SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, For Use of the
/ / Definitive Proxy Statement Commission Only (as permitted by Rule
/ / Definitive Additional Materials 14a-6(e)(2))
/ / Soliciting Material Under Rule 14a-12
GENERAL MILLS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box): [ ]
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$1,887,000,000*
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*The filing fee is calculated by multiplying 1/50 of 1% times the book
value, as of June 30, 2000 (the latest practicable date before the date
of this filing) of the businesses being acquired plus the net amount of
debt, as of June 30, 2000, of the businesses being acquired that will
be eliminated as of the time of the acquisition.
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4) Proposed maximum aggregate value of transaction:
$1,887,000,000
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5) Total fee paid:
$377,400
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/ / Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[GENERAL MILLS LOGO]
P.O. BOX 1113
MINNEAPOLIS, MINNESOTA 55440
(763) 764-2311
, 2000
Dear General Mills Stockholder:
As you may already be aware, we have agreed to a transaction in which we
will acquire Pillsbury's worldwide businesses from Diageo plc. We are extremely
excited about the addition of Pillsbury's businesses which provide new
opportunities to accelerate our sales and earnings growth. Virtually all of
Pillsbury's leadership brands compete in growing market categories, several of
which we believe represent dynamic new growth platforms for General Mills. We
also plan to leverage the Pillsbury presence in fast-growing foodservice
channels, which will quadruple our business there. In international markets,
Pillsbury's manufacturing, distribution and sales infrastructure will help
expand our participation and build global food brands. We also see lots of
opportunities for cost savings through consolidation of supply chain and other
activities.
For Pillsbury's businesses, Diageo will receive 141 million shares of
General Mills common stock, which will be approximately 33% of the outstanding
General Mills common stock after completion of the transaction. Diageo will
establish an escrow fund at the time we complete the transaction that will pay
General Mills up to $642 million, plus interest, on the first anniversary of the
completion of the transaction depending on General Mills' average common stock
price around that time and the amount of General Mills stock Diageo continues to
hold. In addition, at the time we acquire Pillsbury, Pillsbury will have total
debt of approximately $5.14 billion, most of which will be new debt. Pillsbury
will distribute the proceeds of the new debt to Diageo, either as a dividend
and/or by repaying intercompany obligations, before we complete the acquisition.
The holders of a majority of shares of General Mills common stock casting
votes must vote in favor of issuing the additional shares of our common stock
necessary to complete the transaction. In addition, the holders of at least 51%
of the outstanding shares of our common stock must vote in favor of eliminating
the provisions in General Mills' charter that restrict specified transactions
with holders of 10% or more of our common stock. Our transaction agreement with
Diageo requires us to eliminate those provisions to facilitate future
transactions by Diageo involving General Mills common stock which are permitted
or required by the transaction agreement or the stockholders