookkeeping and other obligations under applicable laws, rules and
regulations (including those under accounting principles generally accepted in
the United States of America, and those of the SEC, any stock exchange or other
self-regulatory organization) and its obligations under the Sarbanes-Oxley Act
of 2002, as amended from time to time, and (ii) use all reasonable efforts to
provide to the Investor, its affiliates and/or their respective agents or
representatives (including auditors) such other information and appropriate
access to the personnel and records of the Investment Manager and the personnel
and records of the counterparties to derivative transactions at such times
(including on a monthly basis) as may be reasonably requested by the Investor
and/or its affiliates in order to permit the Investor and/or its affiliates to
satisfy any other reporting obligations under applicable law or regulations.
23. The Investor agrees that it will bear all expenses
relating to the Account including, but not limited to, expenses relating to the
cost of purchasing investments (e.g., brokerage commissions and trading costs),
financing fees, prime brokerage fees, filing fees, registration fees and similar
fees, audit and tax return preparation fees, fees in respect of consulting,
custodial, accounting, investment banking, appraisal and financial advisory
services provided by third parties not affiliated with the Investment Manager
relating to investments or prospective investments, due diligence expenses and
fees relating to investments or prospective investments, conduct of proxy
contests and tender offers, litigation expenses and legal expenses (including
the cost of in-house counsel of the Investment Manager and its affiliates in
amounts not to exceed those that would be payable to outside counsel engaged to
perform such services as reasonably determined by the Investment Manager in good
faith) incurred in connection with the making or administration of investments
(to the extent not borne by companies in which the Account has an investment and
regardless of whether consummated), liability insurance covering the Investment
Manager and its respective affiliates, members, directors, officers, employees
and agents, and extraordinary expenses and other similar expenses related to the
Account as the Investment Manager determines in its sole discretion. The
Investment Manager will allocate the foregoing expenses amongst the Account and
the Other Accounts in an equitable manner and on a timely basis sufficient to
allow the Investor to meet its financial reporting requirements; provided, that
the Investment Manager may, in its discretion, specially allocate expenses to
the Account to reflect its interest in a Segregated Sub-Account, such allocation
to be in proportion to the Account's participating percentage in such Segregated
Sub-Account.
24. (a) The Investment Manager shall regard as confidential
all information concerning the businesses and affairs of the Investor and,
except to the extent required by law or regulation, shall not disclose such
information to anyone outside of the Investment Manager without the prior
written consent of the Investor; provided, however, that the Investment Manager
may include the name of the Investor in a representative client list.
(b) The Investor acknowledges that it will receive or
have access to confidential proprietary information concerning the Investment
Manager, including, without limitation, this Agreement, portfolio positions,
valuations, information regarding potential investments, financial information,
trade secrets and the like, which is proprietary in nature and non-public. The
Investor agrees that it shall not disclose or cause to be disclosed any such
confidential information to any person or use any such confidential information
for its own purposes or its own other accounts, except in connection with its
investment in the Account (including for federal securities, tax, accounting or
other reporting purposes) and except as otherwise required by any regulatory
authority, law or regulation, or by legal process. Notwithstanding the
foregoing, the Investor (and each employee, representative or other agent of the
Investor) may disclose to any and all persons, without limitation of any kind,
the tax treatment and tax structure of the transactions described herein and all
materials of any kind (including opinions or other tax analyses) that are
provided to the Investor relating to such tax treatment and tax structure, it
being understood that "tax treatment" and "tax structure" do not include the
information identifying the transactions described herein.
25. (a) This Agreement will have an initial term of three
years, and thereafter shall be automatically renewed on a one-year rolling basis
unless the Investor gives the Investment Manager 90 days written notice prior to
the applicable three-year or one-year period. The Investment Manager may
terminate the Agreement at any time, upon 90 days' prior written notice to the
Investor.
(b) The Investor may terminate this Agreement at any
time when it has withdrawn, in accordance with this Agreement, all of the assets
from the Account.
26. Any notice, consent or other communication made or given
in connection with this Agreement shall be in writing and shall be deemed to
have been duly given when delivered by hand or facsimile or five days after
mailed by certified mail, return receipt requested, as follows:
to the Investment Manager at:
Trian Fund Management, L.P.
280 Park Avenue, 41st Floor
New York, New York 10017
Attn: General Counsel
and to the Investor at:
TCMG-MA, LLC
280 Park Avenue, 41st Floor
New York, New York 10017
Attn: General Counsel
27. No provision of this Agreement may be amended, modified,
waived or discharged except as agreed to in writing by the parties. The failure
of a party to insist upon strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver thereof or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement.
28. This Agreement shall be binding upon and inure to the
benefit of the Investor, the Investment Manager, and with respect to Sections 19
and 20 each Indemnified Party, and their respective successors and permitted
assigns. Any person that is not a signatory to this Agreement but is
nevertheless conferred any rights or benefits hereunder shall be entitled to
such rights and benefits as if such person were a signatory hereto, and the
rights and benefits of such person hereunder may not be impaired without such
person's express written consent. Except as provided for pursuant to the
preceding sentence, nothing in this Agreement, express or implied, is intended
to or shall confer any rights or benefits upon any other person or entity than
the parties hereto. No party to this Agreement may assign or delegate, by
operation of law or otherwise, all or any portion of its rights, obligations or
liabilities under this Agreement without the prior written consent of the other
party to this Agreement.
29. Notwithstanding the place where this Agreement may be
executed by either of the parties hereto, the parties expressly agree that all
terms and provisions hereof shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to contracts made and
wholly performed, and to transactions wholly consummated, within that State.
30. Each party hereto hereby consents to submit to the
jurisdiction of the courts of the State of New York and of the United States of
America located in the City of New York, for any action, suit or proceeding
arising out of or relating to this Agreement. Each party further waives any
objection to the laying of venue of any such action, suit or proceeding in such
courts, and further agrees not to plead or claim in any such court that any such
action, suit or proceeding has been brought in an inconvenient forum.
31. The provisions of Sections 19, 20, 22, 26, 28, 29 and 30
hereof shall survive the termination of this Agreement.
32. Except as provided herein, this Agreement contains all
of the terms agreed upon or made by the parties relating to the subject matter
of this Agreement, and supersedes all prior and contemporaneous agreements,
negotiations, correspondence, undertakings and communications of the parties,
oral or written, respecting such subject matter.
33. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
Agreed to and accepted as of the TCMG-MA, LLC
14th day of November, 2005 By: /s/ Francis T. McCarron
-------------------------
Name: Francis T. McCarron
Title: Executive Vice President and
Chief Financial Officer
Trian Fund Management, L.P.
By: Trian Fund Management GP, LLC
Its General Partner
By: /s/ Peter W. May
-------------------------
Name: Peter W. May
Title: Member
Exhibit 10.4
================================================================================
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
JURL HOLDINGS, LLC
A Delaware Limited Liability Company
- -------------------------------------------------------------------------------
Dated as of November 10, 2005
- -------------------------------------------------------------------------------
===============================================================================
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
JURL HOLDINGS, LLC
Table of Contents
Page
----
ARTICLE 1 THE COMPANY....................................................... .1
1.1 Name......................................................1
1.2 Place of Business; Agent..................................1
1.3 Purpose...................................................2
1.4 Statutory Compliance......................................2
1.5 Title to Property.........................................2
1.6 Duration..................................................2
1.7 Qualification in Other Jurisdictions......................2
1.8 Definitions...............................................2
ARTICLE 2 CAPITALIZATION; RECAPITALIZATION...................................13
2.1 Capitalization...........................................13
2.2 Recapitalization.........................................13
2.3 Capital Contributions....................................13
2.4 No Partition; No Drawings; Etc...........................14
2.5 Liabilities of Members...................................14
2.6 Capital Accounts.........................................14
ARTICLE 3 DISTRIBUTIONS......................................................15
3.1 Distributions of Available Net Cash......................15
3.2 Tax Advances.............................................16
3.3 Tax Withholding..........................................16
3.4 Distributions - General Principles.......................17
3.5 Retained Amounts - General...............................17
3.6 Write-Downs of Jurlique Interest.........................18
3.7 Sale of Jurlique Interest; Restructuring Event...........19
3.8 Class B Clawback.........................................19
ARTICLE 4 ALLOCATIONS........................................................20
4.1 Allocations of Net Income and Net Loss...................20
4.2 Allocations For Income Tax Purposes......................20
4.3 Special Allocations......................................20
ARTICLE 5 ACCOUNTING FOR THE COMPANY; TAX MATTERS............................22
5.1 Accounting for the Company...............................22
5.2 Books and Records; Access................................22
5.3 Reports..................................................23
5.4 Tax Returns..............................................23
5.5 Tax Matters Partner......................................23
5.6 Treatment as Partnership.................................23
ARTICLE 6 MANAGEMENT; VOTING.................................................24
6.1 Board of Managers........................................24
6.2 Meetings of the Board of Managers........................25
6.3 Quorum; Voting...........................................26
6.4 Committees of the Board of Managers......................26
6.5 Compensation.............................................27
6.6 No Management by Members.................................27
6.7 Officers.................................................27
6.8 Voting Rights of Members.................................29
6.9 Indemnification..........................................29
ARTICLE 7 PUT OF CLASS B UNITS...............................................31
7.1 Valuations...............................................31
7.2 Fifth Year Put...........................................31
7.3 Seventh Year Put.........................................31
7.4 Eighth Year Put..........................................32
7.5 Payment..................................................32
7.6 Termination of Put Rights................................33
ARTICLE 8 TRIARC CALL RIGHT; ADDITIONAL CLASS B MEMBER PUT RIGHT.............33
8.1 Triarc Call Right........................................33
8.2 Class B Member Put Right.................................34
8.3 Financing Limitation.....................................34
8.4 Termination of Put/Call Rights...........................34
ARTICLE 9 TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS; RESTRUCTURING EVENT...........35
9.1 Tag-Along Rights.........................................35
9.2 Drag-Along Right.........................................36
9.3 Pro Rata Sale............................................36
9.4 Distribution of Jurlique Interest........................37
9.5 Jurlique IPO.............................................38
ARTICLE 10 TRANSFER RESTRICTIONS AND ADMISSION OF NEW MEMBERS................38
10.1 Transfer Restrictions....................................38
10.2 Additional Restrictions on Transfers.....................38
10.3 Assignees................................................39
10.4 Admission of Additional Members..........................39
ARTICLE 11 DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY...........40
11.1 Events Causing Dissolution...............................40
11.2 Liquidation..............................................40
11.3 Termination..............................................42
ARTICLE 12 AMENDMENTS........................................................43
12.1 Amendments Generally.....................................43
12.2 Notice of Amendments.....................................43
ARTICLE 13 MISCELLANEOUS.....................................................43
13.1 Notices..................................................43
13.2 Severability.............................................44
13.3 Interpretation...........................................44
13.4 Additional Documents.....................................44
13.5 Entire Agreement.........................................44
13.6 Applicable Law...........................................44
13.7 No Third-Party Beneficiary...............................44
13.8 Confidentiality..........................................44
13.9 Counterparts.............................................45
Schedule A - Schedule of Class A Members, Member's Capital Contributions, Units
Issued, Percentage Interests
Schedule B - List of Executive Officers
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
JURL HOLDINGS, LLC
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF JURL HOLDINGS,
LLC, dated as of November 10, 2005, by and among the undersigned Members and
such other parties who may from time to time be admitted as Members of the
Company in accordance with the terms of this Agreement. Definitions of certain
terms used in this Agreement are contained in Section 1.8.
RECITALS
A. The Company was formed as a Delaware limited liability company pursuant
to a certificate of formation filed with the Secretary of State of the State of
Delaware on May 20, 2004 (the "Certificate of Formation").
B. The Members wish to enter into this Agreement to amend and restate the
Limited Liability Company Operating Agreement of the Company, dated as of May
20, 2004 (the "Original Agreement").
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby amend and
restate the Original Agreement in its entirety to read as follows:
ARTICLE 1
THE COMPANY
1.1 Name. The Company is organized as a limited liability company under and
pursuant to the provisions of the Act. The rights, duties and obligations of the
Members shall be as provided in the Act, except as otherwise provided in this
Agreement. The name of the Company is "Jurl Holdings, LLC." All business of the
Company shall be conducted in such name or such other name as the Board of
Managers may determine; provided, that, (i) the name shall always contain the
words "Limited Liability Company" or the letters "LLC" or "L.L.C.", and (ii) the
name shall not contain the name (or identifiable portion thereof) of a Member
without such Member's consent. The Company shall give prompt notice of any name
change to each Member.
1.2 Place of Business; Agent. The principal office of the Company shall be
located initially at 280 Park Avenue, New York, New York 10017. The Company
shall maintain a registered agent (upon whom process may be served) and
registered office in the State of Delaware, which initially are Corporation
Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808.
The Board of Managers may change the office locations and agent of the Company
at any time by giving written notice thereof to the Members.
1.3 Purpose. The business of the Company shall be to engage in any and all
lawful activity permitted under the Act and to do any other act or thing
incidental or ancillary thereto. In furtherance of its business, the Company
shall have and may exercise all of the powers now or hereafter conferred by the
laws of the State of Delaware on limited liability companies formed under the
laws of the State of Delaware, including the power to deal in and with all types
of property, both real and personal, tangible and intangible, and to do any and
all things related or incidental to this business.
1.4 Statutory Compliance. The Board of Managers shall cause the Company to
promptly make such filings from time to time as are required by applicable law
to give effect to the provisions of this Agreement and to cause the Company to
be treated as a limited liability company under the laws of the State of
Delaware. The Board of Managers hereby authorizes each Executive Officer to
execute, file and record or cause to be executed, filed and recorded all such
other certificates and documents, including amendments to the Certificate of
Formation, and to do or cause to be done such other acts as may be appropriate
to comply with all requirements for the formation, continuation and operation of
a limited liability company, the ownership of property and the conduct of
business under the laws of the State of Delaware and any other jurisdiction in
which the Company may own property or conduct business, but only to the extent
consistent with this Agreement.
1.5 Title to Property. All property owned by the Company shall be owned by
the Company as an entity. Unless required by applicable law, no Member shall
have any ownership interest in Company property in its separate name or right.
Each Member's interest in the Company shall be personal property of such Member
for all purposes.
1.6 Duration. The Company shall continue in full force and effect until
terminated pursuant to Article 11.
1.7 Qualification in Other Jurisdictions. The Board of Managers shall cause
the Company to be qualified, formed, reformed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Company transacts business if such qualification, formation, reformation or
registration is necessary or desirable in order to protect the limited liability
of the Members or to permit the Company lawfully to transact business.
1.8 Definitions.
(a) Capitalized terms used in this Agreement have the following
meanings:
"Act" means the Delaware Limited Liability Company Act, 6 Del. C ss.ss.
18-101 et seq., as amended from time to time, and any successor to such Act.
"Adjusted Capital Contributions" means, with respect to each Class A Member
and Class B Member as of any determination date, the sum of the amounts computed
separately for each Capital Contribution made with respect to Class A Units or
Class B Units (as the case may be) equal to the product of (x) the amount of
such Capital Contributions with respect to Class A Units or Class B Units (as
the case may be), and (y) a fraction, the numerator of which is the sum of the
fair market value of the Company on the Jurlique Acquisition Date (treating the
fair market value of the Jurlique Interest as equal to the cost basis of the
Jurlique Interest on the Jurlique Acquisition Date), plus the aggregate amount
of any subsequent Adjusted Capital Contributions made prior to such
determination date, and the denominator of which is the fair market value of the
Company on the date such Capital Contribution is made.
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person. For the purposes of
this definition, the term "control" means the power to direct the principal
business management and activities of a Person, whether through ownership of
voting securities, by agreement, or otherwise.
"Agreement" means this Amended and Restated Limited Liability Company
Agreement, including all Schedules hereto, as amended, modified, supplemented or
restated from time to time. This Agreement is the Company's "operating
agreement" within the meaning of the Act.
"Attributable GAAP Net Profits" means, as of any date of determination,
with respect to any Class B Member, the product of (x) the cumulative net
profits of the Company earned since the Issuance Date as determined in
accordance with GAAP, (y) the Class A Capital Percentage, and (z) such Class B
Member's Class B Percentage. For the avoidance of any doubt, (i) in the event of
a sale or other disposition of all or a portion of the Company's assets or any
similar transaction, subclause (x) shall, to the extent otherwise required under
this Agreement, include the net profits and losses of the Company attributable
to such sale or disposition computed from the Jurlique Acquisition Date as
determined in accordance with GAAP; and (ii) subclause (x) shall, to the extent
otherwise required under this Agreement, include the net profits and losses of
the Company as determined in accordance with GAAP attributable to any
hypothetical or deemed liquidation of the Company or sale, or adjustment to fair
market value, of Company assets, as if such events actually occurred (including
pursuant to Sections 4.1(a), 4.3(h), 9.3, 9.4 and 11.2(d)).
"Available Net Cash" means, for any Fiscal Year (or portion thereof), the
aggregate amount of cash of the Company at the end of such period, as reasonably
determined by the Board of Managers, minus any Operating Reserve.
"Average Retained Amount Percentage" means, with respect to any Class B
Member, as of any date of sale of the Jurlique Interest, a fraction (expressed
as a percentage), the numerator of which is the sum of the products of the
Retained Amount Percentage with respect to each Reserve Period and the amount of
the applicable Retained Amount or Frozen Release Amount (as the case may be) as
of the date of such sale with respect to such Reserve Period, and the
denominator of which is the total Retained Amounts or Frozen Release Amounts (as
the case may be) as of the date of such sale with respect to all Reserve
Periods.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are
authorized or required by law or executive order to close.
"Capital Contributions" means, with respect to each Member, as of any date
of determination, (i) the total amount of cash contributed or deemed contributed
to the Company, (ii) the fair market value of any property (as reasonably
determined in good faith by the Board of Managers) that such Member has
contributed to the Company (net of any liabilities that the Company has assumed
or taken subject to, under Section 752 of the Code, in connection with acquiring
such property), and (iii) the amount of any Company liabilities that such Member
has assumed, within the meaning of Section 1.704-1(b)(2)(iv)(c) of the
Regulations, other than in connection with receiving a distribution from the
Company.
"Capital Interest Portion" means, with respect to each Class B Member's
Class B Units, the right to distributions pursuant to Sections 3.1(a)(i) and
11.2(b)(iii)(x) (and distributions pursuant to Section 3.2 to the extent treated
as made under such Sections).
"Carrying Value" means, with respect to any Company asset, the asset's
adjusted net basis for United States federal income tax purposes, except that
the Carrying Values of all Company assets may, at the discretion of the Board of
Managers, be adjusted to equal their respective fair market values (as
reasonably determined in good faith by the Board of Managers), in accordance
with the rules set forth in Regulation Section 1.704-1(b)(2)(iv)(f), as provided
for in Section 4.3(h). In connection with the transactions contemplated by the
issuance of the Class B Units on the Issuance Date, the Carrying Values of all
Company assets as of the Issuance Date, other than the Jurlique Interest, shall
be adjusted to equal their fair market values and the Carrying Value of the
Jurlique Interest shall be adjusted to equal the Issuance Date Value (in a
manner reasonably determined in good faith by the Board of Managers in
accordance with Regulation Section 1.704-1(b)(2)(iv)(f)). In the case of any
Company asset that has a Carrying Value that differs from its adjusted tax
basis, Carrying Value shall be adjusted by the amount of depreciation, depletion
and amortization calculated for purposes of the definitions of "Net Income" and
"Net Loss" rather than the amount of depreciation, depletion and amortization
determined for United States federal income tax purposes.
"Class" means any Class of Units.
"Class A Attributable GAAP Net Profits" means, with respect to each Class A
Member, an amount equal to the product of (A) the excess, if any, of (x) the
cumulative net profits of the Company earned since the Issuance Date as
determined in accordance with GAAP, over (y) an amount equal to cumulative Class
B Attributable GAAP Net Profits with respect to all Class A Members; and (B) a
fraction, the numerator of which is such Class A Member's Adjusted Capital
Contributions and the denominator of which is the aggregate Adjusted Capital
Contributions of the Class A Members. For the avoidance of any doubt, (i) in the
event of a sale or other disposition of all or a portion of the Company's assets
or any similar transaction, subclause (x) shall include the net profits and
losses of the Company attributable to such sale or disposition computed from the
Jurlique Acquisition Date as determined in accordance with GAAP; and (ii)
subclause (x) shall, to the extent otherwise required under this Agreement,
include the net profits and losses of the Company as determined in accordance
with GAAP attributable to any hypothetical liquidation of the Company or sale,
or adjustment to fair market value, of Company assets, as if such events
actually occurred (including pursuant to Sections 4.1(a), 4.3(h), 9.3, 9.4 and
11.2(d)).
"Class A Capital Percentage" means a fraction (expressed as a percentage),
the numerator of which is the aggregate Adjusted Capital Contributions made by
the Class A Members, and the denominator of which is the aggregate Adjusted
Capital Contributions made by the Class A Members and Class B Members.
"Class A Member" means a Member who holds Class A Units.
"Class A Percentage" means, with respect to a Class A Member, a fraction
(expressed as a percentage), the numerator of which is the number of Class A
Units owned by such Member and the denominator of which is the total number of
Class A Units owned by all Members.
"Class B Attributable GAAP Net Profits" means, with respect to each Class A
Member, an amount equal to the product of (A) the aggregate Attributable GAAP
Net Profits amounts for all Class B Members; and (B) a fraction, the numerator
of which is such Class A Member's Adjusted Capital Contributions and the
denominator of which is the aggregate Adjusted Capital Contributions of the
Class A Members.
"Class B Clawback Percentage" means with respect to each Class B Member,
(i) prior to February 15, 2011, 100%, (ii) on or after February 15, 2011 to and
including February 14, 2012, 66?%, (iii) on or after February 15, 2012 and to
and including February 14, 2013, 33?%, and (iv) on or after February 15, 2013,
0%.
"Class B Member" means a Member who holds Class B Units.
"Class B Percentage" means, with respect to a Class B Member, the
percentage set forth in the Company's Register of Members, as the same may be
adjusted pursuant to such Class B Member's Subscription Agreement, including to
reflect any forfeiture of the Profits Interest Portion of his Class B Units.
"Class B Profits Interest Percentage" means a percentage equal to the sum
of the Class B Percentages of all of the Class B Members.
"Class of Units" means the Class A Units or Class B Units, as the case may
be or as the context requires.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, and any
successor thereto.
"Company" means Jurl Holdings, LLC, and its successors.
"Company Minimum Gain" has the meaning specified for "partnership minimum
gain" in Regulation Section 1.704-2(b)(2) and 1.704-2(d).
"Control Group" means any of Nelson Peltz or Peter W. May or any Affiliate
of Nelson Peltz or Peter W. May or any Person affiliated with either such
persons (including any spouse, siblings and their spouses and the descendants of
any of them, and any trust, partnership, foundation or other entity established
and maintained primarily for the benefit of any of them).
"Cumulative Unrealized Loss" means, as of any determination date, the
excess, if any, of (i) the aggregate Capital Contributions made by all Members
with respect to Class A Units and Class B Units, over (ii) the sum of the Fair
Market Value of the Company, as of such determination date and all distributions
of Available Net Cash to the Members.
"Deemed Cumulative Tax Liability with respect to the Profits Interest
Portion" with respect to each Class B Member, means the aggregate amount of Tax
Liability computed for such Class B Member for each Taxable Year (or portion
thereof) over the period during which the Class B Units were held by such Class
B Member.
"Fair Market Value" means, with respect to any asset, property or interest,
as of the date of determination, the price at which, in the reasonable good
faith determination of the Triarc Board, such asset, property or interest would
likely be sold in an arm's length transaction between a willing and able buyer
and a willing and able seller, neither of which is an Affiliate of the other and
neither of which is under compulsion to enter into such transaction, based on
then prevailing market conditions and taking into account all circumstances
determined to be relevant to the establishment of such price at such time,
including, if applicable, multiples of EBITDA, revenues and net income for which
asset management companies similar to Jurlique are being acquired and other
relevant comparables, and in the case of equity securities, without any minority
or illiquidity discounts or any discount based on the difference in voting or
other rights conferred as a result of the provisions of this Agreement. "Fair
Market Value" shall be determined as of the date of the event giving rise to the
need to determine "Fair Market Value."
"Fiscal Year" means the calendar year or, in the case of the first and last
Fiscal Years of the Company, the fraction thereof commencing on the date of the
filing of the Certificate of Formation or ending on the date on which the
winding up of the Company is completed, as the case may be.
"GAAP" means generally accepted accounting principles of the United States
of America.
"Interest Rate" means LIBOR, plus 450 basis points.
"Issuance Date" means the execution date of this Agreement.
"Issuance Date Value" means the value of the Jurlique Interest as of the
Issuance Date as determined by the appraisal completed by a third-party
appraiser.
"Jurlique" means Jurlique International Pty Ltd., an Australian
corporation.
"Jurlique Acquisition Date" means July 8, 2004.
"Jurlique Interest" means the shares in the share capital of Jurlique that
are owned by the Company.
"Jurlique Interest Percentage" means, as of the date of any sale of all or
a portion of the Jurlique Interest, a fraction (expressed as a percentage), the
numerator of which is the Liquidation Value of the portion of the Jurlique
Interest that is the subject of such sale, and the denominator of which is the
Liquidation Value of the entire Jurlique Interest.
"LIBOR" means, in relation to any relevant sum and any relevant period:
(i) the rate shown on Bloomberg page "BBAM1" of the Bloomberg Screen as
being the rate per annum at which Dollar deposits are offered for a period equal
or comparable to such period at or about 11:00 a.m. (London time) on the second
Business Day in London before the first day of such period; for this purpose
"Bloomberg Screen" means the display page so designated on the Bloomberg
service; or
(ii) if at or about such time on the relevant day no such rate appears on
the Bloomberg Screen, the rate shown on the Telerate Monitor Screen as being the
rate per annum at which U.S. dollar deposits are offered for a period equal or
comparable to such period at or about 11:00 a.m. (London time) on the second
Business Day in London before the first day of such period; for this purpose
"Telerate Monitor Screen" means the display designated as page "3750" on the
Telerate Monitor system or such other page as may replace page "3750" on that
system for the purpose of displaying offered rates for U.S. dollar deposits; or
(iii) if at or about such time on the relevant day no such rate appears on
the Telerate Monitor Screen, the rate per annum at which U.S. dollar deposits in
an amount comparable to such sum are offered to Citibank, N.A. for such period
by prime banks in the London interbank market at or about l1:00 a.m. (London
time) on the second Business Day in London before the first day of such period,
as determined by the Triarc Board.
"Liquidation Value" means, as of the date of any sale of all or a portion
of the Jurlique Interest, the amounts that would be received by the Company from
Jurlique assuming that (i) Jurlique was dissolved, its affairs wound up and its
assets sold for cash equal to their Fair Market Value, (ii) Jurlique's
liabilities were satisfied, and (iii) the net assets of Jurlique were
distributed to its shareholders in accordance with applicable law.
"Manager" means a member of the Board of Managers.
"Member" means any Class A Member or Class B Member.
"Member Nonrecourse Debt Minimum Gain" means, with respect to each Member
nonrecourse debt (which has the same meaning as "partner recourse debt" in
Regulation Section 1.704-2(b)(4)), an amount equal to the Company Minimum Gain
that would result if such Member nonrecourse debt were treated as a nonrecourse
liability (as defined in Regulation Section 1.752-1(a)(2)) determined in
accordance with Regulation Section 1.704-2(i)(3).
"Member Nonrecourse Deductions" has the meaning specified for "partner
nonrecourse deductions" in Regulation Section 1.704-2(i)(2).
"Net Income" and "Net Loss" means, for each Fiscal Year or other period,
the taxable income or loss of the Company, or particular items thereof,
determined in accordance with the accounting method used by the Company for
United States federal income tax purposes with the following adjustments: (a)
all items of income, gain, loss, or deduction allocated pursuant to Section 4.3
(other than Section 4.3(h)) shall not be taken into account in computing such
taxable income or loss; (b) any income of the Company that is exempt from United
States federal income taxation and not otherwise taken into account in computing
Net Income and Net Loss shall be added to such taxable income or loss; (c) if
the Carrying Value of any asset is adjusted pursuant to the definition of
Carrying Value, or an adjustment is made to the Capital Accounts under Section
4.3(h) with respect to a distribution of property, the amount of such adjustment
shall be taken into account, immediately prior to the event giving rise to such
adjustment, as gain or loss from the disposition of such asset for purposes of
computing Net Income or Net Loss; (d) if the Carrying Value of any asset differs
from its adjusted tax basis for United States federal income tax purposes, any
gain or loss resulting from a disposition of such asset shall be calculated with
reference to such Carrying Value; (e) if the Carrying Value of any asset differs
from its adjusted tax basis for United States federal income tax purposes, the
amount of depreciation, amortization or cost recovery deductions with respect to
such asset shall for purposes of determining Net Income and Net Loss be an
amount which bears the same ratio to such Carrying Value as the United States
federal income tax depreciation, amortization or other cost recovery deductions
bears to such adjusted tax basis (provided, that if the United States federal
income tax depreciation, amortization or other cost recovery deduction is zero,
the Board of Managers may use any reasonable method for purposes of determining
depreciation, amortization or other cost recovery deductions in calculating Net
Income and Net Loss); and (f) any expenditures of the Company that are described
in Section 705(a)(2)(B) of the Code or are treated as described in Section
705(a)(2)(B) of the Code pursuant to Regulation Section 1.704-1(b)(2)(iv)(i) and
not otherwise taken into account in computing Net Income and Net Loss shall be
treated as deductible items.
"Operating Reserve" means such amount as is determined by the Board of
Managers in good faith to be necessary or prudent for the Company to maintain in
order to satisfy the Company's accrued or anticipated expenses, including
contingent liabilities, and otherwise to meet the operational needs of the
Company's business.
"Participating Members" means the Class A Members with respect to Class A
Units, and the Class B Members with respect to Class B Units.
"Participating Percentages" means, (i) in the case of a Class B Member, the
Class B Percentage of such Member; and (ii) in the case of a Class A Member, the
product of (x) the excess of 100%, over the Class B Profits Interest Percentage,
and (y) such Class A Member's Class A Percentage.
"Permitted Transferee" means (i) with respect to any individual Member, any
Person that is, directly or indirectly, controlled by such Member or, upon the
death of such Member, any Person who is the beneficiary of such Member's estate,
whether by will or by intestate succession; and (ii) with respect to any Member
that is not an individual, any Affiliate of such Member or any partner, member
or shareholder of such Member or any of its Affiliates.
"Person" means an individual, a corporation, a company, a voluntary
association, a partnership, a joint venture, a limited liability company, a
trust, an estate, an unincorporated organization, a governmental authority or
other entity.
"Profits Interests" means the right attaching to a Class B Unit with
respect to distributions pursuant to Sections 3.1(a)(ii), 3.1(c) and
11.2(b)(iii)(y) (and distributions pursuant to Section 3.2 to the extent treated
as made under such Sections).
"Profits Interest Portion" means, with respect to each Class B Member's
Class B Units, the right to distributions in respect of Profits Interests.
"Protected Person" means each Member, each Affiliate of a Member, and the
partners, members, shareholders, managers, officers, directors, representatives,
agents and employees of the Company and each Member and such Affiliate, each
Manager and any Person who was, at the time of the act or omission in question,
such a Person.
"Register of Members" means the register maintained by the Company setting
forth, among other things, the name and address of each Member, its Capital
Contributions to the Company, the number and class of Units held by such Member,
and its applicable percentage interest in the Company.
"Regulations" means the temporary and final regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Retained Amount Tax Liability" means, with respect to any distribution to
a Class B Member under Section 3.1(a)(ii) or 3.1(c), the product of (x) the
taxable income allocated (or to be allocated) to such Class B Member with
respect to such distribution as reasonably determined by the Board of Managers,
and (y) the Tax Rate.
"Subscription Agreement" means the Subscription Agreement entered into by a
Class B Member and the Company pursuant to which such Class B Member subscribes
for, and is issued, Class B Units.
"Tax Liability" means, with respect to any Taxable Year or portion thereof,
in the case of any Class of Units, the product of (x) the excess, if any, of (A)
the distributive share of the taxable net income of the Company allocated to
such Class of Units held by such Member for such Taxable Year or portion
thereof, over (B) the amount of net operating loss or capital loss, as the case
may be, allocated to such Class of Units held by such Member for a prior Taxable
Year or for a prior portion of the current Taxable Year (to the extent not
previously utilized in computing Tax Liability (taking into account the
character of items composing such taxable net income)); and (y) the Tax Rate.
"Tax Rate" means the highest marginal tax rates for an individual resident
in New York City with consideration to any differential tax rate applicable to
capital gains, qualified dividends or other income, and taking into account the
deductibility of state and local income taxes as applicable at the time for
United States federal income tax purposes and any limitations thereon, including
pursuant to Section 68 of the Code.
"Taxable Year" means the calendar year or such other fiscal period as may
be required by the Code or the Regulations.
"Termination Date" means, with respect to a Class B Member, the date that
such Class B Member ceases to be employed by Triarc or any of its Affiliates.
"Transfer" means to transfer, sell, assign, pledge, hypothecate, give,
create a security interest in or lien on, place in trust (voting or otherwise),
assign or in any other way encumber or dispose of, directly or indirectly and
whether or not by operation of law or for value.
"Triarc" means Triarc Companies, Inc., a Delaware corporation, and any
successor thereto.
"Triarc Board" means the board of directors of Triarc.
"Triarc Change of Control" means (i) the acquisition by any Person or group
(other than any member of the Control Group) of beneficial ownership, directly
or indirectly, of 50% or more of the combined voting power of Triarc's
outstanding securities entitled to vote generally in the election of directors,
or (ii) a majority of the directors of Triarc being individuals who are not
nominated by the Triarc Board.
"Triarc Trigger Event" means the occurrence of any one of the following
events: (i) the acquisition by any Person or group, other than any member of the
Control Group, of beneficial ownership, directly or indirectly, of more than 35%
of the combined voting power of Triarc's outstanding securities entitled to vote
generally in the election of directors; provided, that the Control Group
beneficially owns, directly or indirectly, less than 30% of the combined voting
power of Triarc's outstanding securities entitled to vote generally in the
election of directors; (ii) a majority of the directors of Triarc being
individuals who are not nominated by the Triarc Board; (iii) the adoption of a
plan relating to the liquidation or dissolution of Triarc; or (iv) the merger or
consolidation of Triarc with or into another Person or the merger of another
Person with or into Triarc, or the sale of all or substantially all of the
assets of Triarc to another Person (other than a Person that is directly or
indirectly controlled by one or more members of the Control Group), and in the
case of any such merger or consolidation, the securities of Triarc that are
outstanding immediately prior to such transaction are changed into or exchanged
for cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person or transferee that represent
immediately after such transaction at least a majority of the combined voting
power of the surviving Person or transferee.
"Units" means the Class A Units or the Class B Units, as the case may be or
as the context requires.
"Unpaid Preferred Return" means, with respect to each Class A Member as of
the date of any distribution of Available Net Cash, an amount equal to the
excess on a cumulative basis of (i) an amount equal to 8% per annum compounded
annually, on the Unrecovered Capital of such Class A Member's Class A Units from
time to time, over (ii) the amounts distributed in respect of such Class A
Member's Class A Units (x) under subclauses (A) and (C) of Section 3.1(a)(ii)
(including advances thereof pursuant to Section 3.2), (y) under Sections
3.1(b)(ii) and 3.1(b)(iii) (including advances thereof pursuant to Section 3.2),
and (z) under subclauses (B), (D) and (E) of Section 11.2(b)(iii)(y) (including
advances thereof pursuant to Section 3.2). For purposes of determinations under
clause (i) of this definition of "Unpaid Preferred Return," (A) except with
respect to Capital Contributions made to the Company on or prior to the Issuance
Date, computations shall be made from the date such Capital Contribution is made
by the Class A Member to the Company; and (B) with respect to Capital
Contributions made to the Company on or prior to the Issuance Date, computations
shall be made from the Issuance Date.
"Unrecovered Capital" means, with respect to each Class A Member as of any
determination date, the excess of (i) the cumulative Capital Contributions made
by the Class A Member in respect of its Class A Units as of such determination
date, over (ii) the sum of the amount distributed in respect of such Class A
Member's Class A Units (x) under subclause (C) of Section 3.1(a)(ii) (including
advances thereof pursuant to Section 3.2) to the extent that related
distributions to the Class B Members in respect of their Class B Units were
limited by Attributable GAAP Net Profits pursuant to Section 3.1(b)(i), (y)
under Section 3.1(b)(i) and (z) under Section 11.2(b)(iii)(y)(A).
"Vested Profits Interest Portion" with respect to each Class B Member's
Class B Units, has the meaning set forth in such Class B Member's Subscription
Agreement.
"Voting Interests" means the voting rights that attach to the Units as
described in Section 6.8.
(b) The following terms shall have the meaning defined in the Section
indicated:
Defined Term Section Reference
------------ -----------------
Actual Release Amount 3.6(a)
Adjustments 7.2
Board of Managers 6.1(a)
Call Right 8.1(a)
Capital Account 2.6(a)
Cash/Note Consideration 7.5(c)
Certificate of Formation Recital A
Class A Units 2.1(a)(i)
Class B Clawback 3.8
Class B Units 2.1(a)(ii)
Confidential Information 13.8
Drag Transaction 9.2(a)
Drag-Along Notice 9.2(b)
Drag-Along Right 9.2(a)
Drag-Along Sellers 9.2(b)
Eighth Year Valuation 7.1(a)
Executive Officers 6.7(a)
Fifth Year Valuation 7.1(a)
Financing Limitation 8.3
Frozen Release Amount 3.6(a)
Liabilities 6.9(a)
Memorandum Account 3.5(a)
Negative Capital Account Limitation 3.1(b)(ii)
Newco 9.4(a)
Newco Securities 9.4(a)
Offering Notice 9.1(a)
Original Agreement Recital B
Other Officers 6.7(b)
Pro Rata Portion 9.3
Profits Interest Limitation 3.1(b)(iii)
Regulatory Allocations 4.3(g)
Reserve Period 3.5(b)
Restructuring Event 9.4(a)
Restructuring Valuation 9.4(a)
Retained Amount Percentage 3.5(d)
Retained Amounts 3.5(a)
Seventh Year Valuation 7.1(a)
Tag-Along Rightholder 9.1(a)
Tag-Along Transaction 9.1(a)
Tax Advances 3.2
Tax Matters Partner 5.5
Tentative Release Amount 3.6(a)
Third Party Purchaser 9.1(a)
Valuations 7.1(a)
Withholding Advances 3.3
ARTICLE 2
CAPITALIZATION; RECAPITALIZATION
2.1 Capitalization.
(a) The membership interests of the Company shall be represented by:
(i) Class A Units (the "Class A Units"); and
(ii) Class B Units (the "Class B Units").
(b) There shall initially be authorized (i) 10,000 Class A Units, and
(ii) 100 Class B Units. With the affirmative vote of a majority of the Voting
Interests of the Members, the Company may increase or decrease the number of
authorized Units of any Class or subdivide or combine the number of issued Units
of any Class into a greater or lesser number of Units. The Company may issue
fractional Units.
(c) Any Class B Units (or portion thereof) that are either purchased
by Triarc pursuant to Article 7 or Section 8.1 or 8.2 or forfeited pursuant to a
Class B Member's Subscription Agreement shall automatically upon any such
purchase or forfeiture, as the case may be, be cancelled and deemed authorized
but unissued.
2.2 Recapitalization. Immediately upon the date of this Agreement, the
membership interest in the Company held by Triarc Acquisition, LLC shall
automatically be exchanged for such number of Class A Units as is set forth on
Schedule A attached hereto.
2.3 Capital Contributions.
(a) As of the date hereof, each Class A Member has made Capital
Contributions to the Company in the amounts set forth opposite each such
Member's name in Schedule A attached hereto.
(b) As of the date hereof, each Class B Member has made Capital
Contributions to the Company in the amounts set forth in such Class B Member's
Subscription Agreement.
(c) From and after the date hereof, no Member shall have any
obligation to make any Capital Contributions to the Company. A Member may, from
time to time, make Capital Contributions to the Company if the Board of Managers
consents to the making of such Capital Contributions.
2.4 No Partition; No Drawings; Etc. No Member shall have the right to
partition the assets of the Company or to cause the sale of any Company asset
except as otherwise expressly set forth herein. No Member shall receive any
salary or drawing with respect to its Capital Contributions or its Capital
Account or for services rendered on behalf of the Company or otherwise in its
capacity as a Member, except as otherwise provided in this Agreement. No
interest shall be paid on Capital Contributions.
2.5 Liabilities of Members. Except as otherwise expressly set forth herein
or in the Act, the debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Member shall be obligated personally for
any such debt, obligation or liability of the Company solely by reason of being
a Member.
2.6 Capital Accounts.
(a) A separate capital account (a "Capital Account") shall be maintained
for each Member in accordance with Regulation Section 1.704-1(b)(2)(iv), and
this Section 2.6 shall be interpreted and applied in a manner consistent
therewith.
(b) Each Member's Capital Account shall be increased by the amount of: (i)
such Member's Capital Contributions pursuant to Section 2.3; (ii) any Net Income
or other item of income or gain allocated to such Member pursuant to Section 4.1
or 4.3; and (iii) Company liabilities, if any, assumed by such Member or
secured, in whole or in part, by any Company assets that are distributed to such
Member. Each Member's Capital Account shall be decreased by the amount of: (i)
cash and the fair market value (as reasonably determined in good faith by the
Board of Managers) on the date of distribution of any other Company property
distributed to such Member pursuant to Article 3 or Article 11; (ii) any Net
Loss or other item of loss or deduction allocated to such Member pursuant to
Section 4.1 or 4.3; and (iii) liabilities, if any, of such Member assumed by the
Company or secured, in whole or in part, by any assets contributed to the
Company by such Member.
(c) The Company shall also maintain a separate sub-Capital Account with
respect to each Member's Classes of Units and the Profits Interest Portion of
any Class B Member's Class B Units, which shall be maintained in accordance with
the principles governing the Members' Capital Accounts.
(d) If any Person becomes a substituted Member in accordance with this
Agreement, such substituted Member shall succeed to the Capital Account of the
transferor Member to the extent such Capital Account relates to the transferred
Units (or portion thereof).
ARTICLE 3
DISTRIBUTIONS
3.1 Distributions of Available Net Cash.
(a) With respect to Available Net Cash that the Board of Managers
determines to distribute to the Members, subject to Sections 3.1(b), 3.1(c),
3.2, 3.5, 3.6, 3.7 and 11.2, the Company shall apportion the amount of such
Available Net Cash among the Participating Members in proportion to their
Adjusted Capital Contributions, and such amounts shall be distributed as
follows:
(i) the amount so apportioned to the Class B Members shall be
distributed to the Class B Members in proportion to their respective Class B
Units;
(ii) the amount so apportioned to each Class A Member shall,
subject to Sections 3.1(b) and 3.1(c), be distributed as follows:
(A) first, to the Class A Member an amount equal to its
share of the Unpaid Preferred Return;
(B) second, to the Class B Members in proportion to their
respective Class B Percentages, until the Class B Members have received under
this subclause (B) (including advances thereof pursuant to Section 3.2 and
distributions under Section 3.1(c) to the extent treated as made under this
subclause (B)), cumulative distributions equal to the product of the Class B
Profits Interest Percentage and the sum of (i) cumulative amounts distributed
(or treated as distributed) pursuant to subclause (A) of this Section 3.1(a)(ii)
to the Class A Member (including advances thereof pursuant to Section 3.2 and
distributions under Section 3.1(b) to the extent treated as made under subclause
(A)) and (ii) cumulative amounts distributed to the Class B Members pursuant to
this subclause (B) (including advances thereof pursuant to Section 3.2 and
distributions under Section 3.1(c) to the extent treated as made under this
subclause (B)); and
(C) thereafter, to the Class A Member and the Class B
Members in accordance with their respective Participating Percentages.
(b) Notwithstanding anything in this Agreement to the contrary,
(i) aggregate distributions to a Class B Member under Section
3.1(a)(ii) (including advances thereof pursuant to Section 3.2 and distributions
under Section 3.1(c) to the extent treated as made under Section 3.1(a)(ii)),
and distributions pursuant to subclause (C) and (D) of Section 11.2(b)(iii)(y)
shall not exceed cumulative Attributable GAAP Net Profits with respect to such
Class B Member (and any such excess amounts shall instead be distributed to the
Class A Members in proportion to their Class A Units);
(ii) no distributions to a Class B Member shall be made under
this Agreement to the extent such distribution creates or increases a deficit in
the Capital Account balance of the Class B Member with respect to its Class B
Units (the "Negative Capital Account Limitation") (and any such amounts shall
instead be distributed to the Class A Members in proportion to their Class A
Units); and
(iii) distributions to a Class B Member under this Agreement
shall be limited as reasonably determined in good faith by the Board of Managers
so that in the reasonable, good faith judgment of the Board of Managers the
Profits Interests qualify as "profits interests" for U.S. federal tax purposes
(the "Profits Interest Limitation") (and any such amounts shall instead be
distributed to the Class A Members in proportion to their Class A Units).
(c) If, and to the extent that, any distributions to a Class B Member
are limited by the Profits Interest Limitation or by the Negative Capital
Account Limitation, subsequent distributions of Available Net Cash under Section
3.1(a)(ii) and distributions under Section 11.2(b)(iii)(y) shall, subject to the
provisions of Section 3.1(b), be made (i) first to the Class B Members, in
proportion to and to the extent of, the amount necessary so that each Class B
Member has received the amount of distributions such Class B Member would have
been entitled to receive if there had been no such limitation and (ii)
thereafter in accordance with Section 3.1(a)(ii) or Section 11.2(b)(iii)(y) (as
the case may be).
3.2 Tax Advances. Subject to Section 11.2, and to the extent of Available
Net Cash, on a quarterly basis the Company shall distribute an amount to the
Class A Members, with respect to Class A Units, and Class B Members, with
respect to Class B Units, pro rata in proportion to the excess, if any, of (x)
the Tax Liability computed for such Member with respect to each Class of Units
for the Taxable Year (or portion thereof) that includes such quarter, over (y)
the aggregate amount distributed to each such Member with respect to such Class
of Units for the Taxable Year that includes such quarter pursuant to Section 3.1
(such distributions, "Tax Advances"). All Tax Advances made on behalf of a
Member with respect to such Class of Units shall reduce the amount of the next
succeeding distribution or distributions that would otherwise have been made to
such Member with respect to such Class of Units or, if such distributions are
not sufficient for that purpose, shall reduce the proceeds of liquidation
otherwise distributable under Section 11.2 with respect to such Class of Units
to such Member. To the extent that an amount otherwise distributable to a Member
is so applied, it shall be treated for all purposes hereof as if such amount had
actually been distributed to such Member with respect to such Class of Units
pursuant to Sections 3.1, 3.5, 3.6, 3.7 and 11.2, as the case may be.
3.3 Tax Withholding. To the extent the Company is required by applicable
law to withhold or to make tax payments on behalf of or with respect to any
Member (e.g., backup withholding) ("Withholding Advances"), the Company may
withhold such amounts and make such tax payments as so required. All Withholding
Advances made on behalf of a Member, plus interest thereon at a rate equal to
the prime rate, as announced by Citibank, N.A., plus 2%, shall (i) be paid on
demand by the Member on whose behalf such Withholding Advances were made (it
being understood that no such payment shall increase such Member's Capital
Contributions or Capital Account balance), or (ii) with the consent of the Board
of Managers, in its sole discretion, be repaid by reducing the amount of the
current or next succeeding distribution or distributions which would otherwise
have been made to such Member or, if such distributions are not sufficient for
that purpose, by so reducing the proceeds of liquidation otherwise payable to
such Member. If repayment of a Withholding Advance is made by a Member pursuant
to clause (ii), such Member shall not be required to pay any interest thereon.
Notwithstanding the foregoing, whenever repayment of a Withholding Advance by a
Member is made as described in clause (ii), for all other purposes of this
Agreement such Member shall be treated as having received all distributions
unreduced by the amount of such Withholding Advance. Each Member hereby agrees
to fund, and otherwise reimburse the Company for any liability with respect to
Withholding Advances (including interest thereon) required or made on behalf of
or with respect to such Member (including penalties imposed with respect
thereto) (it being understood that no such funding or reimbursement shall
increase such Member's Capital Contributions or Capital Account balance).
3.4 Distributions - General Principles.
(a) Except as otherwise expressly provided in this Article 3 or in
Articles 7, 8 and 11, no Member shall have the right to withdraw capital from
the Company or to receive any distribution or return of any of its Capital
Contributions.
(b) Distributions pursuant to this Article 3 may be made to the
Members in cash or in kind; provided, that distributions shall be made, to the
extent practicable, in the same form and proportions as any cash or property is
received by the Company. Any distributions of non-cash proceeds shall be made in
the same form (and the same proportion with respect to cash distributed) as are
received by the Company. Distributions of non-cash proceeds shall be made as if
cash in an amount equal to the fair market value of such proceeds (as reasonably
determined in good faith by the Board of Managers) were to be distributed.
3.5 Retained Amounts - General.
(a) The Company shall establish an account on its books, which shall
be represented by a memorandum account (each, a "Memorandum Account") for each
Class B Member and reflected in the Capital Account of such Class B Member in
accordance with Section 2.6. Except as provided in Sections 3.5(b), (c) and (e),
the Company shall retain as an asset of the Company an amount equal to 25% of
the excess of (x) amounts otherwise distributable to a Class B Member pursuant
to Section 3.1(a)(ii) and Section 3.1(c) (to the extent treated as made under
Section 3.1(a)(ii)), over (y) the Retained Amount Tax Liability with respect to
such distributions (the "Retained Amounts"). Retained Amounts in respect of a
Class B Member shall be credited to such Class B Member's Memorandum Account.
Any Retained Amounts that are distributed to a Class B Member as described in
this Section 3.5 and Sections 3.6 and 3.7 shall be debited against such Class B
Member's Memorandum Account.
(b) Subject to Sections 3.5(c) and (d), 3.6 and 3.7, within 10 days
following the second anniversary of the date on which each such portion of the
Retained Amounts would otherwise have been distributed to a Class B Member (such
period, the "Reserve Period"), an amount equal to such Retained Amounts shall be
distributed to such Class B Member, without interest.
(c) Any distributions to a Class B Member with respect to Retained
Amounts shall be made in respect of amounts credited to such Class B Member's
Memorandum Account in the order of the earliest of such credit entries to the
most recent credit entry; provided that such distribution may be made in kind to
the extent that the underlying distribution was also made in kind.
(d) If any amount with respect to Retained Amounts is to be
distributed to a Class B Member, then the amounts shall be distributed to such
Class B Member in respect of whom a credit entry was originally made in his
Memorandum Account in accordance with such Class B Member's Class B Percentage
at the time such entry was made in his Memorandum Account (as adjusted pursuant
to the following proviso, the "Retained Amount Percentage"); provided that if
such Class B Member has been terminated for "cause" as defined in such Class B
Member's Subscription Agreement, then the amount that shall be distributed shall
be based on the then vested portion of the Class B Percentage at the time of
such termination and any amounts remaining in such Class B Member's Memorandum
Account shall be distributed and paid to the Class A Members in proportion to
their Class A Units.
(e) The provisions set forth in this Section 3.5, and Sections 3.6 and
3.7 shall no longer be applicable on or after the date of the occurrence of a
Triarc Change of Control; it being understood that from and after such date, the
Company shall not retain or holdback any Retained Amounts. Within 10 days
following the date of occurrence of a Triarc Change of Control, all Retained
Amounts that have theretofore been held back and retained by the Company shall
be distributed in full to the Class B Members in accordance with the credit
balances in their respective Memorandum Accounts, without interest.
3.6 Write-Downs of Jurlique Interest.
(a) If the Triarc Board determines in good faith that the Company is
subject to a Cumulative Unrealized Loss as of the end of any Reserve Period,
then the amount to be distributed to a Class B Member at the end of such Reserve
Period (the "Tentative Release Amount") shall be reduced by an amount equal to
the lesser of (x) the aggregate balance of the Memorandum Account of such Class
B Member immediately prior to the end of such Reserve Period, and (y) the
excess, if any, of (A) the product of the (i) Retained Amount Percentage with
respect to the amount to be distributed to such Class B Member at the end of
such Reserve Period, and (ii) the amount of such Cumulative Unrealized Loss,
over (B) the aggregate balance of the Memorandum Account of such Class B Member
immediately prior to the end of such Reserve Period attributable to other
Reserve Periods. For purposes of this Section 3.6, "Frozen Release Amount" with
respect to the end of each Reserve Period equals the excess of the Tentative
Release Amount, over the amounts actually distributed to the Class B Members
with respect to such Reserve Period (the "Actual Release Amount").
(b) If, following any determination that the Company is subject to a
Cumulative Unrealized Loss, there is a subsequent revaluation in the good faith
determination of the Triarc Board that values the Company at an amount greater
than the amount as of which it was valued as part of the determination of such
Cumulative Unrealized Loss, then an amount shall be distributed to each Class B
Member equal to the lesser of (x) the aggregate amounts of outstanding Frozen
Release Amounts with respect to such Class B Member that would have been treated
as Actual Release Amounts with respect to such Class B Member if the
computations with respect to the related Reserve Period had been done on the
basis of the subsequent revaluation, and (y) the aggregate balance in such Class
B Member's Memorandum Account immediately prior to the date of such revaluation.
3.7 Sale of Jurlique Interest; Restructuring Event. If there is a sale of
all or a portion of the Jurlique Interest or a Restructuring Event occurs
(whether or not the Company has been subject to a Cumulative Unrealized Loss),
then an amount computed for each Class B Member equal to the lesser of (x) the
aggregate balance of the Memorandum Account of such Class B Member immediately
prior to such sale or the occurrence of a Restructuring Event, and (y) the
product of (i) such Class B Member's Class B Percentage, (ii) the Jurlique
Interest Percentage, and (iii) the amount of any Cumulative Unrealized Loss as
of the date of such sale or the occurrence of such Restructuring Event, will be
distributed and paid to the Class A Members in proportion to their Class A
Units. In the case of a sale of all of the Jurlique Interest or the occurrence
of a Restructuring Event, any outstanding balance in a Class B Member's
Memorandum Account after the distribution and payment described in the
immediately preceding sentence, will be distributed to such Class B Member.
3.8 Class B Clawback. If prior to February 15, 2013, (i) the Company
receives a distribution upon the liquidation of Jurlique, (ii) the Company sells
all or a portion of the Jurlique Interest, or (iii) a Restructuring Event
occurs, each Class B Member shall return to the Company an amount equal to its
Class B Clawback, which amount shall be distributed and paid to the Class A
Members in proportion to their Class A Units. The "Class B Clawback" with
respect to each Class B Member, means the amount necessary to cause (x) the
aggregate distributions made by the Company to such Class B Member in respect of
such Class B Member's Profits Interest Portion, not to exceed (y) the aggregate
distributions that would have been due from the Company to such Class B Member
pursuant to Section 11.2(b)(iii)(y) in respect of such Class B Member's final
Profits Interest Portion determined on a cumulative basis as if distributions
were made simultaneously (but computing the Unpaid Preferred Return for such
purposes without regard to this assumption), and after taking into account, as
of such determination date, all reduced distributions otherwise due to such
Class B Member as a result of any unvested and forfeited Class B Units;
provided, that, no Class B Member shall be required to return to the Company in
respect of its Class B Clawback an amount that exceeds the lesser of (i) the
product of such Class B Member's Class B Clawback and such Class B Member's
Class B Clawback Percentage and (ii) an amount equal to the excess of the
cumulative amount of distributions made to such Class B Member by the Company in
respect of the Profits Interest Portion over such Class B Member's Deemed
Cumulative Tax Liability with respect to the Profits Interest Portion. The
amount of any outstanding Class B Clawback due under this Section 3.8 shall
first offset and reduce any distributions to be made to such Class B Member
under Section 3.1(a)(ii), 3.1(c) or 11.2(b)(iii)(y).
ARTICLE 4
ALLOCATIONS
4.1 Allocations of Net Income and Net Loss. Except as otherwise provided in
this Agreement, Net Income and Net Loss (and, to the extent necessary,
individual items of income, gain, loss, deduction or credit) of the Company
shall be allocated among the Class A Members and the Class B Members in a manner
such that, after giving effect to the special allocations set forth in Section
4.3, the Capital Account of each Member with respect to Class A Units and Class
B Units, immediately after making such allocation, is, as nearly as possible,
equal (proportionately) to (i) the distributions that would be made to such
Members pursuant to Sections 11.2(b)(iii) if the Company were dissolved, its
affairs wound up and its assets sold for cash equal to their Carrying Value, all
Company liabilities were satisfied (limited with respect to each nonrecourse
liability to the Carrying Value of the assets securing such liability), and the
net assets of the Company were distributed in accordance with Section
11.2(b)(iii) to the Members immediately after making such allocation, minus (ii)
such Member's share of Company Minimum Gain and Member Nonrecourse Debt Minimum
Gain, computed immediately prior to the hypothetical sale of assets, minus (iii)
in the case of a Class B Member, any obligation of such Class B Member to make a
Capital Contribution to the Company pursuant to Section 3.8 if the Company were
dissolved at such time, plus (iv) in the case of a Class A Member, any right of
such Class A Member to a distribution pursuant to Section 3.8 if the Company
were dissolved at such time.
4.2 Allocations For Income Tax Purposes. For United States federal, state
and local income tax purposes, items of income, gain, loss, deduction and credit
shall be allocated to the Members in accordance with the allocations of the
corresponding items for Capital Account purposes under Sections 4.1 and 4.3,
except that items with respect to which there is a difference between adjusted
tax basis and Carrying Value will be allocated in accordance with Section 704(c)
of the Code, the Regulations thereunder and Regulation Section 1.704-1(b)(4)(i)
in a manner determined by the Board of Managers.
4.3 Special Allocations.
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
Section 4.2, if there is a net decrease in Company Minimum Gain or Member
Nonrecourse Debt Minimum Gain (determined in accordance with the principles of
Regulation sections 1.704-2(d) and 1.704-2(i)) during any Taxable Year, the
Members shall be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to their
respective shares of such net decrease during such year, determined pursuant to
Regulation sections 1.704-2(g) and 1.704-2(i)(5). The items to be so allocated
shall be determined in accordance with Regulation Section 1.704-2(f). This
Section 4.3(a) is intended to comply with the minimum gain chargeback
requirements in such Regulation sections and shall be interpreted consistently
therewith, including that no chargeback shall be required to the extent of the
exceptions provided in Regulation sections 1.704-2(f) and 1.704-2(i)(4).
(b) Qualified Income Offset. If any Member unexpectedly received any
adjustments, allocations or distributions described in Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the deficit balance in its Capital Account created by such
adjustments, allocations or distributions as promptly as possible. This Section
4.3(b) is intended to comply with the "qualified income offset" requirement in
such Regulation Section and shall be interpreted consistently therewith.
(c) Gross Income Allocations. If any Member has a deficit Capital
Account at the end of any Fiscal Year that is in excess of the sum of (i) the
amount such Member is obligated to restore, if any, pursuant to any provision of
this Agreement, and (ii) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulation sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible; provided, that an allocation pursuant to this Section 4.3(c) shall be
made only if and to the extent that a Member would have a deficit Capital
Account in excess of such sum after all other allocations provided for in
Section 4.2 and this Section 4.3 have been tentatively made as if Section 4.3(b)
and this Section 4.3(c) were not in this Agreement.
(d) Nonrecourse Deductions. Nonrecourse Deductions shall be allocated
to the Members in proportion to their Capital Contributions.
(e) Member Nonrecourse Deductions. Member Nonrecourse Deductions for
any taxable period shall be allocated to the Member who bears the economic risk
of loss with respect to the liability to which such Member Nonrecourse
Deductions are attributable in accordance with Regulation Section 1.704-2(j).
(f) Regulatory Compliance. The provisions of Sections 4.1, 4.2 and
this Section 4.3 and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulation Section
1.704-1(b) and shall be interpreted and applied in a manner consistent with such
Regulation. The Tax Matters Partner shall be authorized to make appropriate
amendments to the allocations of items pursuant to Section 4.2 if necessary in
order to comply with Section 704 of the Code or applicable Regulations
thereunder; provided, that no such change shall have an adverse effect upon the
amount distributable to any Member pursuant to this Agreement.
(g) Curative Allocations. The allocations set forth in Sections
4.3(a), 4.3(b), 4.3(c), 4.3(d) and 4.3(e) (the "Regulatory Allocations") are
intended to comply with certain requirements of the Regulations. The Tax Matters
Partner is authorized to offset all Regulatory Allocations either with other
Regulatory Allocations or with special allocations of income, gain, loss or
deductions pursuant to this Section 4.3(g) in whatever manner it reasonably and
in good faith determines appropriate so that, after such offsetting allocations
are made, each Member's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of this Agreement and all items of income,
gain, loss or deduction were allocated pursuant to Section 4.2. In exercising
its discretion under this Section 4.3(g), the Tax Matters Partner shall take
into account future Regulatory Allocations under Section 4.3(a) that, although
not yet made, are likely to offset other Regulatory Allocations made under
Sections 4.3(d) and 4.3(e).
(h) Adjustments of Capital Accounts. The Capital Accounts of the
Members may at the discretion of, and in the manner reasonably determined in
good faith by, the Tax Matters Partner, be adjusted in accordance with
Regulation Section 1.704-1(b)(2)(iv)(f), and thereafter maintained in accordance
with Regulation Section 1.704-1(b)(2)(iv)(g), to reflect the fair market value
of Company property as reasonably determined in good faith by the Board of
Managers whenever an interest in the Company is relinquished to the Company,
upon the issuance of a new or additional Units for more than a de minimis
capital contribution to the Company, upon the issuance of any Class B Units, or
upon a liquidation of the Company, and shall be adjusted in accordance with
Regulation Section 1.704-1(b)(2)(iv)(e) in the case of a distribution of more
than a de minimis amount of property (other than cash).
ARTICLE 5
ACCOUNTING FOR THE COMPANY; TAX MATTERS
5.1 Accounting for the Company. The Company shall use such method of
accounting as may be determined by the Board of Managers that is consistent with
GAAP or such other accounting methods and conventions as it may from time to
time determine to be used in the preparation of the Company's tax returns.
5.2 Books and Records; Access. The Board of Managers shall keep or cause to
be kept complete and appropriate records and books of account of the Company
prepared on the accrual method of accounting (unless otherwise determined by the
Board of Managers). Such books and records will be retained by the Company for a
period of three years following termination of the Company. Except as otherwise
expressly provided herein, such books and records shall be maintained on the
basis used in preparing the Company's federal income tax returns. The books and
records shall be maintained at the principal office of the Company. The Company
shall allow each Member, at its own expense, access to such books and records of
the Company to examine and make copies thereof.
5.3 Reports. After the end of each Fiscal Year (or portion thereof), the
Board of Managers shall cause an audit of the Company's financial statements
(including a balance sheet, statement of operations, statement of changes in
Members' equity and statement of cash flows) for such Fiscal Year (or portion
thereof). Such financial statements and a copy of the audit opinion thereon
shall be delivered to each Member within 120 days after the end of each Fiscal
Year (or portion thereof). Within 120 days after the end of each Fiscal Year (or
portion thereof), the Company will also cause to be delivered to each Member a
statement showing the balances in such Member's Capital Account as of the end of
such Fiscal Year (or portion thereof).
5.4 Tax Returns.
(a) The Company shall prepare or cause the Company's accountants to
prepare all income and other tax returns of the Company and shall cause the same
to be filed in a timely manner. The expenses of preparing the Company's tax
returns shall be expenses of the Company and not of any Member.
(b) Within 90 days after the end of each Taxable Year, or as soon as
reasonably practicable thereafter, the Company shall furnish to each Member such
information (including completed schedule K-1s) regarding the amount of such
Member's share in the Company's taxable income or loss for such year, in
sufficient detail to enable such Member to prepare its United States federal,
state and other tax returns. In addition, the Company shall timely furnish to
each Member sufficient information as is reasonably requested to enable such
Member to comply with any estimated income tax payment requirements.
5.5 Tax Matters Partner. The Members agree and acknowledge that the "tax
matters partner" of the Company within the meaning of Section 6231(a)(7) of the
Code (the "Tax Matters Partner") shall be Triarc Acquisition, LLC. The Tax
Matters Partner shall (i) prepare and file, or cause to be prepared and filed,
all tax returns on behalf of the Company; (ii) make (or revoke) any elections
under the Code or similar state, local or foreign law; and (iii) represent the
Company in connection with any audit, claim for refund or administrative or
judicial proceeding involving any asserted tax liability or refund with respect
to the Company or the Members in their capacity as such. Triarc Acquisition, LLC
shall be entitled to be reimbursed by the Company for all costs and expenses
incurred by it as the Tax Matters Partner and to be indemnified by the Company
(solely out of Company assets) with respect to any action brought against it in
connection with its activities as Tax Matters Partner. Any Member who enters
into a settlement agreement with respect to any Company item shall notify the
Tax Matters Partner of such settlement agreement and its terms within 30 days
after the date of settlement. This provision shall survive any termination of
this Agreement.
5.6 Treatment as Partnership. Notwithstanding anything in this Agreement to
the contrary, the Board of Managers shall use commercially reasonable efforts
taking into account then applicable law to ensure that the Company is at all
times treated as a partnership for federal, state and local income tax purposes,
and that the Company does not become treated as a "publicly traded partnership"
or otherwise taxable as a corporation for any federal, state or local income tax
purposes.
ARTICLE 6
MANAGEMENT; VOTING
6.1 Board of Managers.
(a) General Powers. Subject to Section 6.6(b), the business and
affairs of the Company shall be managed by or under the direction of a board of
managers (the "Board of Managers"), which may exercise all such powers of the
Company and perform all such lawful acts and things as are not by the Act or
this Agreement required to be exercised or performed by the Members.
(b) Number and Term of Office. The number of Managers shall be three
or such other number as shall be fixed from time to time by a majority in Voting
Interest of the Members. Managers need not be Members. Managers shall be elected
upon the affirmative vote of a majority in Voting Interest of the Members and
each Manager shall hold office until his successor is elected and qualified or
until his earlier death or resignation or removal in the manner provided in this
Section 6.1. As of the date hereof, the members of the Board of Managers are
Peter W. May, Francis T. McCarron and Brian L. Schorr.
(c) Resignation. Any Manager may resign at any time by written notice
to the Board of Managers. Such resignation shall take effect at the time
specified in such notice or, if the time is not specified, upon receipt thereof
by the Board of Managers. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
(d) Removal. Any or all of the Managers may be removed, with or
without cause, at any time upon the affirmative vote of a majority in Voting
Interest of the Members.
(e) Vacancies. Vacancies occurring on the Board of Managers as a
result of the removal of Managers without cause may be filled only upon the
affirmative vote of a majority in Voting Interest of the Members. Vacancies
occurring on the Board of Managers for any other reason, including vacancies
occurring as a result of the creation of new positions that increase the number
of Managers, may be filled upon the affirmative vote of a majority in Voting
Interest of the Members, by a majority of the Managers then in office or by a
written consent of the Board of Managers. If the number of Managers then in
office is less than a quorum, such other vacancies may be filled by vote of a
majority of the Managers then in office or by a written consent of the Board of
Managers. Unless earlier removed pursuant to 6.1(d), each Manager chosen in
accordance with this Section 6.1(e) shall hold office until the next annual
election of Managers by the Members and until his or her successor shall be
elected and qualified.
6.2 Meetings of the Board of Managers.
(a) Times and Places of Meetings. The Board of Managers may hold
meetings, both regular and special, either within or without the State of
Delaware. The times and places for holding meetings of the Board of Managers may
be fixed from time to time by resolution of the Board of Managers or (unless
contrary to a resolution of the Board of Managers) in the notice of the meeting.
(b) Annual Meetings. As soon as practicable after each annual election
of Managers by the Members, the Board of Managers may hold its annual meeting,
without notice of such meeting, for the purposes of organization, the election
of officers and the transaction of other business. The annual meeting of the
Board of Managers may be held at any other time and place specified in a notice
given as provided in Section 6.2(d) for special meetings of the Board of
Managers or in a waiver of notice thereof.
(c) Regular Meetings. Regular meetings of the Board of Managers may be
held without notice at such times and at such places as shall from time to time
be determined by the Board of Managers.
(d) Special Meetings. Special meetings of the Board of Managers may be
called by the President or the Secretary or by any two or more Managers then
serving on at least one day's notice to each Manager given by one of the means
specified in Section 6.2(g) other than by mail or courier service, or on at
least three days' notice if given by mail or courier service. Special meetings
shall be called by the President or Secretary in like manner and on like notice
on the written request of any two or more of the Managers then serving.
(e) Telephone Meetings. Managers or members of any committee
designated by the Board of Managers may participate in a meeting of the Board of
Managers or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 6.2(e) shall constitute presence in person at such meeting.
(f) Adjourned Meetings. A majority of the Managers present at any
meeting of the Board of Managers, including an adjourned meeting, whether or not
a quorum is present, may adjourn such meeting to another time and place. At
least one day's notice of any adjourned meeting of the Board of Managers shall
be given to each Manager whether or not present at the time of the adjournment,
if such notice shall be given by one of the means specified in Section 6.2(g)
other than by mail or courier service, or at least three days' notice if by mail
or courier service. Any business may be transacted at an adjourned meeting that
might have been transacted at the meeting as originally called.
(g) Notice Procedure. Subject to Sections 6.2(d) and 6.2(f), whenever,
under the provisions of this Agreement, notice is required to be given to any
Manager, such notice shall be deemed given effectively if given in person or by
telephone, by mail addressed to such Manager at such Manager's address as it
appears on the records of the Company, with postage thereon prepaid, or by
nationally recognized courier service, telecopy, e-mail or similar means
addressed as aforesaid.
(h) Waiver of Notice. Whenever the giving of any notice is required by
this Section 6.2, a waiver thereof, in writing, signed by the person or persons
entitled to such notice, whether before or after the event as to which such
notice is required, shall be deemed equivalent to notice. Attendance by a person
at a meeting shall constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business on the ground that the
meeting has not been lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Managers or a committee of the Board of Managers need be specified in any
written waiver of notice unless so required by this Agreement.
(i) Organization. At each meeting of the Board of Managers, the
President shall preside; and if the President is unavailable, then an Executive
Vice President shall preside. The Secretary shall act as secretary at each
meeting of the Board of Managers. In case the Secretary shall be absent from any
meeting of the Board of Managers, an Assistant Secretary shall perform the
duties of secretary at such meeting, and in the absence from any such meeting of
the Secretary and all Assistant Secretaries, the person presiding at the meeting
may appoint any person to act as secretary of the meeting.
6.3 Quorum; Voting.
(a) Quorum of Managers. The presence in person of a majority of the
entire Board of Managers shall be necessary and sufficient to constitute a
quorum for the transaction of business at any meeting of the Board of Managers,
but a majority of a smaller number may adjourn any such meeting to a later date.
(b) Action by Majority Vote. Except as otherwise expressly required by
this Agreement, the act of a majority of the Managers present at a meeting at
which a quorum is present shall be the act of the Board of Managers.
(c) Written Consents. Unless otherwise restricted by this Agreement,
any action required or permitted to be taken at any meeting of the Board of
Managers or of any committee thereof may be taken without a meeting if all
Managers or members of such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Managers or committee.
6.4 Committees of the Board of Managers. The Board of Managers may, by
resolution passed by a vote of the entire Board of Managers, designate one or
more committees, each committee to consist of one or more of the Managers. The
Board of Managers may designate one or more Managers as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. If a member of a committee shall be absent from any meeting, or
disqualified from voting thereat, the remaining member or members present and
not disqualified from voting, whether or not such member or members constitute a
quorum, may, by a unanimous vote, appoint another member of the Board of
Managers to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Managers passed as aforesaid, shall have and may exercise all the
powers and authority of the Board of Managers in the management of the business
and affairs of the Company. Unless otherwise specified in the resolution of the
Board of Managers designating a committee, at all meetings of such committee a
majority of the total number of members of the committee shall constitute a
quorum for the transaction of business, and the vote of a majority of the
members of the committee present at any meeting at which there is a quorum shall
be the act of the committee. Each committee shall keep regular minutes of its
meetings. Unless the Board of Managers otherwise provides, each committee
designated by the Board of Managers may make, alter and repeal rules for the
conduct of its business. In the absence of such rules, each committee shall
conduct its business in the same manner as the Board of Managers conducts its
business pursuant to Section 6.2.
6.5 Compensation. The Board of Managers may determine the compensation of
Managers. In addition, as determined by the Board of Managers, Managers may be
reimbursed by the Company for their expenses, if any, in the performance of
their duties as Managers. Managers who serve as members of any committee of the
Board of Managers in consideration of serving as such shall be entitled to such
additional amount per annum or such fees for attendance at committee meetings,
or both, as the Board of Managers may from time to time determine, together with
reimbursement for their expenses, if any, in the performance of their duties. No
such compensation or reimbursement shall preclude any Manager from serving the
Company in any other capacity and receiving compensation therefor.
6.6 No Management by Members.
(a) Except as otherwise expressly provided herein, the Members shall
not take part in the day-to-day management, or the operation or control of the
business and affairs, of the Company.
(b) If all of the Class A Units are redeemed by the Company but the
Class B Units remain outstanding, then (i) the management and control of the
Company shall thereupon automatically vest in the Class B Members, acting by the
vote of holders of a majority of the Class B Units, (ii) the provisions of
Sections 6.1, 6.2, 6.3, 6.4 and 6.5 shall have no further force or effect, and
(iii) all references in this Agreement to "the Board of Managers" shall be
automatically deemed to be a reference to actions to be taken or decisions to be
made by holders of a majority of the Class B Units.
6.7 Officers.
(a) Executive Officers. As of the date hereof, the Board of Managers
has elected as executive officers of the Company the persons listed on Schedule
B attached hereto. The persons who may from time to time hold the office of
President, Executive Vice President, Senior Vice President, Vice President or
Secretary are referred to in this Agreement as "Executive Officers." The Board
of Managers may from time to time appoint such other Executive Officers and
agents of the Company as the interests of the Company may require and may fix
their duties and terms of office. To the extent permitted by law, any number of
offices may be held by the same person.
(b) Other Officers. In addition to the Executive Officers elected by
the Board of Managers pursuant to Section 6.7(a), the President may from time to
time appoint such other officers of the Company, including Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers and Controllers, as the
interests of the Company may require (the "Other Officers"); provided, however,
that no Other Officer may be appointed to the office of President, Executive
Vice President, Senior Vice President, Vice President or Secretary. Each
appointment of an Other Officer shall be in writing and shall set forth the
duties of the Other Officer being appointed and, subject to Section 6.7(c), such
officer's term of office.
(c) Term of Office. Each Executive Officer shall hold office until the
annual meeting of the Board of Managers next succeeding such officer's election
and until such officer's successor is elected and qualified, or until such
officer's earlier death, resignation, retirement or removal. Each Other Officer
shall hold office for a term to be decided by the appointing President;
provided, however, that no such term shall be for a period longer than the term
of office of the appointing President.
(d) Removal of Officers. Any Executive Officer or Other Officer may be
removed from office with or without cause at any time by the affirmative vote of
a majority of the Board of Managers. Any Other Officer may also be removed from
office at any time with or without cause by the President.
(e) Vacancies. A vacancy in the position of any Executive Officer or
Other Officer arising from any cause may be filled for the unexpired portion of
the term by the Board of Managers. A vacancy in the position of any Other
Officer arising from any cause may also be filled for the unexpired portion of
the term by the President.
(f) Compensation of Officers. The salaries or compensation, if any, of
all Executive Officers shall be fixed by the Board of Managers or the
Compensation Committee of the Board of Managers, if there be one. The salaries
or compensation of the Other Officers may be fixed from time to time by the
Board of Managers or the President.
(g) President. The President shall be a member of the Board of
Managers and shall be responsible for directing, administering and coordinating
the business operations of the Company in accordance with policies, goals and
objectives established by the Board of Managers. Such officer shall perform all
other duties and enjoy all other powers which are commonly incident to the
office of President or which are delegated to such officer by the Board of
Managers. The President shall preside at meetings of the Members of the Company
and the Board of Managers.
(h) Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents Elected by the Board. The Executive Vice Presidents, the Senior Vice
Presidents and the Vice Presidents elected by the Board of Managers pursuant to
Section 6.7(a), if there be any, shall have such powers and perform such duties
as may from time to time be assigned to them by the Board of Managers or the
President.
(i) Secretary. The Secretary shall record the proceedings of all
meetings of Members and of the Board of Managers which such officer attends in a
book or books to be kept for that purpose. Such officer shall attend to the
giving and serving of all notices on behalf of the Company and shall have
custody of the records of the Company. Such officer shall, in general, perform
all the duties and functions incident to the office of Secretary and shall also
perform such other duties as may from time to time be assigned to such officer
by the Board of Managers or the President.
(j) Powers and Duties of Other Officers. The Other Officers shall have
such powers and perform such duties as may from time to time be assigned to them
by the Board of Managers or the President.
6.8 Voting Rights of Members.
(a) Each Class A Member shall be entitled to exercise a number of
votes equal to the product of (i) 10, and (ii) the number of its Class A Units.
(b) Each Class B Member shall be entitled to exercise a number of
votes equal to the product of (i) one, and (ii) the number of his Class B Units.
(c) Except as expressly set forth otherwise in this Agreement, the
Class A Members and the Class B Members shall be entitled to vote, together as a
single class, on all matters required by this Agreement or the Act to be voted
on by the Members.
6.9 Indemnification.
(a) Indemnification of Protected Persons. To the fullest extent
permitted by law, the Company shall indemnify, hold harmless, protect and defend
each Protected Person against any losses, claims, damages or liabilities,
including legal fees and expenses incurred in investigating or defending against
any such losses, claims, damages or liabilities, and any amounts expended in
settlement of any claims approved by the Board of Managers (collectively,
"Liabilities"), to which any Protected Person may become subject:
(i) by reason of any act or omission or alleged act or omission
(even if negligent) performed or omitted to be performed in connection with the
activities of the Company;
(ii) by reason of the fact that he is or was acting in connection
with the activities of the Company in any capacity or that he is or was serving
at the request of the Company as a member, partner, shareholder, manager,
director, officer, employee or agent of any Person; or
(iii)by reason of any other act or omission or alleged act or
omission arising out of or in connection with the activities of the Company;
unless, in each case, with respect to a Protected Person, to the extent such
Liability is found in a final and non-appealable judgment to have resulted from
such Protected Person's own fraud, gross negligence or willful misconduct.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
(and/or advance to the extent reasonably required) each Protected Person for
reasonable legal or other expenses (as incurred) of each Protected Person in
connection with investigating, preparing to defend or defending any claim,
lawsuit or other proceeding relating to any Liabilities for which the Protected
Person may be indemnified pursuant to this Section 6.9; provided, that (i) such
Protected Person executes a written undertaking to repay the Company for such
reimbursed or advanced expenses if it is finally determined by a court of
competent jurisdiction that such Protected Person is not entitled to the
indemnification provided by this Section 6.9, and (ii) in the event such claim,
lawsuit or other proceeding is brought by the Company against such Protected
Person or brought by such Protected Person against the Company, such Protected
Person shall only be entitled to reimbursement of expenses in connection with
investigating and preparing to defend itself against such claim (1) if and when
it is finally determined by a court of competent jurisdiction that such
Protected Person is entitled to indemnification under this Section 6.9, or (2)
if the Company so determines that such Protected Person is entitled to
advancement or prompt reimbursement of expenses prior to the final disposition
of the proceeding.
(c) Survival of Protection. The provisions of this Section 6.9 shall
continue to afford protection to each Protected Person regardless of whether
such Protected Person remains in the position or capacity pursuant to which such
Protected Person became entitled to indemnification under this Section 6.9 and
regardless of any subsequent amendment to this Agreement; provided, that no such
amendment shall reduce or restrict the extent to which these indemnification
provisions apply to actions taken or omissions made prior to the date of such
amendment.
(d) Recovery. The Company shall use its reasonable efforts to pursue
other third party sources of indemnification in respect of any Liabilities for
which it or any Protected Person may require indemnification in accordance with
this Section 6.9. If any Protected Person recovers any amounts in respect of any
Liabilities from insurance coverage or any third party source, then such
Protected Person shall, to the extent that such recovery is duplicative,
reimburse the Company for any amounts previously paid to it by the Company in
respect of such Liabilities.
(e) Reserves. If deemed appropriate or necessary by the Board of
Managers, the Company may establish reasonable reserves, escrow accounts or
similar accounts to fund its obligations under this Section 6.9.
ARTICLE 7
PUT OF CLASS B UNITS
7.1 Valuations.
(a) If, on December 31 of the year in which the fifth, seventh or
eighth anniversary of the Jurlique Acquisition Date occurs, the Company
continues to own all or a portion of the Jurlique Interest, then, no later than
January 31 of the following year, the Triarc Board shall conduct and complete a
valuation of the Company, as of December 31 of the year in which such
anniversary occurs (the "Fifth Year Valuation," the "Seventh Year Valuation,"
and the "Eighth Year Valuation," respectively, and together, the "Valuations"),
and shall notify the Members in writing of such Valuation within five days after
the completion of the applicable Valuation.
(b) Each Valuation will value the Company, based on its Fair Market
Value, taking into account such factors as the multiples of EBITDA, revenues and
net income for which companies similar to Jurlique are being acquired and other
relevant comparables.
7.2 Fifth Year Put. Within five Business Days following the date of
notification of the Fifth Year Valuation, a Class B Member shall be entitled to
elect, by notice in writing to Triarc to be given in such five Business Day
period, to require Triarc to purchase from such Class B Member, for a payment,
at the election of Triarc, to be paid in full in cash (but subject to the
Financing Limitation) or in the form of the Cash/Note Consideration, Class B
Units held by him representing up to 50% of the sum of (i) the Class B Units
that were originally granted to him, and (ii) any additional Class B Units
granted to him thereafter up to the fifth anniversary of the Jurlique
Acquisition Date, in both cases, (x) as adjusted, if applicable, to reflect any
reclassification of the membership interests of the Company, any
recapitalization of the Company or any other modifications to the capital
structure of the Company (collectively, the "Adjustments"), and (y) to the
extent of the Vested Profits Interest Portion of such Class B Units and to the
extent that such Class B Units have been held by such Class B Member for more
than two years.
7.3 Seventh Year Put. Within five Business Days following the date of
notification of the Seventh Year Valuation, a Class B Member shall be entitled
to elect, by notice in writing to Triarc to be given in such five Business Day
period, to require Triarc to purchase from such Class B Member, for a payment,
at the election of Triarc, to be paid in full in cash (but subject to the
Financing Limitation) or in the form of the Cash/Note Consideration, Class B
Units held by him representing up to the excess of (i) 75% of the sum of (x) the
Class B Units that were originally granted to him, and (y) any additional Class
B Units granted to him thereafter up to the seventh anniversary of the Jurlique
Acquisition Date, in both cases, (1) as adjusted, if applicable, to reflect any
Adjustments, and (2) to the extent of the Vested Profits Interest Portion of
such Class B Units and to the extent that such Class B Units have been held by
such Class B Member for more than two years, over (ii) any portion of the Vested
Profits Interest Portion of the Class B Units of such Class B Member that Triarc
purchased from such Class B Member following the Fifth Year Valuation pursuant
to Section 7.2.
7.4 Eighth Year Put. Within five Business Days following the date of
notification of the Eighth Year Valuation, a Class B Member shall be entitled to
elect, by notice in writing to Triarc to be given in such five Business Day
period, to require Triarc to purchase from such Class B Member, for a payment,
at the election of Triarc, to be paid in full in cash (but subject to the
Financing Limitation) or in the form of the Cash/Note Consideration, all or a
portion of the Class B Units held by him to the extent that such Class B Units
have vested and been held by such Class B Member for more than two years. For
the avoidance of doubt, any purchase by Triarc of Class B Units pursuant to this
Section 7.4 shall include the Capital Interest Portion and the Vested Profits
Interest Portion of such Class B Units (or a proportionate portion thereof if
the Class B Member wishes to sell only a portion of his Class B Units).
7.5 Payment.
(a) For the purposes of Sections 7.2, 7.3 and 7.4, the payment for the
Vested Profits Interest Portion and, if applicable, the Capital Interest
Portion, of Class B Units shall be computed based on the Fifth Year Valuation,
Seventh Year Valuation or Eighth Year Valuation, as applicable, as if the
Company had been sold for an amount equal thereto, and the distributions that
would be received by the Members under Section 11.2(b)(iii) assuming a
hypothetical liquidation of the Company on a Fair Market Value basis. When
determining the amount payable to a Class B Member in respect of his Class B
Units pursuant to Sections 7.2, 7.3 and/or 7.4, (i) any Tax Advances previously
made to such Class B Member will be taken into account (to the extent not
previously taken into account in the payments made under Sections 7.2 and/or
7.3, as applicable) and (ii) any Class B Clawback and/or Retained Amounts will
be taken into account.
(b) Any payments required to be made to a Class B Member following the
exercise of a put right described in Section 7.2, 7.3 or 7.4 shall be payable
within 30 days following the date of delivery by such Class B Member of his
notice to exercise such right.
(c) If, following the exercise of a put right as described in Section
7.2, 7.3 or 7.4, Triarc elects to make payment in the form of the Cash/Note
Consideration, such consideration will be made as follows, but in all cases
subject to the Financing Limitation (the "Cash/Note Consideration"):
(i) 50% of the amount payable to the Class B Member shall be paid
in cash; and
(ii) the balance of the amount payable to the Class B Member
shall be paid by way of a note, with a maturity date no later than the second
anniversary of the closing of the sale and purchase of the Vested Profits
Interest Portion and, if applicable, the Capital Interest Portion, of Class B
Units, subject to full and immediate acceleration if a Triarc Change of Control
occurs, and bearing interest at an annual rate equal to the Interest Rate, which
interest shall be payable in cash annually.
7.6 Termination of Put Rights. This Article 7 shall automatically terminate
and have no force or effect upon the occurrence of a Restructuring Event.
ARTICLE 8
TRIARC CALL RIGHT; ADDITIONAL CLASS B MEMBER PUT RIGHT
8.1 Triarc Call Right.
(a) Upon a Class B Member's Termination Date or upon the occurrence of
a Triarc Trigger Event, unless such Class B Member continues as a director of
Triarc or a consultant to Triarc on terms reasonably satisfactory to Triarc for
purposes of this Section 8.1, in such latter case, then upon such Class B Member
ceasing to be a director of or consultant to Triarc, Triarc or its designee
shall have the right (but not the obligation) (the "Call Right") to acquire from
time to time, in whole or in part in one or more transactions, the Capital
Interest Portion and the Vested Profits Interest Portion of the Class B Units of
such Class B Member at a purchase price equal to the aggregate Fair Market Value
thereof (taking into account the distributions that would be received by the
Members under Section 11.2(b)(iii) assuming a hypothetical liquidation of the
Company on a Fair Market Value basis and the application of Section 3.8, if
applicable, with respect to any Class B Clawback), and if the determination is
made in the sixth, eighth or ninth year following the Jurlique Acquisition Date,
such determination shall be based on the applicable Valuation, as adjusted by
the Triarc Board to take into account any circumstances or events that, in the
reasonable judgment of the Triarc Board, (i) have occurred since the
determination of such Valuation, and (ii) have affected the value of Jurlique.
Triarc may exercise its Call Right at any time following a Class B Member's
Termination Date by notice in writing to such Class B Member. In the case of
Triarc's exercise of the Call Right following a Triarc Trigger Event, all of the
unvested Profits Interest Portion of a Class B Member's Class B Units shall,
immediately prior to the exercise of the Call Right, be deemed to have vested in
full.
(b) In the case of Triarc's exercise of the Call Right following a
Class B Member's Termination Date, subject to the Financing Limitation and to
Section 8.1(c), the purchase price may, at Triarc's election, be paid in full in
cash, or by way of Cash/Note Consideration, in which case, the portion of the
purchase price payable in cash shall be paid at the closing of the sale and
purchase of such Class B Member's Class B Units. Any payments due from Triarc
shall take into account any Tax Advances previously received by the Class B
Member, and any Retained Amounts and Class B Clawback obligations of such Class
B Member.
(c) In the case of Triarc's exercise of the Call Right following a
Triarc Trigger Event, subject to the Financing Limitation, the purchase price
shall be paid by Triarc in cash.
8.2 Class B Member Put Right. Subject to the Financing Limitation, within
30 days following the Termination Date of a Class B Member, unless such Class B
Member continues as a director of or a consultant to Triarc on terms reasonably
satisfactory to Triarc for purposes of this Section 8.2, in such latter case,
then upon such Class B Member ceasing to be a director of or consultant to
Triarc, such Class B Member shall have the right (but not the obligation) to
require Triarc to purchase all of the Capital Interest Portion of his Class B
Units at a cash purchase price equal to (x) the Fair Market Value thereof
(taking into account the distributions that would be received by the Members
under Section 11.2(b)(iii) assuming a hypothetical liquidation of the Company on
a Fair Market Value basis and the application of Section 3.8, if applicable,
with respect to any Class B Clawback), and if the determination is made in the
sixth, eighth or ninth year following the Jurlique Acquisition Date, such
determination shall be based on the applicable Valuation, as adjusted by the
Triarc Board to take into account any circumstances or events that, in the
reasonable judgment of the Triarc Board, (1) have occurred since the
determination of such Valuation, and (2) have affected the value of Jurlique, or
(y) in the case where the Class B Member was terminated for Cause (as defined in
such Class B Member's Subscription Agreement), at a purchase price equal to the
lower of cost and the Fair Market Value thereof (as such Fair Market Value is
determined as described in this Section 8.2). Any payments due from Triarc shall
take into account any Tax Advances previously received by the Class B Member,
and any Retained Amounts and Class B Clawback obligations of such Class B
Member.
8.3 Financing Limitation. Notwithstanding the provisions of Article 7 and
Sections 8.1 and 8.2, Triarc shall not be obligated to take any action or make
any payment in satisfaction of the exercise by a Class B Member of his put right
under Article 7 or Section 8.2 or by Triarc of its Call Right if (i) in the case
of any payment to be made by Triarc in cash, an event of default should then
exist and be continuing, in either case, under the terms of any agreement with
an unaffiliated third party for indebtedness for borrowed money to which Triarc
is a party or is bound at the time, or (ii) such action or payment would
constitute a default or event of default or result in a mandatory prepayment
requirement under the terms of any agreement with an unaffiliated third party
for indebtedness for borrowed money to which Triarc is a party or is bound at
the time (each, a "Financing Limitation"). If the obligation of Triarc to make
payments in connection with the exercise by a Class B Member of his put right
under Article 7 or Section 8.2 or by Triarc of its Call Right is suspended due
to a Financing Limitation, Triarc shall make payment at the earliest practicable
date following the date when such payment would no longer contravene a Financing
Limitation, together with interest at the Interest Rate from (and including) the
date payment would have been due had the Financing Limitation not existed at the
time of exercise of the put right or the Call Right to (but excluding) the date
of payment.
8.4 Termination of Put/Call Rights. This Article 8 shall automatically
terminate and have no force or effect upon the occurrence of a Restructuring
Event.
ARTICLE 9
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS; RESTRUCTURING EVENT
9.1 Tag-Along Rights.
(a) Tag-Along Right. If one or more Class A Members wish to transfer
15% or more of its Class A Units to any Person (other than to an Affiliate of
such Class A Members) (a "Third Party Purchaser") in a single transaction or a
series of related transactions, then each Class B Member (each, a "Tag-Along
Rightholder") shall have the right to sell to such Third Party Purchaser, upon
the terms set forth in a notice delivered to each Tag-Along Rightholder (an
"Offering Notice"), a Pro Rata Portion of his Class B Units as determined in
accordance with Section 9.3 (a "Tag-Along Transaction").
(b) Exercise of Rights. The Class A Members shall give the Offering
Notice to each Tag-Along Rightholder of each proposed sale by them of Class A
Units that gives rise to the rights of the Tag-Along Rightholders set forth in
this Section 9.1, at least 15 days prior to the proposed consummation of such
sale, setting forth the number of Class A Units that they propose to sell to the
Third Party Purchaser, the name and address of the proposed Third Party
Purchaser, the proposed amount and form of consideration and terms and
conditions of payment offered by such Third Party Purchaser, and the Pro Rata
Portion of Class B Units that such Tag-Along Rightholder may sell to such Third
Party Purchaser as determined in accordance with Section 9.3. The tag-along
rights provided by this Section 9.1 must be exercised by any Tag-Along
Rightholder wishing to sell his Class B Units within 10 days following receipt
of the Offering Notice, by delivery of a written notice to the Class A Members
indicating such Tag-Along Rightholder's wish to exercise its rights and
specifying the number of Class B Units (up to the Pro Rata Portion of his Class
B Units required to be purchased by such Third Party Purchaser) it wishes to
sell; provided that any Tag-Along Rightholder may waive his rights under this
Section 9.1 prior to the expiration of such 10-day period by giving written
notice to the Class A Members, with a copy to the Company. The failure of a
Tag-Along Rightholder to respond within such 10-day period shall be deemed to be
a waiver of such Tag-Along Rightholder's rights under this Section 9.1. If a
Third Party Purchaser fails to purchase Class B Units from any Tag-Along
Rightholder that has properly exercised its tag-along rights pursuant to this
Section 9.1, then the Class A Members shall not be permitted to consummate the
proposed sale of the Offered Units, and any such attempted sale shall be null
and void ab initio.
(c) Closing of Tag-Along Transaction. At the closing of the Tag-Along
Transaction, (i) if required by the definitive agreements governing such
Tag-Along Transaction, each Tag-Along Rightholder who has exercised his rights
under this Section 9.1 shall deliver instruments of transfer for the Class B
Units being sold by him, and such Class B Units shall be free and clear of any
Liens (other than those arising hereunder and those attributable to actions by
the Third Party Purchaser) and each such Tag-Along Rightholder shall so
represent and warrant, and shall further represent and warrant that he is the
sole beneficial and record owner of such Class B Units, (ii) the Third Party
Purchaser or a paying agent (if provided in the definitive agreements governing
such Tag-Along Transaction) shall deliver to the such Tag-Along Rightholders
payment in full in immediately available funds or securities, as applicable, for
the Class B Units purchased by the Third Party Purchaser, and (iii) all of the
parties to the transaction shall execute such additional documents as are
otherwise reasonably necessary or appropriate to consummate the Tag-Along
Transaction.
9.2 Drag-Along Right.
(a) Triggering Event. Notwithstanding anything to the contrary set
forth in Section 9.1, if the Class A Members desire to Transfer all or a portion
of their Class A Units to any Third Party Purchaser in a transaction (a "Drag
Transaction") that would result in the Third Party Purchaser owning at least 80%
of the issued Class A Units, then the Class A Members may, subject to the
provisions of this Section 9.2 (the "Drag-Along Right"), require each of the
Class B Members to sell, transfer and deliver to the Third Party Purchaser a Pro
Rata Portion of their Class B Units as determined pursuant to Section 9.3.
(b) Drag-Along Notice. If the Class A Members wish to exercise the
Drag-Along Right, then the Class A Members shall give written notice (the
"Drag-Along Notice") to the Company setting forth the name and address of the
Third Party Purchaser, the estimated date on which such Drag Transaction is
proposed to be consummated, the proposed amount and form of consideration and
any other material terms and conditions of such Drag Transaction. The Company
shall immediately (but in any event not later than two Business Days) give a
copy of the Drag-Along Notice to each Class B Member (the "Drag-Along Sellers").
Each Drag-Along Seller shall be obligated to (i) sell all of the Pro Rata
Portion of his Class B Units in the Drag Transaction on the terms and conditions
set forth in the definitive agreements governing the Drag Transaction and (ii)
otherwise take all necessary actions to cause the consummation of such Drag
Transaction.
(c) Closing of Drag Transaction. At the closing of the Drag
Transaction, (i) if required by the definitive agreements governing such Drag
Transaction, each Drag-Along Seller shall deliver instruments of transfer for
the Class B Units being sold by him, and such Class B Units shall be free and
clear of any Liens (other than those arising hereunder and those attributable to
actions by the Third Party Purchaser) and each Drag-Along Seller shall so
represent and warrant, and shall further represent and warrant that he is the
sole beneficial and record owner of such Class B Units, (ii) the Third Party
Purchaser or a paying agent (if provided in the definitive agreements governing
such Drag Transaction) shall deliver to the Drag-Along Sellers payment in full
in immediately available funds or securities, as applicable, for the Class B
Units purchased by the Third Party Purchaser, and (iii) all of the parties to
the transaction shall execute such additional documents as are otherwise
reasonably necessary or appropriate to consummate the Drag Transaction.
9.3 Pro Rata Sale. The "Pro Rata Portion" of a Class B Member's Class B
Units permitted (in the case of the tag-along rights set forth in Section 9.1),
or required (in the case of a Drag-Along Right) to be transferred to a Third
Party Purchaser, and the sharing of proceeds related to any such transfers of
Units to the Third Party Purchaser, shall be determined based on the
distributions that would be made by the Company to the Members assuming; (i) a
hypothetical liquidation of the Company on a Fair Market Value basis (including,
with respect to the Jurlique Interest, a Liquidation Value), taking into account
the price proposed to be paid by the Third Party Purchaser, and (ii) the
application of Section 3.8, if applicable, with respect to any Class B Clawback.
9.4 Distribution of Jurlique Interest.
(a) Valuation in connection with Spin-Off. If Triarc determines that
it wishes to spin-off or otherwise restructure Jurlique with the objective of
ultimately distributing to the stockholders of Triarc the economic benefit of
85% or more of the equity interests in Jurlique that are represented by the
Class A Units (a "Restructuring Event") (which will be effected through the
distribution of the equity securities of a newly-formed entity ("Newco" and such
securities of Newco, the "Newco Securities") that will hold all of the equity
interests of Jurlique as described in this Section 9.4), Triarc shall first
conduct a valuation of the Class A Units and the Class B Units (the
"Restructuring Valuation"). The Restructuring Valuation shall be the Triarc
Board's good faith determination, made in consultation with the investment
bankers or other financial advisors engaged by Triarc in connection with the
Restructuring Event, of the fair market value of Newco, and the distributions
that would be made by the Company to the holders of Class A Units and the Class
B Units under Section 11.2 assuming a hypothetical liquidation of the Company on
a Fair Market Value basis and the application of Section 3.8, if applicable,
with respect to any Class B Clawback.
(b) Distribution of the Jurlique Interest. Prior to the consummation
of a Restructuring Event, Triarc will cause the Company to distribute to the
holders of the Class A Units and the Class B Units such portions of the Jurlique
Interest as are attributable to their respective Units, based on the
Restructuring Valuation, except that if such distribution were to occur prior to
the second anniversary of the date hereof, then the Jurlique Interest
attributable to the Class B Units shall continue to be held by the Company. The
Company shall be deemed to have redeemed the Units in respect of which it has
made a distribution of the attributable portions of the Jurlique Interest. For
the avoidance of doubt, in connection with such distribution of the applicable
portion of the Jurlique Interest to the holders of the Class B Units (or the
retention of such the Jurlique Interest by the Company, as applicable), the
Profits Interest Portion of the Class B Units will be automatically
extinguished.
(c) Contribution to Newco. Following the distribution of the Jurlique
Interest as set forth in Section 9.4(b), the holders of the Jurlique Interest
(i.e., the holders of the Class A Units and the Class B Units (or the Company,
if applicable)) shall contribute their respective portions of the Jurlique
Interest to Newco in exchange for an appropriate number of Newco Securities,
based on the Restructuring Valuation, and Triarc will thereafter cause Triarc
Acquisition, LLC to distribute its Newco Securities to Triarc, and Triarc will
then distribute such Newco Securities to its stockholders.
(d) Company Holding Newco Securities. If, in connection with a
Restructuring Event and the redemption of all of the Class A Units, the Company
holds Newco Securities on behalf of the Class B Members, then (i) all major
decisions involving the Company shall be made upon the approval of holders of a
majority of the Class B Units and (ii) immediately following the second
anniversary of the date hereof, the Company will be dissolved and the Newco
Securities distributed to the Class B Members. For this purpose, each Class B
Member hereby grants an irrevocable power of attorney to each of Nelson Peltz,
Peter W. May and Edward Garden, acting singly, to execute such instruments that
any of them deems necessary or advisable to effect such dissolution and
distribution.
(e) Registration Rights. In connection with the Restructuring Event,
Triarc shall cause Newco to enter into a registration rights agreement in
customary form with the Class B Members (and/or, if applicable, the Company),
which shall include demand, piggyback and Form S-3 registration rights, pursuant
to which Newco agrees to register the Newco Securities that are held by the
Class B Members (and/or, if applicable, the Company) (subject to customary
cutback provisions) pursuant to the Securities Act of 1933, as amended, at the
expense of Newco.
9.5 Jurlique IPO. In the event of an initial public offering of any equity
interests in Jurlique (or any entity utilized to effect such initial public
offering), the receipt of such equity interests by the Company shall not in and
of itself give rise to any distribution or other rights under this Agreement to
the Members.
ARTICLE 10
TRANSFER RESTRICTIONS AND ADMISSION OF NEW MEMBERS
10.1 Transfer Restrictions. No holder of Units may Transfer all or any part
of its Units, except for Transfers to Permitted Transferees of such Member or as
provided in Article 7, 8 or 9, without the prior written consent of the Board of
Managers.
10.2 Additional Restrictions on Transfers.
(a) Notwithstanding any other provisions of this Article 10, no
Transfer of a Unit may be made unless the Transferring Member shall deliver to
the Company an opinion of counsel reasonably satisfactory in form and substance
to the Company (which opinion may be waived, in whole or in part, at the
discretion of the Company), to the effect that:
(i) such Transfer would not cause the Company to lose its status
as a partnership that is not a publicly-traded partnership for United States
federal income tax purposes and, unless the Board of Managers determines it to
be immaterial, would not cause a termination of the Company pursuant to Section
708 of the Code; and
(ii) such Transfer would not violate any federal securities laws
or any state securities or "blue sky" laws (including any investor suitability
standards) applicable to the Company or the Units to be Transferred; and such
opinion of counsel is delivered in writing to the Company prior to the date of
the Transfer.
(b) Each Member agrees that it will, prior to the Transfer of Units by
that Member, pay all reasonable expenses, including attorneys' fees, incurred by
the Company in connection with such Transfer.
(c) Any purported Transfer of any Unit that is not made in compliance
with this Agreement is hereby declared to be null and void and of no force or
effect whatsoever.
(d) The Company may reasonably interpret and is hereby authorized to
take such action as it deems necessary or desirable to effect the foregoing
provisions of this Section 10.2.
10.3 Assignees.
(a) The Company shall not recognize for any purpose any purported
Transfer of all or any part of a Unit of a Member unless the provisions of this
Article 10 shall have been complied with and there shall have been filed with
the Company a dated notification of such Transfer, executed and acknowledged by
both the transferor and the transferee, and such notification (i) contains the
acceptance by the transferee of all of the terms and provisions of this
Agreement and an express assumption of responsibility for all obligations or
liabilities of the transferor under this Agreement (in its capacity as a Member
or otherwise), (ii) contains representations of both parties that such Transfer
was made in accordance with all applicable laws and contractual obligations, and
(iii) is otherwise in form and substance acceptable to the Company.
(b) Except as set forth in Section 10.3(a), any Member who Transfers
all of its Units shall cease to be a Member and shall not retain any statutory
rights as a Member.
(c) For purposes of this Agreement, in the case of any Transfer of
Class B Units permitted hereunder, the termination of employment with Triarc or
any of its Affiliates of the transferor shall result in Triarc and any such
permitted transferee being entitled and subject to the same rights and
obligations as if the Transferred Class B Units had continued to be held by the
Transferring Class B Member immediately prior to such Member's termination.
10.4 Admission of Additional Members.
(a) The Board of Managers may cause the Company to admit additional
Members upon the execution by such additional Members of a letter of acceptance
of the terms and conditions of this Agreement. In addition, a newly admitted
Member may be permitted or required to make a contribution to the Company to
acquire a Unit. Notwithstanding the foregoing, no additional Class A Members may
be admitted without the consent of those Class A Members holding at least 80% of
the Class A Percentage.
(b) The admission of any Person as a substitute Member shall be
conditioned upon such Person's written acceptance and adoption of all the terms
and provisions of this Agreement.
(c) Any Permitted Transferee of a Member or any other Person to whom
any Units are Transferred under this Agreement as permitted under this Agreement
shall be automatically admitted as a substitute or additional Member
concurrently with the effective date of the applicable Transfer of Units.
ARTICLE 11
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY
11.1 Events Causing Dissolution. The Company shall dissolve and its affairs
shall be wound up upon the happening of any of the following events:
(a) the sale or other disposition at one time of all or substantially
all of the assets of the Company;
(b) the affirmative consent of at least 75% in Voting Interest of the
Members; or
(c) the entry of a decree of judicial dissolution pursuant to Section
18-802 of the Act.
11.2 Liquidation.
(a) Upon dissolution of the Company, the Board of Managers, or if the
Board of Managers appoints a liquidating trustee for the Company, then the
liquidating trustee, shall commence to wind up the affairs of the Company and to
liquidate its assets. The Board of Managers (or the liquidating trustee if one
shall have been appointed) shall have full right and unlimited discretion to
determine the time, manner and terms of any sale or sales of Company assets
pursuant to such liquidation for the purpose of obtaining, in its opinion, fair
value for such assets, having due regard to the activity and condition of the
relevant markets and general financial and economic conditions. Prior to the
distribution of all of the assets of the Company, the business of the Company
and the affairs of the Members, as such, shall continue to be governed by this
Agreement.
(b) Upon the liquidation of the Company, the Board of Managers (or the
liquidating trustee if one shall have been appointed) shall distribute the
proceeds of such liquidation in the following order of priority, unless
otherwise required by mandatory provisions of applicable law:
(i) First, to the payment of all debts and liabilities of the
Company, including expenses of its liquidation.
(ii) Second, to the setting up of any reserves which the Board of
Managers (or the liquidating trustee if one shall have been appointed) may deem
necessary for any contingent or unforeseen liabilities or obligations of the
Company or of the Members arising out of or in connection with the Company.
(iii)Third, the Company shall apportion any remaining amounts
among the Participating Members in proportion to their Adjusted Capital
Contributions, and such amounts shall be distributed as follows:
(x) first, the amount so apportioned to the Class B Members
shall, subject to the Negative Capital Account Limitation and Profits Interest
Limitation, be distributed to Class B Members in proportion to their Class B
Units;
(y) second, the amount so apportioned to each Class A Member
shall, subject to Sections 3.1(b) and 3.1(c), be distributed to such Class A
Member and to the Class B Members as follows:
(A) first, to the Class A Member in an amount equal to its
then Unrecovered Capital;
(B) second, to the Class A Member in an amount equal to its
then Unpaid Preferred Return;
(C) third, to the Class B Members in proportion to their
respective Class B Percentages, until the Class B Members have received under
this subclause (C) and Section 3.1(a)(ii)(B) (including advances thereof
pursuant to Section 3.2 and distributions under Section 3.1(c) to the extent
treated as made under this subclause (C) and Section 3.1(a)(ii)(B)), cumulative
distributions equal to the product of the Class B Profits Interest Percentage
and the sum of (i) cumulative amounts distributed (or treated as distributed)
pursuant to subclause (B) of this Section 11.2(b)(iii)(y) and Section
3.1(a)(ii)(A) to the Class A Member (including advances thereof pursuant to
Section 3.2 and distributions under Section 3.1(b) to the extent treated as made
under subclause (B) of this Section 11.2(b)(iii)(y) and Section 3.1(a)(ii)(A)),
and (ii) cumulative amounts distributed to the Class B Members under this
subclause (C) and Section 3.1(a)(ii)(B) (including advances thereof pursuant to
Section 3.2 and distributions under Section 3.1(c) to the extent treated as made
under this subclause (C) and Section 3.1(a)(ii)(B));
(D) fourth, to the Class B Members (in proportion to their
respective Class B Percentages) and to the Class A Member in proportion to and
to the extent of, (x) in the case of the Class B Members, an amount so that the
Class B Members have received an amount of cumulative distributions pursuant to
Section 3.1(a)(ii), Section 3.1(c) (to the extent treated as distributions under
Section 3.1(a)(ii) or Section 11.2(b)(iii)(y)), Section 3.2 (to the extent
treated as distributions under Section 3.1(a)(ii) or Section 11.2(b)(iii)(y)),
subclause (C) of this Section 11.2(b)(iii)(y) and this subclause (D) equal to
the cumulative Class B Attributable GAAP Net Profits with respect to such Class
A Member; and (y) in the case of the Class A Member, an amount so that the Class
A Member has received an amount of cumulative distributions pursuant to Section
3.1(a)(ii), Section 3.1(b) (to the extent treated as distributions under Section
3.1(a)(ii) or subclauses (B), (D) and (E) of this Section 11.2(b)(iii)(y)),
Section 3.2 (to the extent treated as distributions under Section 3.1(a)(ii) or
subclauses (B), (D) and (E) of this Section 11.2(b)(iii)(y)), subclauses (B) and
(E) of this Section 11.2(b)(iii)(y) and this subclause (D) equal to its share of
the cumulative Class A Attributable GAAP Net Profits; and
(E) thereafter, to the Class A Member.
(c) The reserves established pursuant to Section 11.2(b)(ii)
shall be paid by the Board of Managers (or the liquidating trustee if one shall
have been appointed) to a bank or other financial institution, to be held in
escrow for the purpose of paying any such contingent or unforeseen liabilities
or obligations and, at the expiration of such period as the Board of Managers or
the liquidating trustee, as the case may be, deems advisable, such reserves
shall be distributed to the Members in the priorities set forth in Section
11.2(b).
(d) The Board of Managers (or the liquidating trustee if one
shall have been appointed) may distribute assets of the Company in kind upon the
liquidation of the Company. Any asset to be distributed in kind shall be
distributed on the basis of its fair market value as reasonably determined by
the Board of Managers (or the liquidating trustee if one shall have been
appointed). For purposes of making the final allocation of Net Income or Net
Loss and other items required by Article 4, any asset other than cash that is to
be distributed to one or more Members in kind shall be treated as having then
been sold by the Company for its fair market value as reasonably determined by
the Board of Managers (or the liquidating trustee if one shall have been
appointed) (provided, that, solely for purposes of making the final allocation
of Net Income or Net Loss and other items required by Article 4, the fair market
value of any asset that is distributed subject to a nonrecourse indebtedness
shall not be less than the amount of such indebtedness). Each Member who
receives an interest in any Company asset distributed hereunder shall hold its
interest in such asset as a tenant-in-common with all other Members who receive
an interest in such asset, unless interests in any such asset are divisible.
11.3 Termination. When the Board of Managers or the liquidating trustee, as
the case may be, has complied with the liquidation plan described in Section
11.2, there shall be executed and filed an instrument evidencing the
cancellation of the Certificate of Formation and such other documents as are
necessary to effectuate and evidence the termination and dissolution of the
Company.
ARTICLE 12
AMENDMENTS
12.1 Amendments Generally. This Agreement (including Schedule A hereto) may
not be amended or the provisions hereof waived except (a) as otherwise expressly
permitted by the terms of this Agreement or (b) by one or more written
agreements executed by the Company (acting by the consent of the Board of
Managers) and Members representing a majority of the Voting Interests of the
Members, provided, however, that (i) no amendment shall be adopted pursuant to
this Section 12.1 that would (x) alter any Member's right to receive
distributions or allocations of Net Income or Net Loss except as expressly
provided hereunder, or (y) alter, or result in the alteration of, the limited
liability of the Members or the status of the Company as a partnership for
federal income tax purposes, except, in each case, with the consent of each
Member; (ii) notwithstanding anything to the contrary contained herein, the
Board of Managers may, without the consent of any Member, amend or waive any
provision of this Agreement to reflect (x) a change in the name of the Company
or the location of the principal place of business or the registered office and
registered agent of the Company, (y) a change that is of an inconsequential
nature, or (z) a change clarifying any ambiguity, defect or inconsistency in
this Agreement, and notice of any such amendment or waiver shall be sent to each
Member promptly after its adoption; (iii) no amendment shall be adopted pursuant
to this Section 12.1 that would (x) materially adversely affect the rights of
holders of any Class, except with the consent of all of the holders of any such
Class, or (y) treat one or more holders of any Class differently in a material
respect from the other holders of such Class; and (iv) any amendment that
affects the rights or obligations of (x) the Class A Members only shall require
the consent of Class A Members holding at least two-thirds of the issued Class A
Units, and (y) the Class B Members only shall require the consent of Class B
Members holding at least two-thirds of the issued Class B Units.
12.2 Notice of Amendments. Promptly (and, in any event, within 30 days
following the adoption of any amendment to this Agreement), the Company shall
provide a copy of any such amendment to the Members.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be given by
personal delivery, sent via a nationally recognized overnight courier service,
or sent by United States mail or by e-mail, or by facsimile transmission,
receipt confirmed, if to the Members, to the addresses set forth on Schedule A
hereto or the Company's Register of Members, as the case may be, or to such
other address as any Member shall have last designated by notice to the Company
and the other Members, and if to the Company, to its principal office address.
Any notice shall be deemed received, unless earlier received (in which case, it
shall be deemed received on the date of receipt), (a) if sent by overnight
courier service, on the next Business Day, (b) if sent by certified or
registered United States mail, return receipt requested, when actually received,
(c) if sent by United States mail, first class, five Business Days after posting
in the United States mail, and (d) if sent by e-mail or facsimile transmission
or delivered by hand, on the date of receipt.
13.2 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
13.3 Interpretation. The Article and Section headings in this Agreement are
for convenience of reference only, and shall not be deemed to alter or affect
the meaning or interpretation of any provisions hereof. Whenever the context
permits, the use of a particular gender shall include the masculine, feminine
and neuter genders, and any reference to the singular or the plural shall be
interchangeable with the other. The use of the word "including" herein shall not
be considered to limit the provision which it modifies but instead shall mean
"including, without limitation."
13.4 Additional Documents. Each Member agrees to perform all further acts
and execute, acknowledge and deliver any documents which may be reasonably
necessary, appropriate or desirable to carry out the provisions of this
Agreement.
13.5 Entire Agreement. This Agreement (together with Schedule A and the
Subscription Agreements) represent the entire agreement among the parties hereto
governing the subject matter hereof, and supersede and cancel all prior
negotiations, correspondence or agreements, written or oral, among the parties
hereto with respect thereto.
13.6 Applicable Law. This Agreement shall be construed and governed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
13.7 No Third-Party Beneficiary. Unless otherwise expressly provided
herein, no term or provision of this Agreement shall be for the benefit of, or
enforceable by, any third party that is not a party hereto.
13.8 Confidentiality. By executing this Agreement, each Member expressly
agrees, at all times during the term of the Company and thereafter and whether
or not at the time a Member, to maintain the confidentiality of, and not to
disclose to any Person, any material information relating to the business,
financial results, clients or affairs of the Company that shall not be generally
available to the public and that is not already properly within its possession
("Confidential Information"), except (a) to such Member's partners, members,
shareholders, professional advisers or employees, so long as each of them agrees
to be bound by this confidentiality obligation, or to such other Persons on a
"need to know" basis only, (b) as required by law, by rule or regulation having
the force of law, by any regulatory or self-regulatory organization having
jurisdiction over such Member or the Company or by process of law or (c) as is
necessary and appropriate in the course of and in furtherance of the conduct of
the business of the Company. The provisions of this Section 13.8 shall survive
the termination of the Company. Each Member shall use Confidential Information
solely for purposes relating to the Company and to monitor its investment
therein.
13.9 Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts so executed shall constitute an original
agreement binding on all the parties, but together shall constitute but one
instrument.
[Remainder of Page Intentionally Left Blank]
JURL HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date first written above.
CLASS A MEMBER:
--------------
TRIARC ACQUISITION, LLC
By:/s/EDWARD P. GARDEN
---------------------------------
Name: Edward P. Garden
Title:Executive Vice President
JURL HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
IN WITNESS WHEREOF, the parties have entered into this Agreement
as of the date first written above.
CLASS B MEMBERS:
---------------
/s/NELSON PELTZ
-------------------------------
Nelson Peltz
/s/PETER W. MAY
-------------------------------
Peter W. May
/s/EDWARD P. GARDEN
-------------------------------
Edward P. Garden
/s/BRIAN L. SCHORR
-------------------------------
Brian L. Schorr
/s/FRANCIS T. MCCARRON
-------------------------------
Francis T. McCarron
/s/STUART I. ROSEN
-------------------------------
Stuart I. Rosen
/s/ANNE A. TARBELL
-------------------------------
Anne A. Tarbell
/s/GREG ESSNER
-------------------------------
Greg Essner
/s/CHAD FAUSER
-------------------------------
Chad Fauser
/s/ROBERT J. CROWE
-------------------------------
Robert J. Crowe
/s/DAVID I. MOSSE
-------------------------------
David I. Mosse
/s/EDUARDO SANTOS
-------------------------------
Eduardo Santos
/s/JOSH FRANK
-------------------------------
Josh Frank
/s/FRED SCHAEFER
-------------------------------
Fred Schaefer
JURL HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Agreeing to be bound, as of the date first written above, solely with
respect to the rights and obligations set forth in this Agreement that apply to
the undersigned.
TRIARC COMPANIES, INC.
By: /s/EDWARD P. GARDEN
---------------------------------
Name: Edward P. Garden
Title: Vice Chairman
SCHEDULE A
JURL HOLDINGS, LLC SCHEDULE OF CLASS A MEMBERS, MEMBERS' CAPITAL CONTRIBUTIONS,
UNITS ISSUED, PERCENTAGE INTERESTS
as of November 10, 2005
Number of Class A Class A
Member and Address Capital Contributions Units Held Percentage
Triarc Acquisition, LLC $30,164,000 1,000 100%
280 Park Avenue
New York, New York 10017
Attention: General Counsel
Facsimile No.: (212) 451-3216
SCHEDULE B
EXECUTIVE OFFICERS
as of November 10, 2005
Peter W. May President
Brian L. Schorr Executive Vice President and General Counsel
Francis T. McCarron Executive Vice President and Chief Financial Officer
Stuart I. Rosen Senior Vice President and Secretary
Robert J. Crowe Vice President - Taxes
Exhibit 10.5
===============================================================================
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
TRIARC DEERFIELD HOLDINGS, LLC
A Delaware Limited Liability Company
- --------------------------------------------------------------------------------
Dated as of November 10, 2005
- --------------------------------------------------------------------------------
================================================================================
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
TRIARC DEERFIELD HOLDINGS, LLC
Table of Contents
------------------
Page
ARTICLE 1 THE COMPANY..........................................................1
1.1 Name.......................................................1
1.2 Place of Business; Agent...................................2
1.3 Purpose....................................................2
1.4 Statutory Compliance.......................................2
1.5 Title to Property..........................................2
1.6 Duration...................................................2
1.7 Qualification in Other Jurisdictions.......................2
1.8 Definitions................................................2
ARTICLE 2 CAPITALIZATION; RECAPITALIZATION....................................13
2.1 Capitalization............................................13
2.2 Recapitalization..........................................14
2.3 Capital Contributions.....................................14
2.4 No Partition; No Drawings; Etc............................14
2.5 Liabilities of Members....................................15
2.6 Capital Accounts..........................................15
ARTICLE 3 DISTRIBUTIONS.......................................................16
3.1 Distributions of Available Net Cash.......................16
3.2 Distributions Attributable To Special Investments.........17
3.3 Tax Advances..............................................17
3.4 Tax Withholding...........................................18
3.5 Distributions - General Principles........................18
3.6 Retained Amounts - General................................18
3.7 Write-Downs of Deerfield Interest.........................19
3.8 Sale of Deerfield Interest; Restructuring Event...........20
3.9 Class B Clawback..........................................20
ARTICLE 4 ALLOCATIONS.........................................................21
4.1 Allocations of Net Income and Net Loss....................21
4.2 Allocations For Income Tax Purposes.......................22
4.3 Special Allocations.......................................22
ARTICLE 5 ACCOUNTING FOR THE COMPANY; TAX MATTERS.............................24
5.1 Accounting for the Company................................24
5.2 Books and Records; Access.................................24
5.3 Reports...................................................24
5.4 Tax Returns...............................................24
5.5 Tax Matters Partner.......................................25
5.6 Treatment as Partnership..................................25
ARTICLE 6 MANAGEMENT; VOTING..................................................25
6.1 Board of Managers.........................................25
6.2 Meetings of the Board of Managers.........................26
6.3 Quorum; Voting............................................27
6.4 Committees of the Board of Managers.......................28
6.5 Compensation..............................................28
6.6 No Management by Members..................................29
6.7 Officers..................................................29
6.8 Voting Rights of Members..................................30
6.9 Indemnification...........................................31
ARTICLE 7 PUT OF CLASS B UNITS................................................32
7.1 Valuations................................................32
7.2 Fifth Year Put............................................32
7.3 Seventh Year Put..........................................33
7.4 Eighth Year Put...........................................33
7.5 Payment...................................................33
7.6 Termination of Put Rights.................................34
ARTICLE 8 TRIARC CALL RIGHT; ADDITIONAL CLASS B MEMBER PUT RIGHT..............34
8.1 Triarc Call Right.........................................34
8.2 Class B Member Put Right..................................35
8.3 Financing Limitation......................................36
8.4 Termination of Put/Call Rights............................36
ARTICLE 9 TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS; RESTRUCTURING EVENT............36
9.1 Tag-Along Rights..........................................36
9.2 Drag-Along Right..........................................37
9.3 Pro Rata Sale.............................................38
9.4 Distribution of Deerfield Interest........................38
9.5 Deerfield IPO.............................................39
ARTICLE 10 TRANSFER RESTRICTIONS AND ADMISSION OF NEW MEMBERS.................40
10.1 Transfer Restrictions.....................................40
10.2 Additional Restrictions on Transfers......................40
10.3 Assignees.................................................40
10.4 Admission of Additional Members...........................41
ARTICLE 11 DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY............41
11.1 Events Causing Dissolution................................41
11.2 Liquidation...............................................42
11.3 Termination...............................................44
ARTICLE 12 AMENDMENTS.........................................................44
12.1 Amendments Generally......................................44
12.2 Notice of Amendments......................................45
ARTICLE 13 MISCELLANEOUS......................................................45
13.1 Notices...................................................45
13.2 Severability..............................................45
13.3 Interpretation............................................45
13.4 Additional Documents......................................46
13.5 Entire Agreement..........................................46
13.6 Applicable Law............................................46
13.7 No Third-Party Beneficiary................................46
13.8 Confidentiality...........................................46
13.9 Counterparts..............................................46
Schedule A - Schedule of Class A and C Members, Member's Capital
Contributions, Units Issued, Percentage Interests
Schedule B - List of Executive Officers
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
TRIARC DEERFIELD HOLDINGS, LLC
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF TRIARC
DEERFIELD HOLDINGS, LLC, dated as of November 10, 2005, by and among the
undersigned Members and such other parties who may from time to time be admitted
as Members of the Company in accordance with the terms of this Agreement.
Definitions of certain terms used in this Agreement are contained in Section
1.8.
RECITALS
A. The Company was formed as a Delaware limited liability company pursuant
to a certificate of formation filed with the Secretary of State of the State of
Delaware on July 21, 2004 (the "Certificate of Formation").
B. The Members wish to enter into this Agreement to amend and restate the
Limited Liability Company Operating Agreement of the Company, dated as of July
22, 2004, as amended by the First Amendment dated as of August 16, 2004, the
Second Amendment dated as of December 23, 2004, and the Third Amendment dated as
of December 31, 2004 (the "Original Agreement").
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby amend and
restate the Original Agreement in its entirety to read as follows:
ARTICLE I
THE COMPANY
1.1 Name. The Company is organized as a limited liability company under and
pursuant to the provisions of the Act. The rights, duties and obligations of the
Members shall be as provided in the Act, except as otherwise provided in this
Agreement. The name of the Company is "Triarc Deerfield Holdings, LLC." All
business of the Company shall be conducted in such name or such other name as
the Board of Managers may determine; provided, that, (i) the name shall always
contain the words "Limited Liability Company" or the letters "LLC" or "L.L.C.",
and (ii) the name shall not contain the name (or identifiable portion thereof)
of a Member without such Member's consent. Triarc hereby consents to the use of
"Triarc" in the name of the Company for so long as Triarc owns or controls at
least 50% of the Class A Units. The Company shall give prompt notice of any name
change to each Member.
1.2 Place of Business; Agent. The principal office of the Company shall be
located initially at 280 Park Avenue, New York, New York 10017. The Company
shall maintain a registered agent (upon whom process may be served) and
registered office in the State of Delaware, which initially are Corporation
Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808.
The Board of Managers may change the office locations and agent of the Company
at any time by giving written notice thereof to the Members.
1.3 Purpose. The business of the Company shall be to engage in any and all
lawful activity permitted under the Act and to do any other act or thing
incidental or ancillary thereto. In furtherance of its business, the Company
shall have and may exercise all of the powers now or hereafter conferred by the
laws of the State of Delaware on limited liability companies formed under the
laws of the State of Delaware, including the power to deal in and with all types
of property, both real and personal, tangible and intangible, and to do any and
all things related or incidental to this business.
1.4 Statutory Compliance. The Board of Managers shall cause the Company to
promptly make such filings from time to time as are required by applicable law
to give effect to the provisions of this Agreement and to cause the Company to
be treated as a limited liability company under the laws of the State of
Delaware. The Board of Managers hereby authorizes each Executive Officer to
execute, file and record or cause to be executed, filed and recorded all such
other certificates and documents, including amendments to the Certificate of
Formation, and to do or cause to be done such other acts as may be appropriate
to comply with all requirements for the formation, continuation and operation of
a limited liability company, the ownership of property and the conduct of
business under the laws of the State of Delaware and any other jurisdiction in
which the Company may own property or conduct business, but only to the extent
consistent with this Agreement.
1.5 Title to Property. All property owned by the Company shall be owned by
the Company as an entity. Unless required by applicable law, no Member shall
have any ownership interest in Company property in its separate name or right.
Each Member's interest in the Company shall be personal property of such Member
for all purposes.
1.6 Duration. The Company shall continue in full force and effect until
terminated pursuant to Article 11.
1.7 Qualification in Other Jurisdictions. The Board of Managers shall cause
the Company to be qualified, formed, reformed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Company transacts business if such qualification, formation, reformation or
registration is necessary or desirable in order to protect the limited liability
of the Members or to permit the Company lawfully to transact business.
1.8 Definitions.
(a) Capitalized terms used in this Agreement have the following
meanings:
"Act" means the Delaware Limited Liability Company Act, 6 Del. C
ss.ss. 18-101 et seq., as amended from time to time, and any successor to such
Act.
"Adjusted Capital Contributions" means, with respect to each Class A
Member and Class B Member as of any determination date, the sum of the amounts
computed separately for each Capital Contribution made with respect to Class A
Units or Class B Units (as the case may be) equal to the product of (x) the
amount of such Capital Contributions with respect to Class A Units or Class B
Units (as the case may be), and (y) a fraction, the numerator of which is the
sum of the fair market value of the Company, excluding the fair market value of
any Special Investments, on the Deerfield Acquisition Date (treating the fair
market value of the Deerfield Interest as equal to the cost basis of the
Deerfield Interest on the Deerfield Acquisition Date) plus the aggregate amount
of any subsequent Adjusted Capital Contributions made prior to such
determination date, and the denominator of which is the fair market value of the
Company, excluding the fair market value of any Special Investments, on the date
such Capital Contribution is made.
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person. For the purposes of
this definition, the term "control" means the power to direct the principal
business management and activities of a Person, whether through ownership of
voting securities, by agreement, or otherwise.
"Agreement" means this Amended and Restated Limited Liability Company
Agreement, including all Schedules hereto, as amended, modified, supplemented or
restated from time to time. This Agreement is the Company's "operating
agreement" within the meaning of the Act.
"Attributable GAAP Net Profits" means, as of any date of
determination, with respect to any Class B Member, the product of (x) the
cumulative net profits of the Company earned since the Issuance Date as
determined in accordance with GAAP, excluding any net profits and net losses
attributable to any Special Investment, (y) the Class A Capital Percentage, and
(z) such Class B Member's Class B Percentage. For the avoidance of any doubt,
(i) in the event of a sale or other disposition of all or a portion of the
Company's assets or any similar transaction, subclause (x) shall, to the extent
otherwise required under this Agreement, include the net profits and losses of
the Company attributable to such sale or disposition computed from the Deerfield
Acquisition Date as determined in accordance with GAAP, excluding any net
profits and losses attributable to any Special Investment; and (ii) subclause
(x) shall, to the extent otherwise required under this Agreement, include the
net profits and losses of the Company as determined in accordance with GAAP
attributable to any hypothetical or deemed liquidation of the Company or sale,
or adjustment to fair market value, of Company assets, as if such events
actually occurred (including pursuant to Sections 4.1(a), 4.3(h), 9.3, 9.4 and
11.2(d)).
"Available Net Cash" means, for any Fiscal Year (or portion thereof),
the aggregate amount of cash of the Company at the end of such period, excluding
any cash attributable to any Special Investment as reasonably determined by the
Board of Managers, minus any Operating Reserve.
"Average Retained Amount Percentage" means, with respect to any Class
B Member, as of any date of sale of the Deerfield Interest, a fraction
(expressed as a percentage), the numerator of which is the sum of the products
of the Retained Amount Percentage with respect to each Reserve Period and the
amount of the applicable Retained Amount or Frozen Release Amount (as the case
may be) as of the date of such sale with respect to such Reserve Period, and the
denominator of which is the total Retained Amounts or Frozen Release Amounts (as
the case may be) as of the date of such sale with respect to all Reserve
Periods.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York, New York are
authorized or required by law or executive order to close.
"Capital Contributions" means, with respect to each Member, as of any
date of determination, (i) the total amount of cash contributed or deemed
contributed to the Company, (ii) the fair market value of any property (as
reasonably determined in good faith by the Board of Managers) that such Member
has contributed to the Company (net of any liabilities that the Company has
assumed or taken subject to, under Section 752 of the Code, in connection with
acquiring such property), and (iii) the amount of any Company liabilities that
such Member has assumed, within the meaning of Section 1.704-1(b)(2)(iv)(c) of
the Regulations, other than in connection with receiving a distribution from the
Company.
"Capital Interest Portion" means, with respect to each Class B
Member's Class B Units, the right to distributions pursuant to Sections
3.1(a)(i) and 11.2(b)(iv)(x) (and distributions pursuant to Section 3.3 to the
extent treated as made under such Sections).
"Carrying Value" means, with respect to any Company asset, the asset's
adjusted net basis for United States federal income tax purposes, except that
the Carrying Values of all Company assets may, at the discretion of the Board of
Managers, be adjusted to equal their respective fair market values (as
reasonably determined in good faith by the Board of Managers), in accordance
with the rules set forth in Regulation Section 1.704-1(b)(2)(iv)(f), as provided
for in Section 4.3(h). In connection with the transactions contemplated by the
issuance of the Class B Units on the Issuance Date, the Carrying Values of all
Company assets as of the Issuance Date, other than the Deerfield Interest, shall
be adjusted to equal their fair market values and the Carrying Value of the
Deerfield Interest shall be adjusted to equal the Issuance Date Value (in a
manner reasonably determined in good faith by the Board of Managers in
accordance with Regulation Section 1.704-1(b)(2)(iv)(f)). In the case of any
Company asset that has a Carrying Value that differs from its adjusted tax
basis, Carrying Value shall be adjusted by the amount of depreciation, depletion
and amortization calculated for purposes of the definitions of "Net Income" and
"Net Loss" rather than the amount of depreciation, depletion and amortization
determined for United States federal income tax purposes.
"Class" means any Class of Units.
"Class A Attributable GAAP Net Profits" means, with respect to each
Class A Member, an amount equal to the product of (A) the excess, if any, of (x)
the cumulative net profits of the Company earned since the Issuance Date as
determined in accordance with GAAP, excluding any net profits and net losses
attributable to any Special Investment, over (y) an amount equal to cumulative
Class B Attributable GAAP Net Profits with respect to all Class A Members; and
(B) a fraction, the numerator of which is such Class A Member's Adjusted Capital
Contributions and the denominator of which is the aggregate Adjusted Capital
Contributions of the Class A Members. For the avoidance of any doubt, (i) in the
event of a sale or other disposition of all or a portion of the Company's assets
or any similar transaction, subclause (x) shall include the net profits and
losses of the Company attributable to such sale or disposition computed from the
Deerfield Acquisition Date as determined in accordance with GAAP, excluding any
net profits and losses attributable to any Special Investment; and (ii)
subclause (x) shall, to the extent otherwise required under this Agreement,
include the net profits and losses of the Company as determined in accordance
with GAAP attributable to any hypothetical liquidation of the Company or sale,
or adjustment to fair market value, of Company assets, as if such events
actually occurred (including pursuant to Sections 4.1(a), 4.3(h), 9.3, 9.4 and
11.2(d)).
"Class A Capital Percentage" means a fraction (expressed as a
percentage), the numerator of which is the aggregate Adjusted Capital
Contributions made by the Class A Members, and the denominator of which is the
aggregate Adjusted Capital Contributions made by the Class A Members and Class B
Members.
"Class A Member" means a Member who holds Class A Units.
"Class A Percentage" means, with respect to a Class A Member, a
fraction (expressed as a percentage), the numerator of which is the number of
Class A Units owned by such Member and the denominator of which is the total
number of Class A Units owned by all Members.
"Class B Attributable GAAP Net Profits" means, with respect to each
Class A Member, an amount equal to the product of (A) the aggregate Attributable
GAAP Net Profits amounts for all Class B Members; and (B) a fraction, the
numerator of which is such Class A Member's Adjusted Capital Contributions and
the denominator of which is the aggregate Adjusted Capital Contributions of the
Class A Members.
"Class B Clawback Percentage" means with respect to each Class B
Member, (i) prior to February 15, 2011, 100%, (ii) on or after February 15, 2011
to and including February 14, 2012, 66?%, (iii) on or after February 15, 2012
and to and including February 14, 2013, 33?%, and (iv) on or after February 15,
2013, 0%.
"Class B Member" means a Member who holds Class B Units.
"Class B Percentage" means, with respect to a Class B Member, the
percentage set forth in the Company's Register of Members, as the same may be
adjusted pursuant to such Class B Member's Subscription Agreement, including to
reflect any forfeiture of the Profits Interest Portion of his Class B Units.
"Class B Profits Interest Percentage" means a percentage equal to the
sum of the Class B Percentages of all of the Class B Members.
"Class C Member" means a Member who holds Class C Units.
"Class of Units" means the Class A Units, Class B Units or Class C
Units, as the case may be or as the context requires.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, and
any successor thereto.
"Company" means Triarc Deerfield Holdings, LLC, and its successors.
"Company Minimum Gain" has the meaning specified for "partnership
minimum gain" in Regulation Section 1.704-2(b)(2) and 1.704-2(d).
"Control Group" means any of Nelson Peltz or Peter May or any
Affiliate of Nelson Peltz or Peter W. May or any Person affiliated with either
such persons (including any spouse, siblings and their spouses and the
descendants of any of them, and any trust, partnership, foundation or other
entity established and maintained primarily for the benefit of any of them).
"Cumulative Unrealized Loss" means, as of any determination date, the
excess, if any, of (i) the aggregate Capital Contributions made by all Members
with respect to Class A Units and Class B Units, over (ii) the sum of the Fair
Market Value of the Company, excluding the Fair Market Value of any Special
Investments, as of such determination date and all distributions of Available
Net Cash to the Members.
"Deemed Cumulative Tax Liability with respect to the Profits Interest
Portion" with respect to each Class B Member, means the aggregate amount of Tax
Liability computed for such Class B Member for each Taxable Year (or portion
thereof) over the period during which the Class B Units were held by such Class
B Member.
"Deerfield" means Deerfield & Company LLC, an Illinois limited
liability company, and any successor thereto.
"Deerfield Acquisition Date" means July 22, 2004.
"Deerfield Agreement" means the Fourth Amended and Restated Operating
Agreement of Deerfield, dated as of June 26, 2004, as amended, modified,
supplemented or restated from time to time.
"Deerfield Interest" means the membership interests held by the
Company in Deerfield (but excludes any membership interests in Deerfield that
are acquired as part of a Special Investment as described in clause (ii) of the
definition of "Special Investment").
"Deerfield Interest Percentage" means, as of the date of any sale of
all or a portion of the Deerfield Interest, a fraction (expressed as a
percentage), the numerator of which is the Liquidation Value of the portion of
the Deerfield Interest that is the subject of such sale, and the denominator of
which is the Liquidation Value of the entire Deerfield Interest.
"Fair Market Value" means, with respect to any asset, property or
interest, as of the date of determination, the price at which, in the reasonable
good faith determination of the Triarc Board, such asset, property or interest
would likely be sold in an arm's length transaction between a willing and able
buyer and a willing and able seller, neither of which is an Affiliate of the
other and neither of which is under compulsion to enter into such transaction,
based on then prevailing market conditions and taking into account all
circumstances determined to be relevant to the establishment of such price at
such time, including, if applicable, multiples of EBITDA, revenues and net
income for which asset management companies similar to Deerfield are being
acquired and other relevant comparables, and in the case of equity securities,
without any minority or illiquidity discounts or any discount based on the
difference in voting or other rights conferred as a result of the provisions of
this Agreement. "Fair Market Value" shall be determined as of the date of the
event giving rise to the need to determine "Fair Market Value."
"Fiscal Year" means the calendar year or, in the case of the first and
last Fiscal Years of the Company, the fraction thereof commencing on the date of
the filing of the Certificate of Formation or ending on the date on which the
winding up of the Company is completed, as the case may be.
"GAAP" means generally accepted accounting principles of the United
States of America.
"Interest Rate" means LIBOR, plus 450 basis points.
"Issuance Date" means the execution date of this Agreement.
"Issuance Date Value" means the value of the Deerfield Interest as of
the Issuance Date as determined by the appraisal completed by a third-party
appraiser.
"LIBOR" means, in relation to any relevant sum and any relevant
period:
(i) the rate shown on Bloomberg page "BBAM1" of the Bloomberg Screen
as being the rate per annum at which Dollar deposits are offered for a period
equal or comparable to such period at or about 11:00 a.m. (London time) on the
second Business Day in London before the first day of such period; for this
purpose "Bloomberg Screen" means the display page so designated on the Bloomberg
service; or
(ii) if at or about such time on the relevant day no such rate appears
on the Bloomberg Screen, the rate shown on the Telerate Monitor Screen as being
the rate per annum at which U.S. dollar deposits are offered for a period equal
or comparable to such period at or about 11:00 a.m. (London time) on the second
Business Day in London before the first day of such period; for this purpose
"Telerate Monitor Screen" means the display designated as page "3750" on the
Telerate Monitor system or such other page as may replace page "3750" on that
system for the purpose of displaying offered rates for U.S. dollar deposits; or
(iii) if at or about such time on the relevant day no such rate
appears on the Telerate Monitor Screen, the rate per annum at which U.S. dollar
deposits in an amount comparable to such sum are offered to Citibank, N.A. for
such period by prime banks in the London interbank market at or about l1:00 a.m.
(London time) on the second Business Day in London before the first day of such
period, as determined by the Triarc Board.
"Liquidation Value" means, as of the date of any sale of all or a
portion of the Deerfield Interest, the amounts that would be received by the
Company from Deerfield assuming that (i) Deerfield was dissolved, its affairs
wound up and its assets sold for cash equal to their Fair Market Value, (ii)
Deerfield's liabilities were satisfied, and (iii) the net assets of Deerfield
were distributed to its members in accordance with Section 11.2 of the Deerfield
Agreement (or any successor provision).
"Madison West" means Madison West Associates Corp., a Delaware
corporation, and any successor thereto.
"Manager" means a member of the Board of Managers.
"Member" means any Class A Member, Class B Member or Class C Member.
"Member Nonrecourse Debt Minimum Gain" means, with respect to each
Member nonrecourse debt (which has the same meaning as "partner recourse debt"
in Regulation Section 1.704-2(b)(4)), an amount equal to the Company Minimum
Gain that would result if such Member nonrecourse debt were treated as a
nonrecourse liability (as defined in Regulation Section 1.752-1(a)(2))
determined in accordance with Regulation Section 1.704-2(i)(3).
"Member Nonrecourse Deductions" has the meaning specified for "partner
nonrecourse deductions" in Regulation Section 1.704-2(i)(2).
"Net Income" and "Net Loss" means, for each Fiscal Year or other
period, the taxable income or loss of the Company, or particular items thereof,
determined in accordance with the accounting method used by the Company for
United States federal income tax purposes with the following adjustments: (a)
all items of income, gain, loss, or deduction allocated pursuant to Section 4.3
(other than Section 4.3(h)) shall not be taken into account in computing such
taxable income or loss; (b) any income of the Company that is exempt from United
States federal income taxation and not otherwise taken into account in computing
Net Income and Net Loss shall be added to such taxable income or loss; (c) any
Special Investment Net Income or Net Loss (and all items of income, gain, loss
or deduction with respect thereto) shall not be taken into account in computing
such taxable income or loss; (d) if the Carrying Value of any asset is adjusted
pursuant to the definition of Carrying Value, or an adjustment is made to the
Capital Accounts under Section 4.3(h) with respect to a distribution of
property, the amount of such adjustment shall be taken into account, immediately
prior to the event giving rise to such adjustment, as gain or loss from the
disposition of such asset for purposes of computing Net Income or Net Loss; (e)
if the Carrying Value of any asset differs from its adjusted tax basis for
United States federal income tax purposes, any gain or loss resulting from a
disposition of such asset shall be calculated with reference to such Carrying
Value; (f) if the Carrying Value of any asset differs from its adjusted tax
basis for United States federal income tax purposes, the amount of depreciation,
amortization or cost recovery deductions with respect to such asset shall for
purposes of determining Net Income and Net Loss be an amount which bears the
same ratio to such Carrying Value as the United States federal income tax
depreciation, amortization or other cost recovery deductions bears to such
adjusted tax basis (provided, that if the United States federal income tax
depreciation, amortization or other cost recovery deduction is zero, the Board
of Managers may use any reasonable method for purposes of determining
depreciation, amortization or other cost recovery deductions in calculating Net
Income and Net Loss); and (g) any expenditures of the Company that are described
in Section 705(a)(2)(B) of the Code or are treated as described in Section
705(a)(2)(B) of the Code pursuant to Regulation Section 1.704-1(b)(2)(iv)(i) and
not otherwise taken into account in computing Net Income and Net Loss shall be
treated as deductible items.
"Operating Reserve" means such amount as is determined by the Board of
Managers in good faith to be necessary or prudent for the Company to maintain in
order to satisfy the Company's accrued or anticipated expenses, including
contingent liabilities, and otherwise to meet the operational needs of the
Company's business.
"Participating Members" means the Class A Members with respect to
Class A Units, and the Class B Members with respect to Class B Units.
"Participating Percentages" means, (i) in the case of a Class B
Member, the Class B Percentage of such Member; and (ii) in the case of a Class A
Member, the product of (x) the excess of 100%, over the Class B Profits Interest
Percentage, and (y) such Class A Member's Class A Percentage.
"Permitted Transferee" means (i) with respect to any individual
Member, any Person that is, directly or indirectly, controlled by such Member
or, upon the death of such Member, any Person who is the beneficiary of such
Member's estate, whether by will or by intestate succession; and (ii) with
respect to any Member that is not an individual, any Affiliate of such Member or
any partner, member or shareholder of such Member or any of its Affiliates.
"Person" means an individual, a corporation, a company, a voluntary
association, a partnership, a joint venture, a limited liability company, a
trust, an estate, an unincorporated organization, a governmental authority or
other entity.
"Profits Interests" means the right attaching to a Class B Unit with
respect to distributions pursuant to Sections 3.1(a)(ii), 3.1(c) and
11.2(b)(iv)(y) (and distributions pursuant to Section 3.3 to the extent treated
as made under such Sections).
"Profits Interest Portion" means, with respect to each Class B
Member's Class B Units, the right to distributions in respect of Profits
Interests.
"Protected Person" means each Member, each Affiliate of a Member, and
the partners, members, shareholders, managers, officers, directors,
representatives, agents and employees of the Company and each Member and such
Affiliate, each Manager and any Person who was, at the time of the act or
omission in question, such a Person.
"Register of Members" means the register maintained by the Company
setting forth, among other things, the name and address of each Member, its
Capital Contributions to the Company, the number and class of Units held by such
Member, and its applicable percentage interest in the Company.
"Regulations" means the temporary and final regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Retained Amount Tax Liability" means, with respect to any
distribution to a Class B Member under Section 3.1(a)(ii) or 3.1(c), the product
of (x) the taxable income allocated (or to be allocated) to such Class B Member
with respect to such distribution as reasonably determined by the Board of
Managers, and (y) the Tax Rate.
"Special Investment" means (i) any investment funded by Capital
Contributions made pursuant to the Funding Agreement, dated as of December 23,
2004, among Triarc, the Company, Deerfield and Deerfield Capital Management LLC,
as amended, modified, supplemented or restated from time to time; and (ii) any
investment of the Company in Deerfield subsequent to the date hereof which is
acquired as a result of the purchase or redemption of the membership interests
in Deerfield that are held by the members thereof (other than the Company),
where such investment is funded by Capital Contributions made by Triarc.
"Special Investment Net Income" and "Special Investment Net Loss"
means, with respect to a Special Investment, the taxable income or loss of the
Company, as the case may be, attributable to such Special Investment, determined
in the same manner as Net Income and Net Loss (without regard to clause (c) of
the definition of "Net Income" and "Net Loss").
"Subscription Agreement" means the Subscription Agreement entered into
by a Class B Member and the Company pursuant to which such Class B Member
subscribes for, and is issued, Class B Units.
"Tax Liability" means, with respect to any Taxable Year or portion
thereof, in the case of any Class of Units, the product of (x) the excess, if
any, of (A) the distributive share of the taxable net income of the Company
allocated to such Class of Units held by such Member for such Taxable Year or
portion thereof, over (B) the amount of net operating loss or capital loss, as
the case may be, allocated to such Class of Units held by such Member for a
prior Taxable Year or for a prior portion of the current Taxable Year (to the
extent not previously utilized in computing Tax Liability (taking into account
the character of items composing such taxable net income)); and (y) the Tax
Rate.
"Tax Rate" means the highest marginal tax rates for an individual
resident in New York City with consideration to any differential tax rate
applicable to capital gains, qualified dividends or other income, and taking
into account the deductibility of state and local income taxes as applicable at
the time for United States federal income tax purposes and any limitations
thereon, including pursuant to Section 68 of the Code.
"Taxable Year" means the calendar year or such other fiscal period as
may be required by the Code or the Regulations.
"Termination Date" means, with respect to a Class B Member, the date
that such Class B Member ceases to be employed by Triarc or any of its
Affiliates.
"Transfer" means to transfer, sell, assign, pledge, hypothecate, give,
create a security interest in or lien on, place in trust (voting or otherwise),
assign or in any other way encumber or dispose of, directly or indirectly and
whether or not by operation of law or for value.
"Triarc" means Triarc Companies, Inc., a Delaware corporation, and any
successor thereto.
"Triarc Board" means the board of directors of Triarc.
"Triarc Change of Control" means (i) the acquisition by any Person or
group (other than any member of the Control Group) of beneficial ownership,
directly or indirectly, of 50% or more of the combined voting power of Triarc's
outstanding securities entitled to vote generally in the election of directors,
or (ii) a majority of the directors of Triarc being individuals who are not
nominated by the Triarc Board.
"Triarc Trigger Event" means the occurrence of any one of the
following events: (i) the acquisition by any Person or group, other than any
member of the Control Group, of beneficial ownership, directly or indirectly, of
more than 35% of the combined voting power of Triarc's outstanding securities
entitled to vote generally in the election of directors; provided, that the
Control Group beneficially owns, directly or indirectly, less than 30% of the
combined voting power of Triarc's outstanding securities entitled to vote
generally in the election of directors; (ii) a majority of the directors of
Triarc being individuals who are not nominated by the Triarc Board; (iii) the
adoption of a plan relating to the liquidation or dissolution of Triarc; or (iv)
the merger or consolidation of Triarc with or into another Person or the merger
of another Person with or into Triarc, or the sale of all or substantially all
of the assets of Triarc to another Person (other than a Person that is directly
or indirectly controlled by one or more members of the Control Group), and in
the case of any such merger or consolidation, the securities of Triarc that are
outstanding immediately prior to such transaction are changed into or exchanged
for cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person or transferee that represent
immediately after such transaction at least a majority of the combined voting
power of the surviving Person or transferee.
"Units" means the Class A Units, the Class B Units or the Class C
Units, as the case may be or as the context requires.
"Unpaid Preferred Return" means, with respect to each Class A Member
as of the date of any distribution of Available Net Cash, an amount equal to the
excess on a cumulative basis of (i) an amount equal to 8% per annum compounded
annually, on the Unrecovered Capital of such Class A Member's Class A Units from
time to time, over (ii) the amounts distributed in respect of such Class A
Member's Class A Units (x) under subclauses (A) and (C) of Section 3.1(a)(ii)
(including advances thereof pursuant to Section 3.3), (y) under Sections
3.1(b)(ii) and 3.1(b)(iii) (including advances thereof pursuant to Section 3.3),
and (z) under subclauses (B), (D) and (E) of Section 11.2(b)(iv)(y) (including
advances thereof pursuant to Section 3.3). For purposes of determinations under
clause (i) of this definition of "Unpaid Preferred Return," (A) except with
respect to Capital Contributions made to the Company on or prior to the Issuance
Date, computations shall be made from the date such Capital Contribution is made
by the Class A Member to the Company; and (B) with respect to Capital
Contributions made to the Company on or prior to the Issuance Date, computations
shall be made from the Issuance Date.
"Unrecovered Capital" means, with respect to each Class A Member as of
any determination date, the excess of (i) the cumulative Capital Contributions
made by the Class A Member in respect of its Class A Units as of such
determination date, over (ii) the sum of the amount distributed in respect of
such Class A Member's Class A Units (x) under subclause (C) of Section
3.1(a)(ii) (including advances thereof pursuant to Section 3.3) to the extent
that related distributions to the Class B Members in respect of their Class B
Units were limited by Attributable GAAP Net Profits pursuant to Section
3.1(b)(i), (y) under Section 3.1(b)(i) and (z) under Section 11.2(b)(iv)(y)(A).
For the avoidance of doubt, clause (i) above shall not include any Capital
Contributions utilized to fund Special Investments.
"Vested Profits Interest Portion" with respect to each Class B
Member's Class B Units, has the meaning set forth in such Class B Member's
Subscription Agreement.
"Voting Interests" means the voting rights that attach to the Units as
described in Section 6.8.
(b) The following terms shall have the meaning defined in the
Section indicated:
Defined Term Section Reference
Actual Release Amount 3.7(a)
Adjustments 7.2
Board of Managers 6.1(a)
Call Right 8.1(a)
Capital Account 2.6(a)
Cash/Note Consideration 7.5(c)
Certificate of Formation Recital A
Class A Units 2.1(a)(i)
Class B Clawback 3.9
Class B Units 2.1(a)(ii)
Class C Units 2.1(a)(iii)
Confidential Information 13.8
Drag Transaction 9.2(a)
Drag-Along Notice 9.2(b)
Drag-Along Right 9.2(a)
Drag-Along Sellers 9.2(b)
Eighth Year Valuation 7.1(a)
Executive Officers 6.7(a)
Fifth Year Valuation 7.1(a)
Financing Limitation 8.3
Frozen Release Amount 3.7(a)
Liabilities 6.9(a)
Memorandum Account 3.6(a)
Negative Capital Account Limitation 3.1(b)(ii)
Newco 9.4(a)
Newco Securities 9.4(a)
Offering Notice 9.1(a)
Original Agreement Recital B
Other Officers 6.7(b)
Pro Rata Portion 9.3
Profits Interest Limitation 3.1(b)(iii)
Regulatory Allocations 4.3(g)
Reserve Period 3.6(b)
Restructuring Event 9.4(a)
Restructuring Valuation 9.4(a)
Retained Amount Percentage 3.6(d)
Retained Amounts 3.6(a)
Seventh Year Valuation 7.1(a)
Tag-Along Rightholder 9.1(a)
Tag-Along Transaction 9.1(a)
Tax Advances 3.3
Tax Matters Partner 5.5
Tentative Release Amount 3.7(a)
Third Party Purchaser 9.1(a)
Valuations 7.1(a)
Withholding Advances 3.4
ARTICLE 2
CAPITALIZATION; RECAPITALIZATION
2.1 Capitalization.
(a) The membership interests of the Company shall be represented by:
(i) Class A Units (the "Class A Units");
(ii) Class B Units (the "Class B Units"); and
(iii) Class C Units (the "Class C Units").
(b) There shall initially be authorized (i) 10,000 Class A Units, (ii)
100 Class B Units and (iii) 100 Class C Units. With the affirmative vote of a
majority of the Voting Interests of the Members, the Company may increase or
decrease the number of authorized Units of any Class or subdivide or combine the
number of issued Units of any Class into a greater or lesser number of Units.
The Company may issue fractional Units.
(c) Any Class B Units (or portion thereof) that are either purchased
by Triarc pursuant to Article 7 or Section 8.1 or 8.2 or forfeited pursuant to a
Class B Member's Subscription Agreement shall automatically upon any such
purchase or forfeiture, as the case may be, be cancelled and deemed authorized
but unissued.
2.2 Recapitalization. Immediately upon the date of this Agreement:
(a) The membership interest in the Company held by Triarc (other than
its membership interest with respect to any Special Investment) shall
automatically be exchanged for such number of Class A Units as is set forth on
Schedule A attached hereto.
(b) The membership interest in the Company held by Madison West shall
automatically be exchanged for such number of Class A Units as is set forth on
Schedule A attached hereto.
(c) The membership interest in the Company held by Triarc with respect
to any Special Investment shall automatically be exchanged for such number of
Class C Units as is set forth on Schedule A attached hereto.
2.3 Capital Contributions.
(a) As of the date hereof, each Class A Member and Class C Member has
made Capital Contributions to the Company in the amounts set forth opposite each
such Member's name in Schedule A attached hereto.
(b) As of the date hereof, each Class B Member has made Capital
Contributions to the Company in the amounts set forth in such Class B Member's
Subscription Agreement.
(c) From and after the date hereof, no Member shall have any
obligation to make any Capital Contributions to the Company. A Member may, from
time to time, make Capital Contributions to the Company if the Board of Managers
consents to the making of such Capital Contributions.
2.4 No Partition; No Drawings; Etc. No Member shall have the right to
partition the assets of the Company or to cause the sale of any Company asset
except as otherwise expressly set forth herein. No Member shall receive any
salary or drawing with respect to its Capital Contributions or its Capital
Account or for services rendered on behalf of the Company or otherwise in its
capacity as a Member, except as otherwise provided in this Agreement. No
interest shall be paid on Capital Contributions.
2.5 Liabilities of Members. Except as otherwise expressly set forth herein
or in the Act, the debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Member shall be obligated personally for
any such debt, obligation or liability of the Company solely by reason of being
a Member.
2.6 Capital Accounts.
(a) A separate capital account (a "Capital Account") shall be
maintained for each Member in accordance with Regulation Section
1.704-1(b)(2)(iv), and this Section 2.6 shall be interpreted and applied in a
manner consistent therewith.
(b) Each Member's Capital Account shall be increased by the amount of:
(i) such Member's Capital Contributions pursuant to Section 2.3; (ii) any Net
Income, Special Investment Net Income or other item of income or gain allocated
to such Member pursuant to Section 4.1 or 4.3; and (iii) Company liabilities, if
any, assumed by such Member or secured, in whole or in part, by any Company
assets that are distributed to such Member. Each Member's Capital Account shall
be decreased by the amount of: (i) cash and the fair market value (as reasonably
determined in good faith by the Board of Managers) on the date of distribution
of any other Company property distributed to such Member pursuant to Article 3
or Article 11; (ii) any Net Loss, Special Investment Net Loss or other item of
loss or deduction allocated to such Member pursuant to Section 4.1 or 4.3; and
(iii) liabilities, if any, of such Member assumed by the Company or secured, in
whole or in part, by any assets contributed to the Company by such Member.
(c) The Company shall also maintain a separate sub-Capital Account
with respect to each Member's Classes of Units and the Profits Interest Portion
of any Class B Member's Class B Units, which shall be maintained in accordance
with the principles governing the Members' Capital Accounts.
(d) If any Person becomes a substituted Member in accordance with this
Agreement, such substituted Member shall succeed to the Capital Account of the
transferor Member to the extent such Capital Account relates to the transferred
Units (or portion thereof).
ARTICLE 3
DISTRIBUTIONS
3.1 Distributions of Available Net Cash.
(a) With respect to Available Net Cash that the Board of Managers
determines to distribute to the Members, subject to Sections 3.1(b), 3.1(c),
3.3, 3.6, 3.7, 3.8 and 11.2, the Company shall apportion the amount of such
Available Net Cash among the Participating Members in proportion to their
Adjusted Capital Contributions, and such amounts shall be distributed as
follows:
(i) the amount so apportioned to the Class B Members shall be
distributed to the Class B Members in proportion to their respective Class B
Units;
(ii) the amount so apportioned to each Class A Member shall,
subject to Sections 3.1(b) and 3.1(c), be distributed as follows:
(A) first, to the Class A Member an amount equal to its
share of the Unpaid Preferred Return;
(B) second, to the Class B Members in proportion to their
respective Class B Percentages, until the Class B Members have received under
this subclause (B) (including advances thereof pursuant to Section 3.3 and
distributions under Section 3.1(c) to the extent treated as made under this
subclause (B)), cumulative distributions equal to the product of the Class B
Profits Interest Percentage and the sum of (i) cumulative amounts distributed
(or treated as distributed) pursuant to subclause (A) of this Section 3.1(a)(ii)
to the Class A Member (including advances thereof pursuant to Section 3.3 and
distributions under Section 3.1(b) to the extent treated as made under subclause
(A)) and (ii) cumulative amounts distributed to the Class B Members pursuant to
this subclause (B) (including advances thereof pursuant to Section 3.3 and
distributions under Section 3.1(c) to the extent treated as made under this
subclause (B)); and
(C) thereafter, to the Class A Member and the Class B
Members in accordance with their respective Participating Percentages.
(b) Notwithstanding anything in this Agreement to the contrary,
(i) aggregate distributions to a Class B Member under Section
3.1(a)(ii) (including advances thereof pursuant to Section 3.3 and distributions
under Section 3.1(c) to the extent treated as made under Section 3.1(a)(ii)),
and distributions pursuant to subclause (C) and (D) of Section 11.2(b)(iv)(y)
shall not exceed cumulative Attributable GAAP Net Profits with respect to such
Class B Member (and any such excess amounts shall instead be distributed to the
Class A Members in proportion to their Class A Units);
(ii) no distributions to a Class B Member shall be made under
this Agreement to the extent such distribution creates or increases a deficit in
the Capital Account balance of the Class B Member with respect to its Class B
Units (the "Negative Capital Account Limitation") (and any such amounts shall
instead be distributed to the Class A Members in proportion to their Class A
Units); and
(iii) distributions to a Class B Member under this Agreement
shall be limited as reasonably determined in good faith by the Board of Managers
so that in the reasonable, good faith judgment of the Board of Managers the
Profits Interests qualify as "profits interests" for U.S. federal tax purposes
(the "Profits Interest Limitation") (and any such amounts shall instead be
distributed to the Class A Members in proportion to their Class A Units).
(c) If, and to the extent that, any distributions to a Class B Member
are limited by the Profits Interest Limitation or by the Negative Capital
Account Limitation, subsequent distributions of Available Net Cash under Section
3.1(a)(ii) and distributions under Section 11.2(b)(iv)(y) shall, subject to the
provisions of Section 3.1(b), be made (i) first to the Class B Members, in
proportion to and to the extent of, the amount necessary so that each Class B
Member has received the amount of distributions such Class B Member would have
been entitled to receive if there had been no such limitation and (ii)
thereafter in accordance with Section 3.1(a)(ii) or Section 11.2(b)(iv)(y) (as
the case may be).
3.2 Distributions Attributable To Special Investments. Distributions of any
cash or property attributable to a Special Investment (as reasonably determined
by the Board of Managers) shall be made to the Class C Members at such times and
in such amounts determined by the Board of Managers in proportion to the Capital
Contributions of the Class C Members with respect to each such Special
Investment.
3.3 Tax Advances. Subject to Section 11.2, and to the extent of Available
Net Cash, on a quarterly basis the Company shall distribute an amount to the
Class A Members, with respect to Class A Units, and Class B Members, with
respect to Class B Units, pro rata in proportion to the excess, if any, of (x)
the Tax Liability computed for such Member with respect to each Class of Units
for the Taxable Year (or portion thereof) that includes such quarter, over (y)
the aggregate amount distributed to each such Member with respect to such Class
of Units for the Taxable Year that includes such quarter pursuant to Section 3.1
(such distributions, "Tax Advances"). All Tax Advances made on behalf of a
Member with respect to such Class of Units shall reduce the amount of the next
succeeding distribution or distributions that would otherwise have been made to
such Member with respect to such Class of Units or, if such distributions are
not sufficient for that purpose, shall reduce the proceeds of liquidation
otherwise distributable under Section 11.2 with respect to such Class of Units
to such Member. To the extent that an amount otherwise distributable to a Member
is so applied, it shall be treated for all purposes hereof as if such amount had
actually been distributed to such Member with respect to such Class of Units
pursuant to Sections 3.1, 3.6, 3.7, 3.8 and 11.2, as the case may be. For the
avoidance of doubt, no distributions under this Section 3.3 shall be made to a
Class C Member with respect to Class C Units.
3.4 Tax Withholding. To the extent the Company is required by applicable
law to withhold or to make tax payments on behalf of or with respect to any
Member (e.g., backup withholding) ("Withholding Advances"), the Company may
withhold such amounts and make such tax payments as so required. All Withholding
Advances made on behalf of a Member, plus interest thereon at a rate equal to
the prime rate, as announced by Citibank, N.A., plus 2%, shall (i) be paid on
demand by the Member on whose behalf such Withholding Advances were made (it
being understood that no such payment shall increase such Member's Capital
Contributions or Capital Account balance), or (ii) with the consent of the Board
of Managers, in its sole discretion, be repaid by reducing the amount of the
current or next succeeding distribution or distributions which would otherwise
have been made to such Member or, if such distributions are not sufficient for
that purpose, by so reducing the proceeds of liquidation otherwise payable to
such Member. If repayment of a Withholding Advance is made by a Member pursuant
to clause (ii), such Member shall not be required to pay any interest thereon.
Notwithstanding the foregoing, whenever repayment of a Withholding Advance by a
Member is made as described in clause (ii), for all other purposes of this
Agreement such Member shall be treated as having received all distributions
unreduced by the amount of such Withholding Advance. Each Member hereby agrees
to fund, and otherwise reimburse the Company for any liability with respect to
Withholding Advances (including interest thereon) required or made on behalf of
or with respect to such Member (including penalties imposed with respect
thereto) (it being understood that no such funding or reimbursement shall
increase such Member's Capital Contributions or Capital Account balance).
3.5 Distributions - General Principles.
(a) Except as otherwise expressly provided in this Article 3 or in
Articles 7, 8 and 11, no Member shall have the right to withdraw capital from
the Company or to receive any distribution or return of any of its Capital
Contributions.
(b) Distributions pursuant to this Article 3 may be made to the
Members in cash or in kind; provided, that distributions shall be made, to the
extent practicable, in the same form and proportions as any cash or property is
received by the Company. Any distributions of non-cash proceeds shall be made in
the same form (and the same proportion with respect to cash distributed) as are
received by the Company. Distributions of non-cash proceeds shall be made as if
cash in an amount equal to the fair market value of such proceeds (as reasonably
determined in good faith by the Board of Managers) were to be distributed.
3.6 Retained Amounts - General.
(a) The Company shall establish an account on its books, which shall
be represented by a memorandum account (each, a "Memorandum Account") for each
Class B Member and reflected in the Capital Account of such Class B Member in
accordance with Section 2.6. Except as provided in Sections 3.6(b), (c) and (e),
the Company shall retain as an asset of the Company an amount equal to 25% of
the excess of (x) amounts otherwise distributable to a Class B Member pursuant
to Section 3.1(a)(ii) and Section 3.1(c) (to the extent treated as made under
Section 3.1(a)(ii)), over (y) the Retained Amount Tax Liability with respect to
such distributions (the "Retained Amounts"). Retained Amounts in respect of a
Class B Member shall be credited to such Class B Member's Memorandum Account.
Any Retained Amounts that are distributed to a Class B Member as described in
this Section 3.6 and Sections 3.7 and 3.8 shall be debited against such Class B
Member's Memorandum Account.
(b) Subject to Sections 3.6(c) and (d), 3.7 and 3.8, within 10 days
following the second anniversary of the date on which each such portion of the
Retained Amounts would otherwise have been distributed to a Class B Member (such
period, the "Reserve Period"), an amount equal to such Retained Amounts shall be
distributed to such Class B Member, without interest.
(c) Any distributions to a Class B Member with respect to Retained
Amounts shall be made in respect of amounts credited to such Class B Member's
Memorandum Account in the order of the earliest of such credit entries to the
most recent credit entry; provided that such distribution may be made in kind to
the extent that the underlying distribution was also made in kind.
(d) If any amount with respect to Retained Amounts is to be
distributed to a Class B Member, then the amounts shall be distributed to such
Class B Member in respect of whom a credit entry was originally made in his
Memorandum Account in accordance with such Class B Member's Class B Percentage
at the time such entry was made in his Memorandum Account (as adjusted pursuant
to the following proviso, the "Retained Amount Percentage"); provided that if
such Class B Member has been terminated for "cause" as defined in such Class B
Member's Subscription Agreement, then the amount that shall be distributed shall
be based on the then vested portion of the Class B Percentage at the time of
such termination and any amounts remaining in such Class B Member's Memorandum
Account shall be distributed and paid to the Class A Members in proportion to
their Class A Units.
(e) The provisions set forth in this Section 3.6, and Sections 3.7 and
3.8 shall no longer be applicable on or after the date of the occurrence of a
Triarc Change of Control; it being understood that from and after such date, the
Company shall not retain or holdback any Retained Amounts. Within 10 days
following the date of occurrence of a Triarc Change of Control, all Retained
Amounts that have theretofore been held back and retained by the Company shall
be distributed in full to the Class B Members in accordance with the credit
balances in their respective Memorandum Accounts, without interest.
3.7 Write-Downs of Deerfield Interest.
(a) If the Triarc Board determines in good faith that the Company,
excluding any Special Investments, is subject to a Cumulative Unrealized Loss as
of the end of any Reserve Period, then the amount to be distributed to a Class B
Member at the end of such Reserve Period (the "Tentative Release Amount") shall
be reduced by an amount equal to the lesser of (x) the aggregate balance of the
Memorandum Account of such Class B Member immediately prior to the end of such
Reserve Period, and (y) the excess, if any, of (A) the product of the (i)
Retained Amount Percentage with respect to the amount to be distributed to such
Class B Member at the end of such Reserve Period, and (ii) the amount of such
Cumulative Unrealized Loss, over (B) the aggregate balance of the Memorandum
Account of such Class B Member immediately prior to the end of such Reserve
Period attributable to other Reserve Periods. For purposes of this Section 3.7,
"Frozen Release Amount" with respect to the end of each Reserve Period equals
the excess of the Tentative Release Amount, over the amounts actually
distributed to the Class B Members with respect to such Reserve Period (the
"Actual Release Amount").
(b) If, following any determination that the Company, excluding any
Special Investments, is subject to a Cumulative Unrealized Loss, there is a
subsequent revaluation in the good faith determination of the Triarc Board that
values the Company, excluding the Fair Market Value of any Special Investments,
at an amount greater than the amount as of which it was valued as part of the
determination of such Cumulative Unrealized Loss, then an amount shall be
distributed to each Class B Member equal to the lesser of (x) the aggregate
amounts of outstanding Frozen Release Amounts with respect to such Class B
Member that would have been treated as Actual Release Amounts with respect to
such Class B Member if the computations with respect to the related Reserve
Period had been done on the basis of the subsequent revaluation, and (y) the
aggregate balance in such Class B Member's Memorandum Account immediately prior
to the date of such revaluation.
3.8 Sale of Deerfield Interest; Restructuring Event. If there is a sale of
all or a portion of the Deerfield Interest or a Restructuring Event occurs
(whether or not the Company, excluding any Special Investments, has been subject
to a Cumulative Unrealized Loss), then an amount computed for each Class B
Member equal to the lesser of (x) the aggregate balance of the Memorandum
Account of such Class B Member immediately prior to such sale or the occurrence
of a Restructuring Event, and (y) the product of (i) such Class B Member's Class
B Percentage, (ii) the Deerfield Interest Percentage, and (iii) the amount of
any Cumulative Unrealized Loss as of the date of such sale or the occurrence of
such Restructuring Event, will be distributed and paid to the Class A Members in
proportion to their Class A Units. In the case of a sale of all of the Deerfield
Interest or the occurrence of a Restructuring Event, any outstanding balance in
a Class B Member's Memorandum Account after the distribution and payment
described in the immediately preceding sentence, will be distributed to such
Class B Member.
3.9 Class B Clawback. If prior to February 15, 2013, (i) the Company
receives a distribution upon the liquidation of Deerfield, (ii) the Company
sells all or a portion of the Deerfield Interest, or (iii) a Restructuring Event
occurs, each Class B Member shall return to the Company an amount equal to its
Class B Clawback, which amount shall be distributed and paid to the Class A
Members in proportion to their Class A Units. The "Class B Clawback" with
respect to each Class B Member, means the amount necessary to cause (x) the
aggregate distributions made by the Company to such Class B Member in respect of
such Class B Member's Profits Interest Portion, not to exceed (y) the aggregate
distributions that would have been due from the Company to such Class B Member
pursuant to Section 11.2(b)(iv)(y) in respect of such Class B Member's final
Profits Interest Portion determined on a cumulative basis as if distributions
were made simultaneously (but computing the Unpaid Preferred Return for such
purposes without regard to this assumption), and after taking into account, as
of such determination date, all reduced distributions otherwise due to such
Class B Member as a result of any unvested and forfeited Class B Units;
provided, that, no Class B Member shall be required to return to the Company in
respect of its Class B Clawback an amount that exceeds the lesser of (i) the
product of such Class B Member's Class B Clawback and such Class B Member's
Class B Clawback Percentage and (ii) an amount equal to the excess of the
cumulative amount of distributions made to such Class B Member by the Company in
respect of the Profits Interest Portion over such Class B Member's Deemed
Cumulative Tax Liability with respect to the Profits Interest Portion. The
amount of any outstanding Class B Clawback due under this Section 3.9 shall
first offset and reduce any distributions to be made to such Class B Member
under Section 3.1(a)(ii), 3.1(c) or 11.2(b)(iv)(y).
ARTICLE 4
ALLOCATIONS
4.1 Allocations of Net Income and Net Loss.
(a) Except as otherwise provided in this Agreement, Net Income and Net
Loss (and, to the extent necessary, individual items of income, gain, loss,
deduction or credit) of the Company shall be allocated among the Class A Members
and the Class B Members in a manner such that, after giving effect to the
special allocations set forth in Section 4.3, the Capital Account of each Member
with respect to Class A Units and Class B Units, immediately after making such
allocation, is, as nearly as possible, equal (proportionately) to (i) the
distributions that would be made to such Members pursuant to Sections
11.2(b)(iv) if the Company were dissolved, its affairs wound up and its assets
(other than any assets attributable to a Special Investment) sold for cash equal
to their Carrying Value, all Company liabilities were satisfied (limited with
respect to each nonrecourse liability to the Carrying Value of the assets
securing such liability), and the net assets of the Company (other than any
assets attributable to a Special Investment) were distributed in accordance with
Section 11.2(b)(iv) to the Members immediately after making such allocation,
minus (ii) such Member's share of Company Minimum Gain and Member Nonrecourse
Debt Minimum Gain, computed immediately prior to the hypothetical sale of
assets, minus (iii) in the case of a Class B Member, any obligation of such
Class B Member to make a Capital Contribution to the Company pursuant to Section
3.9 if the Company were dissolved at such time, plus (iv) in the case of a Class
A Member, any right of such Class A Member to a distribution pursuant to Section
3.9 if the Company were dissolved at such time.
(b) Except as otherwise provided in this Agreement, Special Investment
Net Income and Special Investment Net Loss (and, to the extent necessary,
individual items of income, gain, loss, deduction or credit) of the Company
shall be allocated to the Class C Members, with respect to each Special
Investment, in proportion to their Capital Contributions with respect to such
Special Investment.
4.2 Allocations For Income Tax Purposes. For United States federal, state
and local income tax purposes, items of income, gain, loss, deduction and credit
shall be allocated to the Members in accordance with the allocations of the
corresponding items for Capital Account purposes under Sections 4.1 and 4.3,
except that items with respect to which there is a difference between adjusted
tax basis and Carrying Value will be allocated in accordance with Section 704(c)
of the Code, the Regulations thereunder and Regulation Section 1.704-1(b)(4)(i)
in a manner determined by the Board of Managers.
4.3 Special Allocations.
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
Section 4.2, if there is a net decrease in Company Minimum Gain or Member
Nonrecourse Debt Minimum Gain (determined in accordance with the principles of
Regulation sections 1.704-2(d) and 1.704-2(i)) during any Taxable Year, the
Members shall be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to their
respective shares of such net decrease during such year, determined pursuant to
Regulation sections 1.704-2(g) and 1.704-2(i)(5). The items to be so allocated
shall be determined in accordance with Regulation Section 1.704-2(f). This
Section 4.3(a) is intended to comply with the minimum gain chargeback
requirements in such Regulation sections and shall be interpreted consistently
therewith, including that no chargeback shall be required to the extent of the
exceptions provided in Regulation sections 1.704-2(f) and 1.704-2(i)(4).
(b) Qualified Income Offset. If any Member unexpectedly received any
adjustments, allocations or distributions described in Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the deficit balance in its Capital Account created by such
adjustments, allocations or distributions as promptly as possible. This Section
4.3(b) is intended to comply with the "qualified income offset" requirement in
such Regulation Section and shall be interpreted consistently therewith.
(c) Gross Income Allocations. If any Member has a deficit Capital
Account at the end of any Fiscal Year that is in excess of the sum of (i) the
amount such Member is obligated to restore, if any, pursuant to any provision of
this Agreement, and (ii) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulation sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible; provided, that an allocation pursuant to this Section 4.3(c) shall be
made only if and to the extent that a Member would have a deficit Capital
Account in excess of such sum after all other allocations provided for in
Section 4.2 and this Section 4.3 have been tentatively made as if Section 4.3(b)
and this Section 4.3(c) were not in this Agreement.
(d) Nonrecourse Deductions. Nonrecourse Deductions shall be allocated
to the Members in proportion to their Capital Contributions.
(e) Member Nonrecourse Deductions. Member Nonrecourse Deductions for
any taxable period shall be allocated to the Member who bears the economic risk
of loss with respect to the liability to which such Member Nonrecourse
Deductions are attributable in accordance with Regulation Section 1.704-2(j).
(f) Regulatory Compliance. The provisions of Sections 4.1, 4.2 and
this Section 4.3 and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulation Section
1.704-1(b) and shall be interpreted and applied in a manner consistent with such
Regulation. The Tax Matters Partner shall be authorized to make appropriate
amendments to the allocations of items pursuant to Section 4.2 if necessary in
order to comply with Section 704 of the Code or applicable Regulations
thereunder; provided, that no such change shall have an adverse effect upon the
amount distributable to any Member pursuant to this Agreement.
(g) Curative Allocations. The allocations set forth in Sections
4.3(a), 4.3(b), 4.3(c), 4.3(d) and 4.3(e) (the "Regulatory Allocations") are
intended to comply with certain requirements of the Regulations. The Tax Matters
Partner is authorized to offset all Regulatory Allocations either with other
Regulatory Allocations or with special allocations of income, gain, loss or
deductions pursuant to this Section 4.3(g) in whatever manner it reasonably and
in good faith determines appropriate so that, after such offsetting allocations
are made, each Member's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of this Agreement and all items of income,
gain, loss or deduction were allocated pursuant to Section 4.2. In exercising
its discretion under this Section 4.3(g), the Tax Matters Partner shall take
into account future Regulatory Allocations under Section 4.3(a) that, although
not yet made, are likely to offset other Regulatory Allocations made under
Sections 4.3(d) and 4.3(e).
(h) Adjustments of Capital Accounts. The Capital Accounts of the
Members may at the discretion of, and in the manner reasonably determined in
good faith by, the Tax Matters Partner, be adjusted in accordance with
Regulation Section 1.704-1(b)(2)(iv)(f), and thereafter maintained in accordance
with Regulation Section 1.704-1(b)(2)(iv)(g), to reflect the fair market value
of Company property as reasonably determined in good faith by the Board of
Managers whenever an interest in the Company is relinquished to the Company,
upon the issuance of a new or additional Units for more than a de minimis
capital contribution to the Company, upon the issuance of any Class B Units, or
upon a liquidation of the Company, and shall be adjusted in accordance with
Regulation Section 1.704-1(b)(2)(iv)(e) in the case of a distribution of more
than a de minimis amount of property (other than cash).
ARTICLE 5
ACCOUNTING FOR THE COMPANY; TAX MATTERS
5.1 Accounting for the Company. The Company shall use such method of
accounting as may be determined by the Board of Managers that is consistent with
GAAP or such other accounting methods and conventions as it may from time to
time determine to be used in the preparation of the Company's tax returns.
5.2 Books and Records; Access. The Board of Managers shall keep or cause to
be kept complete and appropriate records and books of account of the Company
prepared on the accrual method of accounting (unless otherwise determined by the
Board of Managers). Such books and records will be retained by the Company for a
period of three years following termination of the Company. Except as otherwise
expressly provided herein, such books and records shall be maintained on the
basis used in preparing the Company's federal income tax returns. The books and
records shall be maintained at the principal office of the Company. The Company
shall allow each Member, at its own expense, access to such books and records of
the Company to examine and make copies thereof.
5.3 Reports. After the end of each Fiscal Year (or portion thereof), the
Board of Managers shall cause an audit of the Company's financial statements
(including a balance sheet, statement of operations, statement of changes in
Members' equity and statement of cash flows) for such Fiscal Year (or portion
thereof). Such financial statements and a copy of the audit opinion thereon
shall be delivered to each Member within 120 days after the end of each Fiscal
Year (or portion thereof). Within 120 days after the end of each Fiscal Year (or
portion thereof), the Company will also cause to be delivered to each Member a
statement showing the balances in such Member's Capital Account as of the end of
such Fiscal Year (or portion thereof).
5.4 Tax Returns.
(a) The Company shall prepare or cause the Company's accountants to
prepare all income and other tax returns of the Company and shall cause the same
to be filed in a timely manner. The expenses of preparing the Company's tax
returns shall be expenses of the Company and not of any Member.
(b) Within 90 days after the end of each Taxable Year, or as soon as
reasonably practicable thereafter, the Company shall furnish to each Member such
information (including completed schedule K-1s) regarding the amount of such
Member's share in the Company's taxable income or loss for such year, in
sufficient detail to enable such Member to prepare its United States federal,
state and other tax returns. In addition, the Company shall timely furnish to
each Member sufficient information as is reasonably requested to enable such
Member to comply with any estimated income tax payment requirements.
5.5 Tax Matters Partner. The Members agree and acknowledge that the "tax
matters partner" of the Company within the meaning of Section 6231(a)(7) of the
Code (the "Tax Matters Partner") shall be Triarc. The Tax Matters Partner shall
(i) prepare and file, or cause to be prepared and filed, all tax returns on
behalf of the Company; (ii) make (or revoke) any elections under the Code or
similar state, local or foreign law; and (iii) represent the Company in
connection with any audit, claim for refund or administrative or judicial
proceeding involving any asserted tax liability or refund with respect to the
Company or the Members in their capacity as such. Triarc shall be entitled to be
reimbursed by the Company for all costs and expenses incurred by it as the Tax
Matters Partner and to be indemnified by the Company (solely out of Company
assets) with respect to any action brought against it in connection with its
activities as Tax Matters Partner. Any Member who enters into a settlement
agreement with respect to any Company item shall notify the Tax Matters Partner
of such settlement agreement and its terms within 30 days after the date of
settlement. This provision shall survive any termination of this Agreement.
5.6 Treatment as Partnership. Notwithstanding anything in this Agreement to
the contrary, the Board of Managers shall use commercially reasonable efforts
taking into account then applicable law to ensure that the Company is at all
times treated as a partnership for federal, state and local income tax purposes,
and that the Company does not become treated as a "publicly traded partnership"
or otherwise taxable as a corporation for any federal, state or local income tax
purposes.
ARTICLE 6
MANAGEMENT; VOTING
6.1 Board of Managers.
(a) General Powers. Subject to Section 6.6(b), the business and
affairs of the Company shall be managed by or under the direction of a board of
managers (the "Board of Managers"), which may exercise all such powers of the
Company and perform all such lawful acts and things as are not by the Act or
this Agreement required to be exercised or performed by the Members.
(b) Number and Term of Office. The number of Managers shall be three
or such other number as shall be fixed from time to time by a majority in Voting
Interest of the Members. Managers need not be Members. Managers shall be elected
upon the affirmative vote of a majority in Voting Interest of the Members and
each Manager shall hold office until his successor is elected and qualified or
until his earlier death or resignation or removal in the manner provided in this
Section 6.1. As of the date hereof, the members of the Board of Managers are
Peter W. May, Francis T. McCarron and Brian L. Schorr.
(c) Resignation. Any Manager may resign at any time by written notice
to the Board of Managers. Such resignation shall take effect at the time
specified in such notice or, if the time is not specified, upon receipt thereof
by the Board of Managers. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
(d) Removal. Any or all of the Managers may be removed, with or
without cause, at any time upon the affirmative vote of a majority in Voting
Interest of the Members.
(e) Vacancies. Vacancies occurring on the Board of Managers as a
result of the removal of Managers without cause may be filled only upon the
affirmative vote of a majority in Voting Interest of the Members. Vacancies
occurring on the Board of Managers for any other reason, including vacancies
occurring as a result of the creation of new positions that increase the number
of Managers, may be filled upon the affirmative vote of a majority in Voting
Interest of the Members, by a majority of the Managers then in office or by a
written consent of the Board of Managers. If the number of Managers then in
office is less than a quorum, such other vacancies may be filled by vote of a
majority of the Managers then in office or by a written consent of the Board of
Managers. Unless earlier removed pursuant to 6.1(d), each Manager chosen in
accordance with this Section 6.1(e) shall hold office until the next annual
election of Managers by the Members and until his or her successor shall be
elected and qualified.
6.2 Meetings of the Board of Managers.
(a) Times and Places of Meetings. The Board of Managers may hold
meetings, both regular and special, either within or without the State of
Delaware. The times and places for holding meetings of the Board of Managers may
be fixed from time to time by resolution of the Board of Managers or (unless
contrary to a resolution of the Board of Managers) in the notice of the meeting.
(b) Annual Meetings. As soon as practicable after each annual election
of Managers by the Members, the Board of Managers may hold its annual meeting,
without notice of such meeting, for the purposes of organization, the election
of officers and the transaction of other business. The annual meeting of the
Board of Managers may be held at any other time and place specified in a notice
given as provided in Section 6.2(d) for special meetings of the Board of
Managers or in a waiver of notice thereof.
(c) Regular Meetings. Regular meetings of the Board of Managers may be
held without notice at such times and at such places as shall from time to time
be determined by the Board of Managers.
(d) Special Meetings. Special meetings of the Board of Managers may be
called by the President or the Secretary or by any two or more Managers then
serving on at least one day's notice to each Manager given by one of the means
specified in Section 6.2(g) other than by mail or courier service, or on at
least three days' notice if given by mail or courier service. Special meetings
shall be called by the President or Secretary in like manner and on like notice
on the written request of any two or more of the Managers then serving.
(e) Telephone Meetings. Managers or members of any committee
designated by the Board of Managers may participate in a meeting of the Board of
Managers or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 6.2(e) shall constitute presence in person at such meeting.
(f) Adjourned Meetings. A majority of the Managers present at any
meeting of the Board of Managers, including an adjourned meeting, whether or not
a quorum is present, may adjourn such meeting to another time and place. At
least one day's notice of any adjourned meeting of the Board of Managers shall
be given to each Manager whether or not present at the time of the adjournment,
if such notice shall be given by one of the means specified in Section 6.2(g)
other than by mail or courier service, or at least three days' notice if by mail
or courier service. Any business may be transacted at an adjourned meeting that
might have been transacted at the meeting as originally called.
(g) Notice Procedure. Subject to Sections 6.2(d) and 6.2(f), whenever,
under the provisions of this Agreement, notice is required to be given to any
Manager, such notice shall be deemed given effectively if given in person or by
telephone, by mail addressed to such Manager at such Manager's address as it
appears on the records of the Company, with postage thereon prepaid, or by
nationally recognized courier service, telecopy, e-mail or similar means
addressed as aforesaid.
(h) Waiver of Notice. Whenever the giving of any notice is required by
this Section 6.2, a waiver thereof, in writing, signed by the person or persons
entitled to such notice, whether before or after the event as to which such
notice is required, shall be deemed equivalent to notice. Attendance by a person
at a meeting shall constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business on the ground that the
meeting has not been lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Managers or a committee of the Board of Managers need be specified in any
written waiver of notice unless so required by this Agreement.
(i) Organization. At each meeting of the Board of Managers, the
President shall preside; and if the President is unavailable, then an Executive
Vice President shall preside. The Secretary shall act as secretary at each
meeting of the Board of Managers. In case the Secretary shall be absent from any
meeting of the Board of Managers, an Assistant Secretary shall perform the
duties of secretary at such meeting, and in the absence from any such meeting of
the Secretary and all Assistant Secretaries, the person presiding at the meeting
may appoint any person to act as secretary of the meeting.
6.3 Quorum; Voting.
(a) Quorum of Managers. The presence in person of a majority of the
entire Board of Managers shall be necessary and sufficient to constitute a
quorum for the transaction of business at any meeting of the Board of Managers,
but a majority of a smaller number may adjourn any such meeting to a later date.
(b) Action by Majority Vote. Except as otherwise expressly required by
this Agreement, the act of a majority of the Managers present at a meeting at
which a quorum is present shall be the act of the Board of Managers.
(c) Written Consents. Unless otherwise restricted by this Agreement,
any action required or permitted to be taken at any meeting of the Board of
Managers or of any committee thereof may be taken without a meeting if all
Managers or members of such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Managers or committee.
6.4 Committees of the Board of Managers. The Board of Managers may, by
resolution passed by a vote of the entire Board of Managers, designate one or
more committees, each committee to consist of one or more of the Managers. The
Board of Managers may designate one or more Managers as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. If a member of a committee shall be absent from any meeting, or
disqualified from voting thereat, the remaining member or members present and
not disqualified from voting, whether or not such member or members constitute a
quorum, may, by a unanimous vote, appoint another member of the Board of
Managers to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Managers passed as aforesaid, shall have and may exercise all the
powers and authority of the Board of Managers in the management of the business
and affairs of the Company. Unless otherwise specified in the resolution of the
Board of Managers designating a committee, at all meetings of such committee a
majority of the total number of members of the committee shall constitute a
quorum for the transaction of business, and the vote of a majority of the
members of the committee present at any meeting at which there is a quorum shall
be the act of the committee. Each committee shall keep regular minutes of its
meetings. Unless the Board of Managers otherwise provides, each committee
designated by the Board of Managers may make, alter and repeal rules for the
conduct of its business. In the absence of such rules, each committee shall
conduct its business in the same manner as the Board of Managers conducts its
business pursuant to Section 6.2.
6.5 Compensation. The Board of Managers may determine the compensation of
Managers. In addition, as determined by the Board of Managers, Managers may be
reimbursed by the Company for their expenses, if any, in the performance of
their duties as Managers. Managers who serve as members of any committee of the
Board of Managers in consideration of serving as such shall be entitled to such
additional amount per annum or such fees for attendance at committee meetings,
or both, as the Board of Managers may from time to time determine, together with
reimbursement for their expenses, if any, in the performance of their duties. No
such compensation or reimbursement shall preclude any Manager from serving the
Company in any other capacity and receiving compensation therefor.
6.6 No Management by Members.
(a) Except as otherwise expressly provided herein, the Members shall
not take part in the day-to-day management, or the operation or control of the
business and affairs, of the Company.
(b) If all of the Class A Units are redeemed by the Company but the
Class B Units remain outstanding, then (i) the management and control of the
Company shall thereupon automatically vest in the Class B Members, acting by the
vote of holders of a majority of the Class B Units, (ii) the provisions of
Sections 6.1, 6.2, 6.3, 6.4 and 6.5 shall have no further force or effect, and
(iii) all references in this Agreement to "the Board of Managers" shall be
automatically deemed to be a reference to actions to be taken or decisions to be
made by holders of a majority of the Class B Units.
6.7 Officers.
(a) Executive Officers. As of the date hereof, the Board of Managers
has elected as executive officers of the Company the persons listed on Schedule
B attached hereto. The persons who may from time to time hold the office of
President, Executive Vice President, Senior Vice President, Vice President or
Secretary are referred to in this Agreement as "Executive Officers." The Board
of Managers may from time to time appoint such other Executive Officers and
agents of the Company as the interests of the Company may require and may fix
their duties and terms of office. To the extent permitted by law, any number of
offices may be held by the same person.
(b) Other Officers. In addition to the Executive Officers elected by
the Board of Managers pursuant to Section 6.7(a), the President may from time to
time appoint such other officers of the Company, including Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers and Controllers, as the
interests of the Company may require (the "Other Officers"); provided, however,
that no Other Officer may be appointed to the office of President, Executive
Vice President, Senior Vice President, Vice President or Secretary. Each
appointment of an Other Officer shall be in writing and shall set forth the
duties of the Other Officer being appointed and, subject to Section 6.7(c), such
officer's term of office.
(c) Term of Office. Each Executive Officer shall hold office until the
annual meeting of the Board of Managers next succeeding such officer's election
and until such officer's successor is elected and qualified, or until such
officer's earlier death, resignation, retirement or removal. Each Other Officer
shall hold office for a term to be decided by the appointing President;
provided, however, that no such term shall be for a period longer than the term
of office of the appointing President.
(d) Removal of Officers. Any Executive Officer or Other Officer may be
removed from office with or without cause at any time by the affirmative vote of
a majority of the Board of Managers. Any Other Officer may also be removed from
office at any time with or without cause by the President.
(e) Vacancies. A vacancy in the position of any Executive Officer or
Other Officer arising from any cause may be filled for the unexpired portion of
the term by the Board of Managers. A vacancy in the position of any Other
Officer arising from any cause may also be filled for the unexpired portion of
the term by the President.
(f) Compensation of Officers. The salaries or compensation, if any, of
all Executive Officers shall be fixed by the Board of Managers or the
Compensation Committee of the Board of Managers, if there be one. The salaries
or compensation of the Other Officers may be fixed from time to time by the
Board of Managers or the President.
(g) President. The President shall be a member of the Board of
Managers and shall be responsible for directing, administering and coordinating
the business operations of the Company in accordance with policies, goals and
objectives established by the Board of Managers. Such officer shall perform all
other duties and enjoy all other powers which are commonly incident to the
office of President or which are delegated to such officer by the Board of
Managers. The President shall preside at meetings of the Members of the Company
and the Board of Managers.
(h) Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents Elected by the Board. The Executive Vice Presidents, the Senior Vice
Presidents and the Vice Presidents elected by the Board of Managers pursuant to
Section 6.7(a), if there be any, shall have such powers and perform such duties
as may from time to time be assigned to them by the Board of Managers or the
President.
(i) Secretary. The Secretary shall record the proceedings of all
meetings of Members and of the Board of Managers which such officer attends in a
book or books to be kept for that purpose. Such officer shall attend to the
giving and serving of all notices on behalf of the Company and shall have
custody of the records of the Company. Such officer shall, in general, perform
all the duties and functions incident to the office of Secretary and shall also
perform such other duties as may from time to time be assigned to such officer
by the Board of Managers or the President.
(j) Powers and Duties of Other Officers. The Other Officers shall have
such powers and perform such duties as may from time to time be assigned to them
by the Board of Managers or the President.
6.8 Voting Rights of Members.
(a) Each Class A Member shall be entitled to exercise a number of
votes equal to the product of (i) 10, and (ii) the number of its Class A Units.
(b) Each Class B Member shall be entitled to exercise a number of
votes equal to the product of (i) one, and (ii) the number of his Class B Units.
(c) Except as expressly set forth otherwise in this Agreement, the
Class C Members shall not be entitled to any voting rights.
(d) Except as expressly set forth otherwise in this Agreement, the
Class A Members and the Class B Members shall be entitled to vote, together as a
single class, on all matters required by this Agreement or the Act to be voted
on by the Members.
6.9 Indemnification.
(a) Indemnification of Protected Persons. To the fullest extent
permitted by law, the Company shall indemnify, hold harmless, protect and defend
each Protected Person against any losses, claims, damages or liabilities,
including legal fees and expenses incurred in investigating or defending against
any such losses, claims, damages or liabilities, and any amounts expended in
settlement of any claims approved by the Board of Managers (collectively,
"Liabilities"), to which any Protected Person may become subject:
(i) by reason of any act or omission or alleged act or omission
(even if negligent) performed or omitted to be performed in connection with the
activities of the Company;
(ii) by reason of the fact that he is or was acting in connection
with the activities of the Company in any capacity or that he is or was serving
at the request of the Company as a member, partner, shareholder, manager,
director, officer, employee or agent of any Person; or
(iii) by reason of any other act or omission or alleged act or
omission arising out of or in connection with the activities of the Company;
unless, in each case, with respect to a Protected Person, to the extent such
Liability is found in a final and non-appealable judgment to have resulted from
such Protected Person's own fraud, gross negligence or willful misconduct.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
(and/or advance to the extent reasonably required) each Protected Person for
reasonable legal or other expenses (as incurred) of each Protected Person in
connection with investigating, preparing to defend or defending any claim,
lawsuit or other proceeding relating to any Liabilities for which the Protected
Person may be indemnified pursuant to this Section 6.9; provided, that (i) such
Protected Person executes a written undertaking to repay the Company for such
reimbursed or advanced expenses if it is finally determined by a court of
competent jurisdiction that such Protected Person is not entitled to the
indemnification provided by this Section 6.9, and (ii) in the event such claim,
lawsuit or other proceeding is brought by the Company against such Protected
Person or brought by such Protected Person against the Company, such Protected
Person shall only be entitled to reimbursement of expenses in connection with
investigating and preparing to defend itself against such claim (1) if and when
it is finally determined by a court of competent jurisdiction that such
Protected Person is entitled to indemnification under this Section 6.9, or (2)
if the Company so determines that such Protected Person is entitled to
advancement or prompt reimbursement of expenses prior to the final disposition
of the proceeding.
(c) Survival of Protection. The provisions of this Section 6.9 shall
continue to afford protection to each Protected Person regardless of whether
such Protected Person remains in the position or capacity pursuant to which such
Protected Person became entitled to indemnification under this Section 6.9 and
regardless of any subsequent amendment to this Agreement; provided, that no such
amendment shall reduce or restrict the extent to which these indemnification
provisions apply to actions taken or omissions made prior to the date of such
amendment.
(d) Recovery. The Company shall use its reasonable efforts to pursue
other third party sources of indemnification in respect of any Liabilities for
which it or any Protected Person may require indemnification in accordance with
this Section 6.9. If any Protected Person recovers any amounts in respect of any
Liabilities from insurance coverage or any third party source, then such
Protected Person shall, to the extent that such recovery is duplicative,
reimburse the Company for any amounts previously paid to it by the Company in
respect of such Liabilities.
(e) Reserves. If deemed appropriate or necessary by the Board of
Managers, the Company may establish reasonable reserves, escrow accounts or
similar accounts to fund its obligations under this Section 6.9.
ARTICLE 7
PUT OF CLASS B UNITS
7.1 Valuations.
(a) If, on December 31 of the year in which the fifth, seventh or
eighth anniversary of the Deerfield Acquisition Date occurs, the Company
continues to own all or a portion of the Deerfield Interest, then, no later than
January 31 of the following year, the Triarc Board shall conduct and complete a
valuation of the Company, excluding the Fair Market Value of any Special
Investments, as of December 31 of the year in which such anniversary occurs (the
"Fifth Year Valuation," the "Seventh Year Valuation," and the "Eighth Year
Valuation," respectively, and together, the "Valuations"), and shall notify the
Members in writing of such Valuation within five days after the completion of
the applicable Valuation.
(b) Each Valuation will value the Company, excluding the Fair Market
Value of any Special Investments, based on its Fair Market Value, taking into
account such factors as the multiples of EBITDA, revenues and net income for
which asset management companies similar to Deerfield are being acquired and
other relevant comparables.
7.2 Fifth Year Put. Within five Business Days following the date of
notification of the Fifth Year Valuation, a Class B Member shall be entitled to
elect, by notice in writing to Triarc to be given in such five Business Day
period, to require Triarc to purchase from such Class B Member, for a payment,
at the election of Triarc, to be paid in full in cash (but subject to the
Financing Limitation) or in the form of the Cash/Note Consideration, Class B
Units held by him representing up to 50% of the sum of (i) the Class B Units
that were originally granted to him, and (ii) any additional Class B Units
granted to him thereafter up to the fifth anniversary of the Deerfield
Acquisition Date, in both cases, (x) as adjusted, if applicable, to reflect any
reclassification of the membership interests of the Company, any
recapitalization of the Company or any other modifications to the capital
structure of the Company (collectively, the "Adjustments"), and (y) to the
extent of the Vested Profits Interest Portion of such Class B Units and to the
extent that such Class B Units have been held by such Class B Member for more
than two years.
7.3 Seventh Year Put. Within five Business Days following the date of
notification of the Seventh Year Valuation, a Class B Member shall be entitled
to elect, by notice in writing to Triarc to be given in such five Business Day
period, to require Triarc to purchase from such Class B Member, for a payment,
at the election of Triarc, to be paid in full in cash (but subject to the
Financing Limitation) or in the form of the Cash/Note Consideration, Class B
Units held by him representing up to the excess of (i) 75% of the sum of (x) the
Class B Units that were originally granted to him, and (y) any additional Class
B Units granted to him thereafter up to the seventh anniversary of the Deerfield
Acquisition Date, in both cases, (1) as adjusted, if applicable, to reflect any
Adjustments, and (2) to the extent of the Vested Profits Interest Portion of
such Class B Units and to the extent that such Class B Units have been held by
such Class B Member for more than two years, over (ii) any portion of the Vested
Profits Interest Portion of the Class B Units of such Class B Member that Triarc
purchased from such Class B Member following the Fifth Year Valuation pursuant
to Section 7.2.
7.4 Eighth Year Put. Within five Business Days following the date of
notification of the Eighth Year Valuation, a Class B Member shall be entitled to
elect, by notice in writing to Triarc to be given in such five Business Day
period, to require Triarc to purchase from such Class B Member, for a payment,
at the election of Triarc, to be paid in full in cash (but subject to the
Financing Limitation) or in the form of the Cash/Note Consideration, all or a
portion of the Class B Units held by him to the extent that such Class B Units
have vested and been held by such Class B Member for more than two years. For
the avoidance of doubt, any purchase by Triarc of Class B Units pursuant to this
Section 7.4 shall include the Capital Interest Portion and the Vested Profits
Interest Portion of such Class B Units (or a proportionate portion thereof if
the Class B Member wishes to sell only a portion of his Class B Units).
7.5 Payment.
(a) For the purposes of Sections 7.2, 7.3 and 7.4, the payment for the
Vested Profits Interest Portion and, if applicable, the Capital Interest
Portion, of Class B Units shall be computed based on the Fifth Year Valuation,
Seventh Year Valuation or Eighth Year Valuation, as applicable, as if the
Company, excluding the Fair Market Value of any Special Investments, had been
sold for an amount equal thereto, and the distributions that would be received
by the Members under Section 11.2(b)(iv) assuming a hypothetical liquidation of
the Company on a Fair Market Value basis. When determining the amount payable to
a Class B Member in respect of his Class B Units pursuant to Sections 7.2, 7.3
and/or 7.4, (i) any Tax Advances previously made to such Class B Member will be
taken into account (to the extent not previously taken into account in the
payments made under Sections 7.2 and/or 7.3, as applicable) and (ii) any Class B
Clawback and/or Retained Amounts will be taken into account.
(b) Any payments required to be made to a Class B Member following the
exercise of a put right described in Section 7.2, 7.3 or 7.4 shall be payable
within 30 days following the date of delivery by such Class B Member of his
notice to exercise such right.
(c) If, following the exercise of a put right as described in Section
7.2, 7.3 or 7.4, Triarc elects to make payment in the form of the Cash/Note
Consideration, such consideration will be made as follows, but in all cases
subject to the Financing Limitation (the "Cash/Note Consideration"):
(i) 50% of the amount payable to the Class B Member shall be paid
in cash; and
(ii) the balance of the amount payable to the Class B Member
shall be paid by way of a note, with a maturity date no later than the second
anniversary of the closing of the sale and purchase of the Vested Profits
Interest Portion and, if applicable, the Capital Interest Portion, of Class B
Units, subject to full and immediate acceleration if a Triarc Change of Control
occurs, and bearing interest at an annual rate equal to the Interest Rate, which
interest shall be payable in cash annually.
7.6 Termination of Put Rights. This Article 7 shall automatically terminate
and have no force or effect upon the occurrence of a Restructuring Event.
ARTICLE 8
TRIARC CALL RIGHT; ADDITIONAL CLASS B MEMBER PUT RIGHT
8.1 Triarc Call Right.
(a) Upon a Class B Member's Termination Date or upon the occurrence of
a Triarc Trigger Event, unless such Class B Member continues as a director of
Triarc or a consultant to Triarc on terms reasonably satisfactory to Triarc for
purposes of this Section 8.1, in such latter case, then upon such Class B Member
ceasing to be a director of or consultant to Triarc, Triarc or its designee
shall have the right (but not the obligation) (the "Call Right") to acquire from
time to time, in whole or in part in one or more transactions, the Capital
Interest Portion and the Vested Profits Interest Portion of the Class B Units of
such Class B Member at a purchase price equal to the aggregate Fair Market Value
thereof (taking into account the distributions that would be received by the
Members under Section 11.2(b)(iv) assuming a hypothetical liquidation of the
Company on a Fair Market Value basis and the application of Section 3.9, if
applicable, with respect to any Class B Clawback), and if the determination is
made in the sixth, eighth or ninth year following the Deerfield Acquisition
Date, such determination shall be based on the applicable Valuation, as adjusted
by the Triarc Board to take into account any circumstances or events that, in
the reasonable judgment of the Triarc Board, (i) have occurred since the
determination of such Valuation, and (ii) have affected the value of Deerfield.
Triarc may exercise its Call Right at any time following a Class B Member's
Termination Date by notice in writing to such Class B Member. In the case of
Triarc's exercise of the Call Right following a Triarc Trigger Event, all of the
unvested Profits Interest Portion of a Class B Member's Class B Units shall,
immediately prior to the exercise of the Call Right, be deemed to have vested in
full.
(b) In the case of Triarc's exercise of the Call Right following a
Class B Member's Termination Date, subject to the Financing Limitation and to
Section 8.1(c), the purchase price may, at Triarc's election, be paid in full in
cash, or by way of Cash/Note Consideration, in which case, the portion of the
purchase price payable in cash shall be paid at the closing of the sale and
purchase of such Class B Member's Class B Units. Any payments due from Triarc
shall take into account any Tax Advances previously received by the Class B
Member, and any Retained Amounts and Class B Clawback obligations of such Class
B Member.
(c) In the case of Triarc's exercise of the Call Right following a
Triarc Trigger Event, subject to the Financing Limitation, the purchase price
shall be paid by Triarc in cash.
8.2 Class B Member Put Right. Subject to the Financing Limitation, within
30 days following the Termination Date of a Class B Member, unless such Class B
Member continues as a director of or a consultant to Triarc on terms reasonably
satisfactory to Triarc for purposes of this Section 8.2, in such latter case,
then upon such Class B Member ceasing to be a director of or consultant to
Triarc, such Class B Member shall have the right (but not the obligation) to
require Triarc to purchase all of the Capital Interest Portion of his Class B
Units at a cash purchase price equal to (x) the Fair Market Value thereof
(taking into account the distributions that would be received by the Members
under Section 11.2(b)(iv) assuming a hypothetical liquidation of the Company on
a Fair Market Value basis and the application of Section 3.9, if applicable,
with respect to any Class B Clawback), and if the determination is made in the
sixth, eighth or ninth year following the Deerfield Acquisition Date, such
determination shall be based on the applicable Valuation, as adjusted by the
Triarc Board to take into account any circumstances or events that, in the
reasonable judgment of the Triarc Board, (1) have occurred since the
determination of such Valuation, and (2) have affected the value of Deerfield,
or (y) in the case where the Class B Member was terminated for Cause (as defined
in such Class B Member's Subscription Agreement), at a purchase price equal to
the lower of cost and the Fair Market Value thereof (as such Fair Market Value
is determined as described in this Section 8.2). Any payments due from Triarc
shall take into account any Tax Advances previously received by the Class B
Member, and any Retained Amounts and Class B Clawback obligations of such Class
B Member.
8.3 Financing Limitation. Notwithstanding the provisions of Article 7 and
Sections 8.1 and 8.2, Triarc shall not be obligated to take any action or make
any payment in satisfaction of the exercise by a Class B Member of his put right
under Article 7 or Section 8.2 or by Triarc of its Call Right if (i) in the case
of any payment to be made by Triarc in cash, an event of default should then
exist and be continuing, in either case, under the terms of any agreement with
an unaffiliated third party for indebtedness for borrowed money to which Triarc
is a party or is bound at the time, or (ii) such action or payment would
constitute a default or event of default or result in a mandatory prepayment
requirement under the terms of any agreement with an unaffiliated third party
for indebtedness for borrowed money to which Triarc is a party or is bound at
the time (each, a "Financing Limitation"). If the obligation of Triarc to make
payments in connection with the exercise by a Class B Member of his put right
under Article 7 or Section 8.2 or by Triarc of its Call Right is suspended due
to a Financing Limitation, Triarc shall make payment at the earliest practicable
date following the date when such payment would no longer contravene a Financing
Limitation, together with interest at the Interest Rate from (and including) the
date payment would have been due had the Financing Limitation not existed at the
time of exercise of the put right or the Call Right to (but excluding) the date
of payment.
8.4 Termination of Put/Call Rights. This Article 8 shall automatically
terminate and have no force or effect upon the occurrence of a Restructuring
Event.
ARTICLE 9
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS; RESTRUCTURING EVENT
9.1 Tag-Along Rights.
(a) Tag-Along Right. If one or more Class A Members wish to transfer
15% or more of its Class A Units to any Person (other than to an Affiliate of
such Class A Members) (a "Third Party Purchaser") in a single transaction or a
series of related transactions, then each Class B Member (each, a "Tag-Along
Rightholder") shall have the right to sell to such Third Party Purchaser, upon
the terms set forth in a notice delivered to each Tag-Along Rightholder (an
"Offering Notice"), a Pro Rata Portion of his Class B Units as determined in
accordance with Section 9.3 (a "Tag-Along Transaction").
(b) Exercise of Rights. The Class A Members shall give the Offering
Notice to each Tag-Along Rightholder of each proposed sale by them of Class A
Units that gives rise to the rights of the Tag-Along Rightholders set forth in
this Section 9.1, at least 15 days prior to the proposed consummation of such
sale, setting forth the number of Class A Units that they propose to sell to the
Third Party Purchaser, the name and address of the proposed Third Party
Purchaser, the proposed amount and form of consideration and terms and
conditions of payment offered by such Third Party Purchaser, and the Pro Rata
Portion of Class B Units that such Tag-Along Rightholder may sell to such Third
Party Purchaser as determined in accordance with Section 9.3. The tag-along
rights provided by this Section 9.1 must be exercised by any Tag-Along
Rightholder wishing to sell his Class B Units within 10 days following receipt
of the Offering Notice, by delivery of a written notice to the Class A Members
indicating such Tag-Along Rightholder's wish to exercise its rights and
specifying the number of Class B Units (up to the Pro Rata Portion of his Class
B Units required to be purchased by such Third Party Purchaser) it wishes to
sell; provided that any Tag-Along Rightholder may waive his rights under this
Section 9.1 prior to the expiration of such 10-day period by giving written
notice to the Class A Members, with a copy to the Company. The failure of a
Tag-Along Rightholder to respond within such 10-day period shall be deemed to be
a waiver of such Tag-Along Rightholder's rights under this Section 9.1. If a
Third Party Purchaser fails to purchase Class B Units from any Tag-Along
Rightholder that has properly exercised its tag-along rights pursuant to this
Section 9.1, then the Class A Members shall not be permitted to consummate the
proposed sale of the Offered Units, and any such attempted sale shall be null
and void ab initio.
(c) Closing of Tag-Along Transaction. At the closing of the Tag-Along
Transaction, (i) if required by the definitive agreements governing such
Tag-Along Transaction, each Tag-Along Rightholder who has exercised his rights
under this Section 9.1 shall deliver instruments of transfer for the Class B
Units being sold by him, and such Class B Units shall be free and clear of any
Liens (other than those arising hereunder and those attributable to actions by
the Third Party Purchaser) and each such Tag-Along Rightholder shall so
represent and warrant, and shall further represent and warrant that he is the
sole beneficial and record owner of such Class B Units, (ii) the Third Party
Purchaser or a paying agent (if provided in the definitive agreements governing
such Tag-Along Transaction) shall deliver to the such Tag-Along Rightholders
payment in full in immediately available funds or securities, as applicable, for
the Class B Units purchased by the Third Party Purchaser, and (iii) all of the
parties to the transaction shall execute such additional documents as are
otherwise reasonably necessary or appropriate to consummate the Tag-Along
Transaction.
9.2 Drag-Along Right.
(a) Triggering Event. Notwithstanding anything to the contrary set
forth in Section 9.1, if the Class A Members desire to Transfer all or a portion
of their Class A Units to any Third Party Purchaser in a transaction (a "Drag
Transaction") that would result in the Third Party Purchaser owning at least 80%
of the issued Class A Units, then the Class A Members may, subject to the
provisions of this Section 9.2 (the "Drag-Along Right"), require each of the
Class B Members to sell, transfer and deliver to the Third Party Purchaser a Pro
Rata Portion of their Class B Units as determined pursuant to Section 9.3.
(b) Drag-Along Notice. If the Class A Members wish to exercise the
Drag-Along Right, then the Class A Members shall give written notice (the
"Drag-Along Notice") to the Company setting forth the name and address of the
Third Party Purchaser, the estimated date on which such Drag Transaction is
proposed to be consummated, the proposed amount and form of consideration and
any other material terms and conditions of such Drag Transaction. The Company
shall immediately (but in any event not later than two Business Days) give a
copy of the Drag-Along Notice to each Class B Member (the "Drag-Along Sellers").
Each Drag-Along Seller shall be obligated to (i) sell all of the Pro Rata
Portion of his Class B Units in the Drag Transaction on the terms and conditions
set forth in the definitive agreements governing the Drag Transaction and (ii)
otherwise take all necessary actions to cause the consummation of such Drag
Transaction.
(c) Closing of Drag Transaction. At the closing of the Drag
Transaction, (i) if required by the definitive agreements governing such Drag
Transaction, each Drag-Along Seller shall deliver instruments of transfer for
the Class B Units being sold by him, and such Class B Units shall be free and
clear of any Liens (other than those arising hereunder and those attributable to
actions by the Third Party Purchaser) and each Drag-Along Seller shall so
represent and warrant, and shall further represent and warrant that he is the
sole beneficial and record owner of such Class B Units, (ii) the Third Party
Purchaser or a paying agent (if provided in the definitive agreements governing
such Drag Transaction) shall deliver to the Drag-Along Sellers payment in full
in immediately available funds or securities, as applicable, for the Class B
Units purchased by the Third Party Purchaser, and (iii) all of the parties to
the transaction shall execute such additional documents as are otherwise
reasonably necessary or appropriate to consummate the Drag Transaction.
9.3 Pro Rata Sale. The "Pro Rata Portion" of a Class B Member's Class B
Units permitted (in the case of the tag-along rights set forth in Section 9.1),
or required (in the case of a Drag-Along Right) to be transferred to a Third
Party Purchaser, and the sharing of proceeds related to any such transfers of
Units to the Third Party Purchaser, shall be determined based on the
distributions that would be made by the Company to the Members assuming; (i) a
hypothetical liquidation of the Company on a Fair Market Value basis (including,
with respect to the Deerfield Interest, a Liquidation Value), taking into
account the price proposed to be paid by the Third Party Purchaser, and (ii) the
application of Section 3.9, if applicable, with respect to any Class B Clawback.
9.4 Distribution of Deerfield Interest.
(a) Valuation in connection with Spin-Off. If Triarc determines that
it wishes to spin-off or otherwise restructure Deerfield with the objective of
ultimately distributing to the stockholders of Triarc the economic benefit of
85% or more of the equity interests in Deerfield that are represented by the
Class A Units (a "Restructuring Event") (which will be effected through the
distribution of the equity securities of a newly-formed entity ("Newco" and such
securities of Newco, the "Newco Securities") that will hold all of the equity
interests of Deerfield as described in this Section 9.4), Triarc shall first
conduct a valuation of the Class A Units and the Class B Units (the
"Restructuring Valuation"). The Restructuring Valuation shall be the Triarc
Board's good faith determination, made in consultation with the investment
bankers or other financial advisors engaged by Triarc in connection with the
Restructuring Event, of the fair market value of Newco, and the distributions
that would be made by the Company to the holders of Class A Units and the Class
B Units under Section 11.2 assuming a hypothetical liquidation of the Company on
a Fair Market Value basis and the application of Section 3.9, if applicable,
with respect to any Class B Clawback.
(b) Distribution of the Deerfield Interest. Prior to the consummation
of a Restructuring Event, Triarc will cause the Company to distribute to the
holders of the Class A Units and the Class B Units such portions of the
Deerfield Interest as are attributable to their respective Units, based on the
Restructuring Valuation, except that if such distribution were to occur prior to
the second anniversary of the date hereof, then the Deerfield Interest
attributable to the Class B Units shall continue to be held by the Company. The
Company shall be deemed to have redeemed the Units in respect of which it has
made a distribution of the attributable portions of the Deerfield Interest. For
the avoidance of doubt, in connection with such distribution of the applicable
portion of the Deerfield Interest to the holders of the Class B Units (or the
retention of such the Deerfield Interest by the Company, as applicable), the
Profits Interest Portion of the Class B Units will be automatically
extinguished.
(c) Contribution to Newco. Following the distribution of the Deerfield
Interest as set forth in Section 9.4(b), the holders of the Deerfield Interest
(i.e., the holders of the Class A Units and the Class B Units (or the Company,
if applicable)) shall contribute their respective portions of the Deerfield
Interest to Newco in exchange for an appropriate number of Newco Securities,
based on the Restructuring Valuation, and Triarc will thereafter distribute its
Newco Securities to its stockholders.
(d) Company Holding Newco Securities. If, in connection with a
Restructuring Event and the redemption of all of the Class A Units, the Company
holds Newco Securities on behalf of the Class B Members, then (i) all major
decisions involving the Company shall be made upon the approval of holders of a
majority of the Class B Units and (ii) immediately following the second
anniversary of the date hereof, the Company will be dissolved and the Newco
Securities distributed to the Class B Members. For this purpose, each Class B
Member hereby grants an irrevocable power of attorney to each of Nelson Peltz,
Peter W. May and Edward Garden, acting singly, to execute such instruments that
any of them deems necessary or advisable to effect such dissolution and
distribution.
(e) Registration Rights. In connection with the Restructuring Event,
Triarc shall cause Newco to enter into a registration rights agreement in
customary form with the Class B Members (and/or, if applicable, the Company),
which shall include demand, piggyback and Form S-3 registration rights, pursuant
to which Newco agrees to register the Newco Securities that are held by the
Class B Members (and/or, if applicable, the Company) (subject to customary
cutback provisions) pursuant to the Securities Act of 1933, as amended, at the
expense of Newco.
9.5 Deerfield IPO. In the event of an initial public offering of any equity
interests in Deerfield (or any entity utilized to effect such initial public
offering), the receipt of such equity interests by the Company shall not in and
of itself give rise to any distribution or other rights under this Agreement to
the Members.
ARTICLE 10
TRANSFER RESTRICTIONS AND ADMISSION OF NEW MEMBERS
10.1 Transfer Restrictions. No holder of Units may Transfer all or any part
of its Units, except for Transfers to Permitted Transferees of such Member or as
provided in Article 7, 8 or 9, without the prior written consent of the Board of
Managers.
10.2 Additional Restrictions on Transfers.
(a) Notwithstanding any other provisions of this Article 10, no
Transfer of a Unit may be made unless the Transferring Member shall deliver to
the Company an opinion of counsel reasonably satisfactory in form and substance
to the Company (which opinion may be waived, in whole or in part, at the
discretion of the Company), to the effect that:
(i) such Transfer would not cause the Company to lose its status as a
partnership that is not a publicly-traded partnership for United States federal
income tax purposes and, unless the Board of Managers determines it to be
immaterial, would not cause a termination of the Company pursuant to Section 708
of the Code; and
(ii) such Transfer would not violate any federal securities laws or
any state securities or "blue sky" laws (including any investor suitability
standards) applicable to the Company or the Units to be Transferred;
and such opinion of counsel is delivered in writing to the Company prior to the
date of the Transfer.
(b) Each Member agrees that it will, prior to the Transfer of Units by
that Member, pay all reasonable expenses, including attorneys' fees, incurred by
the Company in connection with such Transfer.
(c) Any purported Transfer of any Unit that is not made in compliance
with this Agreement is hereby declared to be null and void and of no force or
effect whatsoever.
(d) The Company may reasonably interpret and is hereby authorized to
take such action as it deems necessary or desirable to effect the foregoing
provisions of this Section 10.2.
10.3 Assignees.
(a) The Company shall not recognize for any purpose any purported
Transfer of all or any part of a Unit of a Member unless the provisions of this
Article 10 shall have been complied with and there shall have been filed with
the Company a dated notification of such Transfer, executed and acknowledged by
both the transferor and the transferee, and such notification (i) contains the
acceptance by the transferee of all of the terms and provisions of this
Agreement and an express assumption of responsibility for all obligations or
liabilities of the transferor under this Agreement (in its capacity as a Member
or otherwise), (ii) contains representations of both parties that such Transfer
was made in accordance with all applicable laws and contractual obligations, and
(iii) is otherwise in form and substance acceptable to the Company.
(b) Except as set forth in Section 10.3(a), any Member who Transfers
all of its Units shall cease to be a Member and shall not retain any statutory
rights as a Member.
(c) For purposes of this Agreement, in the case of any Transfer of
Class B Units permitted hereunder, the termination of employment with Triarc or
any of its Affiliates of the transferor shall result in Triarc and any such
permitted transferee being entitled and subject to the same rights and
obligations as if the Transferred Class B Units had continued to be held by the
Transferring Class B Member immediately prior to such Member's termination.
10.4 Admission of Additional Members.
(a) The Board of Managers may cause the Company to admit additional
Members upon the execution by such additional Members of a letter of acceptance
of the terms and conditions of this Agreement. In addition, a newly admitted
Member may be permitted or required to make a contribution to the Company to
acquire a Unit. Notwithstanding the foregoing, no additional Class A Members may
be admitted without the consent of those Class A Members holding at least 80% of
the Class A Percentage.
(b) The admission of any Person as a substitute Member shall be
conditioned upon such Person's written acceptance and adoption of all the terms
and provisions of this Agreement.
(c) Any Permitted Transferee of a Member or any other Person to whom
any Units are Transferred under this Agreement as permitted under this Agreement
shall be automatically admitted as a substitute or additional Member
concurrently with the effective date of the applicable Transfer of Units.
ARTICLE 11
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY
11.1 Events Causing Dissolution. The Company shall dissolve and its affairs
shall be wound up upon the happening of any of thefollowing events:
(a) the sale or other disposition at one time of all or substantially
all of the assets of the Company;
(b) the affirmative consent of at least 75% in Voting Interest of the
Members; or
(c) the entry of a decree of judicial dissolution pursuant to Section
18-802 of the Act.
11.2 Liquidation.
(a) Upon dissolution of the Company, the Board of Managers, or if the
Board of Managers appoints a liquidating trustee for the Company, then the
liquidating trustee, shall commence to wind up the affairs of the Company and to
liquidate its assets. The Board of Managers (or the liquidating trustee if one
shall have been appointed) shall have full right and unlimited discretion to
determine the time, manner and terms of any sale or sales of Company assets
pursuant to such liquidation for the purpose of obtaining, in its opinion, fair
value for such assets, having due regard to the activity and condition of the
relevant markets and general financial and economic conditions. Prior to the
distribution of all of the assets of the Company, the business of the Company
and the affairs of the Members, as such, shall continue to be governed by this
Agreement.
(b) Upon the liquidation of the Company, the Board of Managers (or the
liquidating trustee if one shall have been appointed) shall distribute the
proceeds of such liquidation in the following order of priority, unless
otherwise required by mandatory provisions of applicable law:
(i) First, to the payment of all debts and liabilities of the
Company, including expenses of its liquidation.
(ii) Second, to the setting up of any reserves which the Board of
Managers (or the liquidating trustee if one shall have been appointed) may deem
necessary for any contingent or unforeseen liabilities or obligations of the
Company or of the Members arising out of or in connection with the Company.
(iii) Third, to the Class C Members, with respect to each Special
Investment, any amounts attributable to such Special Investment in proportion to
their Capital Contributions with respect to such Special Investment.
(iv) Fourth, the Company shall apportion any remaining amounts
among the Participating Members in proportion to their Adjusted Capital
Contributions, and such amounts shall be distributed as follows:
(x) first, the amount so apportioned to the Class B Members
shall, subject to the Negative Capital Account Limitation and Profits Interest
Limitation, be distributed to Class B Members in proportion to their Class B
Units;
(y) second, the amount so apportioned to each Class A Member
shall, subject to Sections 3.1(b) and 3.1(c), be distributed to such Class A
Member and to the Class B Members as follows:
(A) first, to the Class A Member in an amount equal to its
then Unrecovered Capital;
(B) second, to the Class A Member in an amount equal to its
then Unpaid Preferred Return;
(C) third, to the Class B Members in proportion to their
respective Class B Percentages, until the Class B Members have received under
this subclause (C) and Section 3.1(a)(ii)(B) (including advances thereof
pursuant to Section 3.3 and distributions under Section 3.1(c) to the extent
treated as made under this subclause (C) and Section 3.1(a)(ii)(B)), cumulative
distributions equal to the product of the Class B Profits Interest Percentage
and the sum of (i) cumulative amounts distributed (or treated as distributed)
pursuant to subclause (B) of this Section 11.2(b)(iv)(y) and Section
3.1(a)(ii)(A) to the Class A Member (including advances thereof pursuant to
Section 3.3 and distributions under Section 3.1(b) to the extent treated as made
under subclause (B) of this Section 11.2(b)(iv)(y) and Section 3.1(a)(ii)(A)),
and (ii) cumulative amounts distributed to the Class B Members under this
subclause (C) and Section 3.1(a)(ii)(B) (including advances thereof pursuant to
Section 3.3 and distributions under Section 3.1(c) to the extent treated as made
under this subclause (C) and Section 3.1(a)(ii)(B));
(D) fourth, to the Class B Members (in proportion to their
respective Class B Percentages) and to the Class A Member in proportion to and
to the extent of, (x) in the case of the Class B Members, an amount so that the
Class B Members have received an amount of cumulative distributions pursuant to
Section 3.1(a)(ii), Section 3.1(c) (to the extent treated as distributions under
Section 3.1(a)(ii) or Section 11.2(b)(iv)(y)), Section 3.3 (to the extent
treated as distributions under Section 3.1(a)(ii) or Section 11.2(b)(iv)(y)),
subclause (C) of this Section 11.2(b)(iv)(y) and this subclause (D) equal to the
cumulative Class B Attributable GAAP Net Profits with respect to such Class A
Member; and (y) in the case of the Class A Member, an amount so that the Class A
Member has received an amount of cumulative distributions pursuant to Section
3.1(a)(ii), Section 3.1(b) (to the extent treated as distributions under Section
3.1(a)(ii) or subclauses (B), (D) and (E) of this Section 11.2(b)(iv)(y)),
Section 3.3 (to the extent treated as distributions under Section 3.1(a)(ii) or
subclauses (B), (D) and (E) of this Section 11.2(b)(iv)(y)), subclauses (B) and
(E) of this Section 11.2(b)(iv)(y) and this subclause (D) equal to its share of
the cumulative Class A Attributable GAAP Net Profits; and
(E) thereafter, to the Class A Member.
(c) The reserves established pursuant to Section 11.2(b)(ii) shall be
paid by the Board of Managers (or the liquidating trustee if one shall have been
appointed) to a bank or other financial institution, to be held in escrow for
the purpose of paying any such contingent or unforeseen liabilities or
obligations and, at the expiration of such period as the Board of Managers or
the liquidating trustee, as the case may be, deems advisable, such reserves
shall be distributed to the Members in the priorities set forth in Section
11.2(b).
(d) The Board of Managers (or the liquidating trustee if one shall
have been appointed) may distribute assets of the Company in kind upon the
liquidation of the Company. Any asset to be distributed in kind shall be
distributed on the basis of its fair market value as reasonably determined by
the Board of Managers (or the liquidating trustee if one shall have been
appointed). For purposes of making the final allocation of Net Income or Net
Loss and other items required by Article 4, any asset other than cash that is to
be distributed to one or more Members in kind shall be treated as having then
been sold by the Company for its fair market value as reasonably determined by
the Board of Managers (or the liquidating trustee if one shall have been
appointed) (provided, that, solely for purposes of making the final allocation
of Net Income or Net Loss and other items required by Article 4, the fair market
value of any asset that is distributed subject to a nonrecourse indebtedness
shall not be less than the amount of such indebtedness). Each Member who
receives an interest in any Company asset distributed hereunder shall hold its
interest in such asset as a tenant-in-common with all other Members who receive
an interest in such asset, unless interests in any such asset are divisible.
11.3 Termination. When the Board of Managers or the liquidating trustee, as
the case may be, has complied with the liquidation plan described in Section
11.2, there shall be executed and filed an instrument evidencing the
cancellation of the Certificate of Formation and such other documents as are
necessary to effectuate and evidence the termination and dissolution of the
Company.
ARTICLE 12
AMENDMENTS
12.1 Amendments Generally. This Agreement (including Schedule A hereto) may
not be amended or the provisions hereof waived except (a) as otherwise expressly
permitted by the terms of this Agreement or (b) by one or more written
agreements executed by the Company (acting by the consent of the Board of
Managers) and Members representing a majority of the Voting Interests of the
Members, provided, however, that (i) no amendment shall be adopted pursuant to
this Section 12.1 that would (x) alter any Member's right to receive
distributions or allocations of Net Income or Net Loss except as expressly
provided hereunder, or (y) alter, or result in the alteration of, the limited
liability of the Members or the status of the Company as a partnership for
federal income tax purposes, except, in each case, with the consent of each
Member; (ii) notwithstanding anything to the contrary contained herein, the
Board of Managers may, without the consent of any Member, amend or waive any
provision of this Agreement to reflect (x) a change in the name of the Company
or the location of the principal place of business or the registered office and
registered agent of the Company, (y) a change that is of an inconsequential
nature, or (z) a change clarifying any ambiguity, defect or inconsistency in
this Agreement, and notice of any such amendment or waiver shall be sent to each
Member promptly after its adoption; (iii) no amendment shall be adopted pursuant
to this Section 12.1 that would (x) materially adversely affect the rights of
holders of any Class, except with the consent of all of the holders of any such
Class, or (y) treat one or more holders of any Class differently in a material
respect from the other holders of such Class; and (iv) any amendment that
affects the rights or obligations of (x) the Class A Members only shall require
the consent of Class A Members holding at least two-thirds of the issued Class A
Units, (y) the Class B Members only shall require the consent of Class B Members
holding at least two-thirds of the issued Class B Units, and (z) the Class C
Members only, shall require the consent of Class C Members holding at least
two-thirds of the issued Class C Units.
12.2 Notice of Amendments. Promptly (and, in any event, within 30 days
following the adoption of any amendment to this Agreement), the Company shall
provide a copy of any such amendment to the Members.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be given by
personal delivery, sent via a nationally recognized overnight courier service,
or sent by United States mail or by e-mail, or by facsimile transmission,
receipt confirmed, if to the Members, to the addresses set forth on Schedule A
hereto or the Company's Register of Members, as the case may be, or to such
other address as any Member shall have last designated by notice to the Company
and the other Members, and if to the Company, to its principal office address.
Any notice shall be deemed received, unless earlier received (in which case, it
shall be deemed received on the date of receipt), (a) if sent by overnight
courier service, on the next Business Day, (b) if sent by certified or
registered United States mail, return receipt requested, when actually received,
(c) if sent by United States mail, first class, five Business Days after posting
in the United States mail, and (d) if sent by e-mail or facsimile transmission
or delivered by hand, on the date of receipt.
13.2 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
13.3 Interpretation. The Article and Section headings in this Agreement are
for convenience of reference only, and shall not be deemed to alter or affect
the meaning or interpretation of any provisions hereof. Whenever the context
permits, the use of a particular gender shall include the masculine, feminine
and neuter genders, and any reference to the singular or the plural shall be
interchangeable with the other. The use of the word "including" herein shall not
be considered to limit the provision which it modifies but instead shall mean
"including, without limitation."
13.4 Additional Documents. Each Member agrees to perform all further acts
and execute, acknowledge and deliver any documents which may be reasonably
necessary, appropriate or desirable to carry out the provisions of this
Agreement.
13.5 Entire Agreement. This Agreement (together with Schedule A and the
Subscription Agreements) represent the entire agreement among the parties hereto
governing the subject matter hereof, and supersede and cancel all prior
negotiations, correspondence or agreements, written or oral, among the parties
hereto with respect thereto.
13.6 Applicable Law. This Agreement shall be construed and governed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
13.7 No Third-Party Beneficiary. Unless otherwise expressly provided
herein, no term or provision of this Agreement shall be for the benefit of, or
enforceable by, any third party that is not a party hereto.
13.8 Confidentiality. By executing this Agreement, each Member expressly
agrees, at all times during the term of the Company and thereafter and whether
or not at the time a Member, to maintain the confidentiality of, and not to
disclose to any Person, any material information relating to the business,
financial results, clients or affairs of the Company that shall not be generally
available to the public and that is not already properly within its possession
("Confidential Information"), except (a) to such Member's partners, members,
shareholders, professional advisers or employees, so long as each of them agrees
to be bound by this confidentiality obligation, or to such other Persons on a
"need to know" basis only, (b) as required by law, by rule or regulation having
the force of law, by any regulatory or self-regulatory organization having
jurisdiction over such Member or the Company or by process of law or (c) as is
necessary and appropriate in the course of and in furtherance of the conduct of
the business of the Company. The provisions of this Section 13.8 shall survive
the termination of the Company. Each Member shall use Confidential Information
solely for purposes relating to the Company and to monitor its investment
therein.
13.9 Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts so executed shall constitute an original
agreement binding on all the parties, but together shall constitute but one
instrument.
[Remainder of Page Intentionally Left Blank]
TRIARC DEERFIELD HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date first written above.
CLASS A MEMBERS:
---------------
TRIARC COMPANIES, INC.
By:/s/EDWARD P. GARDEN
--------------------------------------
Name: Edward P. Garden
Title: Vice Chairman
MADISON WEST ASSOCIATES CORP.
By:/s/BRIAN L. SCHORR
-------------------------------------
Name: Brian L. Schorr
Title: President and General Counsel
TRIARC DEERFIELD HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date first written above.
CLASS B MEMBERS:
---------------
/s/NELSON PELTZ
-------------------------------
Nelson Peltz
/s/PETER W. MAY
-------------------------------
Peter W. May
/s/EDWARD P. GARDEN
-------------------------------
Edward P. Garden
/s/BRIAN L. SCHORR
-------------------------------
Brian L. Schorr
/s/FRANCIS T. MCCARRON
-------------------------------
Francis T. McCarron
/s/STUART I. ROSEN
-------------------------------
Stuart I. Rosen
/s/ANNE A. TARBELL
-------------------------------
Anne A. Tarbell
/s/GREG ESSNER
-------------------------------
Greg Essner
/s/CHAD FAUSER
-------------------------------
Chad Fauser
/s/ROBERT J. CROWE
-------------------------------
Robert J. Crowe
/s/DAVID I. MOSSE
-------------------------------
David I. Mosse
/s/EDUARDO SANTOS
-------------------------------
Eduardo Santos
/s/JOSH FRANK
-------------------------------
Josh Frank
/s/FRED SCHAEFER
-------------------------------
Fred Schaefer
TRIARC DEERFIELD HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date first written above.
CLASS C MEMBER:
--------------
TRIARC COMPANIES, INC.
By: /s/EDWARD P. GARDEN
---------------------------------
Name: Edward P. Garden
Title: Vice Chairman
SCHEDULE A
TRIARC DEERFIELD HOLDINGS, LLC SCHEDULE OF CLASS A AND CLASS C MEMBERS, MEMBERS'
CAPITAL CONTRIBUTIONS, UNITS ISSUED, PERCENTAGE
INTERESTS
as of November 10, 2005
1. Class A Members.
Number of Class A Class A
Member and Address Capital Contributions Units Held Percentage
------------------ --------------------- ----------------- ----------
Triarc Companies, Inc. $92,080,043.86 999.8914 99.98914%
280 Park Avenue
New York, New York 10017
Attention: General Counsel
Facsimile No.: (212) 451-3216
Madison West Associates Corp. $10,000 0.1086 0.01086%
280 Park Avenue
New York, New York 10017
Attention: President
Facsimile No.: (212) 451-3216
- ------------------------------------------------------------------------------------------------------------------------------------
2. Class C Members.
Capital Number of Class C
Member and Address Contributions Special Investment Units Held
------------------ ------------- ------------------ ------------------
Triarc Companies, Inc. $15,000,000 Deerfield Triarc 15.00
280 Park Avenue Capital Corp.
New York, New York 10017
Attention: General Counsel
Facsimile No.: (212) 451-3216
Triarc Companies, Inc. $20,593,829.31 Deerfield 20.59
280 Park Avenue Opportunities
New York, New York 10017 Fund, LLC
Attention: General Counsel
Facsimile No.: (212) 451-3216
Triarc Companies, Inc. $4,758,122.44 DM Fund, LLC 4.75
280 Park Avenue
New York, New York 10017
Attention: General Counsel
Facsimile No.: (212) 451-3216
- --------------------------------------------------------------------------------
SCHEDULE B
EXECUTIVE OFFICERS
as of November 10, 2005
Peter W. May President
Brian L. Schorr Executive Vice President and General Counsel
Francis T. McCarron Executive Vice President and Chief Financial Officer
Stuart I. Rosen Senior Vice President and Associate General Counsel,
and Secretary
Robert J. Crowe Vice President - Taxes
Exhibit 10.6
FORM OF TRIARC DEERFIELD HOLDINGS, LLC
CLASS B UNIT SUBSCRIPTION AGREEMENT
This Class B Unit Subscription Agreement (this "Agreement"), is made
effective as of the __ day of _____________, 2005 (hereinafter referred to as
the "Purchase Date"), between Triarc Deerfield Holdings, LLC, a Delaware limited
liability company ------------- (the "Company"), and ____________________
("Holder").
R E C I T A L S:
WHEREAS, certain management employees of Triarc Companies, Inc. and
its Affiliates, such as Holder, may subscribe for Class B Units pursuant to the
terms of the Amended and Restated Limited Liability Company Agreement of the
Company, dated as of November 10, 2005 (as amended from time to time, the "LLC
Agreement") (capitalized terms used and not otherwise defined in this Agreement
shall have the meanings set forth in the LLC Agreement);
WHEREAS, Holder now desires to subscribe for, and the Company desires
to issue to Holder, that number of Class B Units set forth in Section 1 below,
subject to the terms and conditions set forth in this Agreement and the LLC
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. Subscription for Class B Units. Subject to the terms and conditions
of the LLC Agreement and the additional terms and conditions set forth in this
Agreement, Holder hereby subscribes for, and the Company hereby issues to
Holder, ___________ Class B Units, representing a Class B Percentage of ___%,
for an aggregate purchase price of $_________. The Company has determined that
one Class B Unit has a fair market value of $5,000 on the Purchase Date,
determined without regard to any restrictions applicable thereto other than
restrictions which by their terms do not lapse. Each Class B Unit consists of a
Capital Interest Portion and a Profits Interest Portion. The Capital Interest
Portion of each Class B Unit subject hereto is fully vested and non-forfeitable
as of the Purchase Date. The Profits Interest Portion of each Class B Unit
subject hereto shall vest and become non-forfeitable in accordance with Section
2 of this Agreement.
2. Vesting of Profits Interest Portion.
(a) Vesting Schedule. Subject to Section 3 below, and contingent
upon Holder's continued employment by, or continued provision of
services as a non-employee director or, on terms reasonably
satisfactory to Triarc, consultant to, Triarc or a subsidiary of
Triarc, as applicable, thirty-three and one third percent (33 1/3%) of
the Profits Interest Portion of each Class B Unit subject hereto shall
vest and become non-forfeitable on each of the first through third
anniversaries of the "Vesting Commencement Date" (as defined below);
such that one hundred percent (100%) of such Profits Interest Portion
shall be vested and non-forfeitable on the third anniversary of the
Vesting Commencement Date. For purposes of this Agreement, "Vesting
Commencement Date" means February 15, 2005.
(b) Accelerated Vesting. Notwithstanding Section 2(a) to the
contrary, (i) the unvested portion of the Profits Interest Portion of
each Class B Unit subject hereto shall immediately vest and become
non-forfeitable upon the earlier of (A) a Restructuring Event or (B) a
Triarc Change in Control and (ii) Triarc shall have the right, in its
sole discretion, to cause the Company to accelerate the vesting of the
Profits Interest Portion of any Class B Unit subject hereto.
3. Effect of Termination of Employment; Forfeiture of Profits Interest
Portion. Notwithstanding any provision of this Agreement to the contrary:
(a) Termination for Cause. Upon the termination of Holder's
employment with, or services to, Triarc and its subsidiaries for
"Cause" (as defined below), both the vested and the unvested portion
of the Profits Interest Portion of each Class B Unit subject hereto
shall be automatically forfeited as of Holder's date of termination.
(b) Termination due to Death, Disability, Constructive
Termination or without Cause. Upon the termination of Holder's
employment with, or services to, Triarc and its subsidiaries (i) due
to Holder's death or "Disability" (as defined below), (ii) by Triarc
and its subsidiaries without Cause or (iii) by Holder due to a
"Constructive Termination" (as defined below), Holder shall retain the
vested portion, if any, of the Profits Interest Portion of each Class
B Unit subject hereto (calculated for this purpose as if Holder
remained employed by, or continued to provide services to, Triarc and
its subsidiaries through the first anniversary of Holder's date of
termination) and the unvested portion, if any, of the Profits Interest
Portion of each such Class B Unit shall be automatically forfeited as
of Holder's date of termination.
(c) Voluntary Termination. Upon the termination of Holder's
employment with, or services to, Triarc and its subsidiaries due to
Holder's voluntary resignation (other than due to a Constructive
Termination), Holder shall retain the vested portion, if any, of the
Profits Interest Portion of each Class B Unit subject hereto and the
unvested portion, if any, of the Profits Interest Portion of each such
Class B Unit shall be automatically forfeited as of Holder's date of
termination; provided, that, if such voluntary resignation occurs
prior to July 22, 2007, Holder shall also automatically forfeit, as of
Holder's date of termination, 50% of the vested portion, if any, of
the Profits Interest Portion of each Class B Unit subject thereto.
(d) Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Cause" shall have the meaning set forth in Holder's
employment or consulting agreement, as applicable (or any similar such
term or concept as set forth in Holder's employment or consulting
agreement, as applicable) or, if there is no such employment or
consulting agreement, shall mean any of the following: Holder's (1)
engagement in misconduct that is materially injurious to the Company,
Triarc or any of their respective Affiliates, (2) continued failure to
substantially perform Holder's duties to the Company, Triarc or any of
their respective Affiliates, (3) dishonesty in the performance of his
duties to the Company, Triarc or any of their respective Affiliates,
(4) commission of an act or acts constituting fraud against, or
misappropriation or embezzlement from, the Company, Triarc or any of
their respective Affiliates, (5) conviction of or plea of guilty or
nolo contendere to a charge of any crime involving moral turpitude or
a felony (other than motor vehicle felonies for which only a
non-custodial penalty is imposed), or (6) breach of any
confidentiality or non-competition covenant between Holder and the
Company, Triarc or any of their respective Affiliates.
(ii) "Constructive Termination" shall have the meaning set
forth in Holder's employment or consulting agreement, as applicable
(or any similar such term or concept as set forth in Holder's
employment or consulting agreement, as applicable) or, if there is no
such employment or consulting agreement, shall mean (1) any
substantial diminution in Holder's title, duties or responsibilities
from those enjoyed by Holder immediately prior to such diminution, or
(2) any material reduction in the aggregate compensation and benefits
provided to Holder.
(iii) "Disability" shall have the meaning set forth in
Holder's employment or consulting agreement, as applicable (or any
similar such term or concept as set forth in Holder's employment or
consulting agreement, as applicable) or, if there is no such
employment or consulting agreement, shall mean the termination of
Holder's employment or services, as applicable, by Triarc or a
subsidiary, as applicable, (A) due to the occurrence of an illness
(either physical or mental) or injury that has entitled Holder to long
term disability benefits pursuant to Triarc's or such subsidiary's
long term disability plan or (B) in the absence or inapplicability of
such a plan, due to Holder's inability to perform all or a substantial
part of Holder's duties or responsibilities as an employee,
non-employee director or consultant, as applicable, on account of
illness (either physical or mental) or injury for more than 180 days
during any consecutive twelve-month period.
4. Rights as Holder of Class B Units. Subject to the terms of the LLC
Agreement, Holder shall be the record owner of both the Capital Interest Portion
and the Profits Interest Portion of the Class B Units subject hereto except to
the extent that the Profits Interest Portion of any such Class B Units is
forfeited pursuant to Section 3 hereof and as record owner shall be entitled to
all rights of a holder of Class B Units of the Company, as set forth in the LLC
Agreement.
5. Representations and Warranties of Holder.
(a) Investment Intent. Holder hereby represents and warrants that
the Class B Units subject hereto are being acquired for investment and
not with a view to distribution thereof.
(b) Other Representations. Holder hereby represents and warrants
to the Company as follows:
(i) Access to Information. Because of Holder's relationship
with Triarc or one of its Affiliates as an employee, consultant or
non-employee director, as applicable, Holder has had access to all
material and relevant information concerning the Company, thereby
enabling Holder to make an informed investment decision with respect
to his investment in the Company, and all pertinent data and
information requested by Holder from the Company or its
representatives concerning the business and financial condition of the
Company and the terms and conditions of this Agreement and the LLC
Agreement have been furnished to Holder. Holder acknowledges that
Holder has had the opportunity to ask questions of and receive answers
and obtain additional information from the Company and its
representatives concerning the present and proposed business and
financial condition of the Company.
(ii) Financial Sophistication. Holder has such knowledge and
experience in financial and business matters that Holder is capable of
evaluating the merits and risks of investing in the Class B Units.
(iii) Understanding the Investment Risks. Holder understands
that:
(1) An investment in the Class B Units represents a
highly speculative investment, and there can be no assurance as
to the success of the Company in its business;
(2) There is at present no market for the Class B Units
and there can be no assurance that a market will develop in the
future;
(3) The Class B Units may be worthless; and
(4) Ownership of the Class B Units may result in
taxable income to Holder without a corresponding cash or in-kind
distribution.
(iv) Understanding of the Nature of the Class B Units.
Holder understands and agrees that:
(1) The Class B Units have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities laws for the reason that they are
being issued and sold in reliance upon certain exemptions
contained in the Securities Act and applicable state securities
laws, and the representations and warranties of Holder contained
herein are essential to any claim of exemption by the Company
under the Securities Act and such state laws;
(2) Holder may not sell, transfer, assign, pledge or
otherwise dispose of or encumber the Class B Units without
registration under the Securities Act and applicable state
securities laws unless the Company receives an opinion of counsel
acceptable to it (as to both counsel and the opinion) that such
registration is not required;
(3) Only the Company can register the issuance or sale
of the Class B Units under the Securities Act and applicable
state securities laws, and there can be no assurance that the
Company will register any such issuance or sale thereunder;
(4) The Company may, from time to time, make stop
transfer notations in its transfer records to ensure compliance
with the Securities Act and any applicable state securities laws,
and any additional restrictions imposed by state securities
administrators; and
(5) The Company has not provided, and is not hereby
providing, Holder with any tax advice regarding the purchase and
ownership of the Class B Units and Holder has had an opportunity
to seek and receive advice from Holder's accountant, tax or other
financial advisors or legal counsel regarding the tax
consequences of the purchase and ownership of the Class B Units.
(v) Commission. Holder acknowledges that neither Holder nor
anyone acting on Holder's behalf has paid or will pay a commission or
other remuneration to any Person in connection with the purchase of
the Class B Units.
6. Section 83(b) Election. As a condition precedent of the issuance of
the Class B Units to Holder pursuant to this Agreement, Holder shall execute and
deliver to the Company and the Internal Revenue Service (the "IRS") a timely,
valid election (the "83(b) Election") under Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). Holder understands that, under
Section 83 of the Code, regulations promulgated under Section 83 of the Code and
certain IRS administrative announcements, in the absence of an effective
election under Section 83(b) of the Code, an amount equal to the excess of the
fair market value of the Class B Units on the date on which any forfeiture
restrictions applicable to such Class B Units lapse over the price paid for the
Class B Units (which is $5,000 per Class B Unit) may be reportable as ordinary
income at that time. For this purpose, the term "forfeiture restrictions" means
the vesting conditions imposed under this Agreement. Holder understands that (a)
in making the 83(b) Election, Holder may be taxed at the time the Class B Units
are acquired hereunder to the extent the fair market value of the Class B Units
exceeds the subscription price, if any, for such Class B Units and (b) in order
to be effective, the 83(b) Election must be filed with the IRS within 30 days
after the Purchase Date. Holder hereby acknowledges that (i) the foregoing
description of the tax consequences of the 83(b) Election is not intended to be
complete and, among other things, does not describe state, local or foreign
income and other tax consequences, (ii) the Company has not provided, and is not
hereby providing, Holder with tax advice regarding the 83(b) Election and has
urged Holder to consult Holder's own tax advisor with respect to the income
taxation consequences thereof, and (iii) the Company has not advised Holder to
rely on any determination by it or its representatives as to the fair market
value specified in the 83(b) Election and will have no liability to Holder if
the actual fair market value of the Class B Units on the date hereof exceeds the
amount specified in the 83(b) Election.
7. Notices. Any notice necessary under this Agreement shall be
addressed to the Company at the principal executive office of the Company and to
Holder at the address for Holder appearing in the personnel records of Triarc or
the Affiliate of Triarc with which Holder is employed or to which Holder is
providing services, as applicable, or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
8. Governing Law. Notwithstanding principles of conflicts of law of
any jurisdiction to the contrary, all terms and provisions of this Agreement are
to be construed and governed by the internal laws of the State of New York.
9. Class B Units Subject to LLC Agreement. As a condition of the
issuance of the Class B Units, Holder will be required to become a Class B
Member of the Company. By entering into this Agreement, Holder agrees and
acknowledges that (a) Holder has received and read the attached copy of the LLC
Agreement, (b) the Class B Units are subject to the LLC Agreement, the terms and
provisions of which are hereby incorporated herein by reference, (c) Holder
shall execute, and return to the Company with an executed copy of this
Agreement, a copy of the LLC Agreement, and (d) the Class B Units are only
transferable if the transfer is permitted under Article 10 of the LLC Agreement.
In the event of a conflict between any term or provision contained herein and a
term or provision of the LLC Agreement, the applicable terms and provisions of
the LLC Agreement will govern and prevail.
10. No Right to Continued Service. This Agreement shall not be
construed as giving Holder the right to be retained in the employ of, or in any
other continuing relationship with, the Company, Triarc or any of their
respective Affiliates.
11. Entire Agreement. This Agreement, together with the LLC Agreement,
constitute the entire agreement and understanding of the parties hereto with
respect to the subject matter contained herein and therein and supercedes all
prior communications, representations and negotiations in respect thereto.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
[Name of Holder]
- --------------------
Triarc Deerfield Holdings, LLC
By :_________________________
Name:_______________________
Title:________________________
Exhibit 10.7
FORM OF JURL HOLDINGS, LLC
CLASS B UNIT SUBSCRIPTION AGREEMENT
This Class B Unit Subscription Agreement (this "Agreement"), is made
effective as of the __ day of_____________, 2005 (hereinafter referred to as the
"Purchase Date"), between Jurl Holdings, LLC, a Delaware limited liability
company (the "Company"), and ____________________ ("Holder").
R E C I T A L S:
WHEREAS, certain management employees of Triarc Companies, Inc. and
its Affiliates, such as Holder, may subscribe for Class B Units pursuant to the
terms of the Amended and Restated Limited Liability Company Agreement of the
Company, dated as of November 10, 2005 (as amended from time to time, the "LLC
Agreement") (capitalized terms used and not otherwise defined in this Agreement
shall have the meanings set forth in the LLC Agreement);
WHEREAS, Holder now desires to subscribe for, and the Company desires
to issue to Holder, that number of Class B Units set forth in Section 1 below,
subject to the terms and conditions set forth in this Agreement and the LLC
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. Subscription for Class B Units. Subject to the terms and conditions
of the LLC Agreement and the additional terms and conditions set forth in this
Agreement, Holder hereby subscribes for, and the Company hereby issues to
Holder, ___________ Class B Units, representing a Class B Percentage of ___%,
for an aggregate purchase price of $_________. The Company has determined that
one Class B Unit has a fair market value of $1,000 on the Purchase Date,
determined without regard to any restrictions applicable thereto other than
restrictions which by their terms do not lapse. Each Class B Unit consists of a
Capital Interest Portion and a Profits Interest Portion. The Capital Interest
Portion of each Class B Unit subject hereto is fully vested and non-forfeitable
as of the Purchase Date. The Profits Interest Portion of each Class B Unit
subject hereto shall vest and become non-forfeitable in accordance with Section
2 of this Agreement.
2. Vesting of Profits Interest Portion.
(a) Vesting Schedule. Subject to Section 3 below, and contingent
upon Holder's continued employment by, or continued provision of
services as a non-employee director or, on terms reasonably
satisfactory to Triarc, consultant to, Triarc or a subsidiary of
Triarc, as applicable, thirty-three and one third percent (33 1/3%) of
the Profits Interest Portion of each Class B Unit subject hereto shall
vest and become non-forfeitable on each of the first through third
anniversaries of the "Vesting Commencement Date" (as defined below);
such that one hundred percent (100%) of such Profits Interest Portion
shall be vested and non-forfeitable on the third anniversary of the
Vesting Commencement Date. For purposes of this Agreement, "Vesting
Commencement Date" means February 15, 2005.
(b) Accelerated Vesting. Notwithstanding Section 2(a) to the
contrary, (i) the unvested portion of the Profits Interest Portion of
each Class B Unit subject hereto shall immediately vest and become
non-forfeitable upon the earlier of (A) a Restructuring Event or (B) a
Triarc Change in Control and (ii) Triarc shall have the right, in its
sole discretion, to cause the Company to accelerate the vesting of the
Profits Interest Portion of any Class B Unit subject hereto.
3. Effect of Termination of Employment; Forfeiture of Profits Interest
Portion. Notwithstanding any provision of this Agreement to the contrary:
(a) Termination for Cause. Upon the termination of Holder's
employment with, or services to, Triarc and its subsidiaries for
"Cause" (as defined below), both the vested and the unvested portion
of the Profits Interest Portion of each Class B Unit subject hereto
shall be automatically forfeited as of Holder's date of termination.
(b) Termination due to Death, Disability, Constructive
Termination or without Cause. Upon the termination of Holder's
employment with, or services to, Triarc and its subsidiaries (i) due
to Holder's death or "Disability" (as defined below), (ii) by Triarc
and its subsidiaries without Cause or (iii) by Holder due to a
"Constructive Termination" (as defined below), Holder shall retain the
vested portion, if any, of the Profits Interest Portion of each Class
B Unit subject hereto (calculated for this purpose as if Holder
remained employed by, or continued to provide services to, Triarc and
its subsidiaries through the first anniversary of Holder's date of
termination) and the unvested portion, if any, of the Profits Interest
Portion of each such Class B Unit shall be automatically forfeited as
of Holder's date of termination.
(c) Voluntary Termination. Upon the termination of Holder's
employment with, or services to, Triarc and its subsidiaries due to
Holder's voluntary resignation (other than due to a Constructive
Termination), Holder shall retain the vested portion, if any, of the
Profits Interest Portion of each Class B Unit subject hereto and the
unvested portion, if any, of the Profits Interest Portion of each such
Class B Unit shall be automatically forfeited as of Holder's date of
termination; provided, that, if such voluntary resignation occurs
prior to July 8, 2007, Holder shall also automatically forfeit, as of
Holder's date of termination, 50% of the vested portion, if any, of
the Profits Interest Portion of each Class B Unit subject thereto.
(d) Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Cause" shall have the meaning set forth in Holder's
employment or consulting agreement, as applicable (or any similar such
term or concept as set forth in Holder's employment or consulting
agreement, as applicable) or, if there is no such employment or
consulting agreement, shall mean any of the following: Holder's (1)
engagement in misconduct that is materially injurious to the Company,
Triarc or any of their respective Affiliates, (2) continued failure to
substantially perform Holder's duties to the Company, Triarc or any of
their respective Affiliates, (3) dishonesty in the performance of his
duties to the Company, Triarc or any of their respective Affiliates,
(4) commission of an act or acts constituting fraud against, or
misappropriation or embezzlement from, the Company, Triarc or any of
their respective Affiliates, (5) conviction of or plea of guilty or
nolo contendere to a charge of any crime involving moral turpitude or
a felony (other than motor vehicle felonies for which only a
non-custodial penalty is imposed), or (6) breach of any
confidentiality or non-competition covenant between Holder and the
Company, Triarc or any of their respective Affiliates.
(ii) "Constructive Termination" shall have the meaning set
forth in Holder's employment or consulting agreement, as applicable
(or any similar such term or concept as set forth in Holder's
employment or consulting agreement, as applicable) or, if there is no
such employment or consulting agreement, shall mean (1) any
substantial diminution in Holder's title, duties or responsibilities
from those enjoyed by Holder immediately prior to such diminution, or
(2) any material reduction in the aggregate compensation and benefits
provided to Holder.
(iii) "Disability" shall have the meaning set forth in
Holder's employment or consulting agreement, as applicable (or any
similar such term or concept as set forth in Holder's employment or
consulting agreement, as applicable) or, if there is no such
employment or consulting agreement, shall mean the termination of
Holder's employment or services, as applicable, by Triarc or a
subsidiary, as applicable, (A) due to the occurrence of an illness
(either physical or mental) or injury that has entitled Holder to long
term disability benefits pursuant to Triarc's or such subsidiary's
long term disability plan or (B) in the absence or inapplicability of
such a plan, due to Holder's inability to perform all or a substantial
part of Holder's duties or responsibilities as an employee,
non-employee director or consultant, as applicable, on account of
illness (either physical or mental) or injury for more than 180 days
during any consecutive twelve-month period.
4. Rights as Holder of Class B Units. Subject to the terms of the LLC
Agreement, Holder shall be the record owner of both the Capital Interest Portion
and the Profits Interest Portion of the Class B Units subject hereto except to
the extent that the Profits Interest Portion of any such Class B Units is
forfeited pursuant to Section 3 hereof and as record owner shall be entitled to
all rights of a holder of Class B Units of the Company, as set forth in the LLC
Agreement.
5. Representations and Warranties of Holder.
(a) Investment Intent. Holder hereby represents and warrants that
the Class B Units subject hereto are being acquired for investment and
not with a view to distribution thereof.
(b) Other Representations. Holder hereby represents and warrants
to the Company as follows:
(i) Access to Information. Because of Holder's relationship
with Triarc or one of its Affiliates as an employee, consultant or
non-employee director, as applicable, Holder has had access to all
material and relevant information concerning the Company, thereby
enabling Holder to make an informed investment decision with respect
to his investment in the Company, and all pertinent data and
information requested by Holder from the Company or its
representatives concerning the business and financial condition of the
Company and the terms and conditions of this Agreement and the LLC
Agreement have been furnished to Holder. Holder acknowledges that
Holder has had the opportunity to ask questions of and receive answers
and obtain additional information from the Company and its
representatives concerning the present and proposed business and
financial condition of the Company.
(ii) Financial Sophistication. Holder has such knowledge and
experience in financial and business matters that Holder is capable of
evaluating the merits and risks of investing in the Class B Units.
(iii) Understanding the Investment Risks. Holder understands
that:
(1) An investment in the Class B Units represents a
highly speculative investment, and there can be no assurance as
to the success of the Company in its business;
(2) There is at present no market for the Class B Units
and there can be no assurance that a market will develop in the
future;
(3) The Class B Units may be worthless; and
(4) Ownership of the Class B Units may result in
taxable income to Holder without a corresponding cash or in-kind
distribution.
(iv) Understanding of the Nature of the Class B Units.
Holder understands and agrees that:
(1) The Class B Units have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities laws for the reason that they are
being issued and sold in reliance upon certain exemptions
contained in the Securities Act and applicable state securities
laws, and the representations and warranties of Holder contained
herein are essential to any claim of exemption by the Company
under the Securities Act and such state laws;
(2) Holder may not sell, transfer, assign, pledge or
otherwise dispose of or encumber the Class B Units without
registration under the Securities Act and applicable state
securities laws unless the Company receives an opinion of counsel
acceptable to it (as to both counsel and the opinion) that such
registration is not required;
(3) Only the Company can register the issuance or sale
of the Class B Units under the Securities Act and applicable
state securities laws, and there can be no assurance that the
Company will register any such issuance or sale thereunder;
(4) The Company may, from time to time, make stop
transfer notations in its transfer records to ensure compliance
with the Securities Act and any applicable state securities laws,
and any additional restrictions imposed by state securities
administrators; and
(5) The Company has not provided, and is not hereby
providing, Holder with any tax advice regarding the purchase and
ownership of the Class B Units and Holder has had an opportunity
to seek and receive advice from Holder's accountant, tax or other
financial advisors or legal counsel regarding the tax
consequences of the purchase and ownership of the Class B Units.
(v) Commission. Holder acknowledges that neither Holder nor
anyone acting on Holder's behalf has paid or will pay a commission or
other remuneration to any Person in connection with the purchase of
the Class B Units.
6. Section 83(b) Election. As a condition precedent of the issuance of
the Class B Units to Holder pursuant to this Agreement, Holder shall execute and
deliver to the Company and the Internal Revenue Service (the "IRS") a timely,
valid election (the "83(b) Election") under Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). Holder understands that, under
Section 83 of the Code, regulations promulgated under Section 83 of the Code and
certain IRS administrative announcements, in the absence of an effective
election under Section 83(b) of the Code, an amount equal to the excess of the
fair market value of the Class B Units on the date on which any forfeiture
restrictions applicable to such Class B Units lapse over the price paid for the
Class B Units (which is $1,000 per Class B Unit) may be reportable as ordinary
income at that time. For this purpose, the term "forfeiture restrictions" means
the vesting conditions imposed under this Agreement. Holder understands that (a)
in making the 83(b) Election, Holder may be taxed at the time the Class B Units
are acquired hereunder to the extent the fair market value of the Class B Units
exceeds the subscription price, if any, for such Class B Units and (b) in order
to be effective, the 83(b) Election must be filed with the IRS within 30 days
after the Purchase Date. Holder hereby acknowledges that (i) the foregoing
description of the tax consequences of the 83(b) Election is not intended to be
complete and, among other things, does not describe state, local or foreign
income and other tax consequences, (ii) the Company has not provided, and is not
hereby providing, Holder with tax advice regarding the 83(b) Election and has
urged Holder to consult Holder's own tax advisor with respect to the income
taxation consequences thereof, and (iii) the Company has not advised Holder to
rely on any determination by it or its representatives as to the fair market
value specified in the 83(b) Election and will have no liability to Holder if
the actual fair market value of the Class B Units on the date hereof exceeds the
amount specified in the 83(b) Election.
7. Notices. Any notice necessary under this Agreement shall be
addressed to the Company at the principal executive office of the Company and to
Holder at the address for Holder appearing in the personnel records of Triarc or
the Affiliate of Triarc with which Holder is employed or to which Holder is
providing services, as applicable, or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
8. Governing Law. Notwithstanding principles of conflicts of law of
any jurisdiction to the contrary, all terms and provisions of this Agreement are
to be construed and governed by the internal laws of the State of New York.
9. Class B Units Subject to LLC Agreement. As a condition of the
issuance of the Class B Units, Holder will be required to become a Class B
Member of the Company. By entering into this Agreement, Holder agrees and
acknowledges that (a) Holder has received and read the attached copy of the LLC
Agreement, (b) the Class B Units are subject to the LLC Agreement, the terms and
provisions of which are hereby incorporated herein by reference, (c) Holder
shall execute, and return to the Company with an executed copy of this
Agreement, a copy of the LLC Agreement, and (d) the Class B Units are only
transferable if the transfer is permitted under Article 10 of the LLC Agreement.
In the event of a conflict between any term or provision contained herein and a
term or provision of the LLC Agreement, the applicable terms and provisions of
the LLC Agreement will govern and prevail.
10. No Right to Continued Service. This Agreement shall not be
construed as giving Holder the right to be retained in the employ of, or in any
other continuing relationship with, the Company, Triarc or any of their
respective Affiliates.
11. Entire Agreement. This Agreement, together with the LLC Agreement,
constitute the entire agreement and understanding of the parties hereto with
respect to the subject matter contained herein and therein and supercedes all
prior communications, representations and negotiations in respect thereto.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
[Name of Holder]
- --------------------
Jurl Holdings, LLC
By :_________________________
Name:_______________________
Title:________________________
EXHIBIT 31.1
CERTIFICATIONS
I, Nelson Peltz, the Chairman and Chief Executive Officer of Triarc
Companies, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triarc Companies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 14, 2005
/s/NELSON PELTZ
------------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Francis T. McCarron, the Executive Vice President and Chief Financial
Officer of Triarc Companies, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triarc Companies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 14, 2005
/s/FRANCIS T. MCCARRON
----------------------------------------------------
Francis T. McCarron
Executive Vice President and Chief Financial Officer
TRIARC COMPANIES, INC. AND SUBSIDIARIES
EXHIBIT 32.1
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), each of
the undersigned officers of Triarc Companies, Inc., a Delaware corporation (the
"Company"), does hereby certify, to the best of such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended October 2, 2005
(the "Form 10-Q") of the Company fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained
in the Form 10-Q fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: November 14, 2005 /s/NELSON PELTZ
----------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
Dated: November 14, 2005 /s/FRANCIS T. MCCARRON
----------------------------------
Francis T. McCarron
Executive Vice President and Chief
Financial Officer
A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to Triarc Companies, Inc.
and will be retained by Triarc Companies, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to section
906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code) and is not being filed as part of
the Form 10-Q or as a separate disclosure document.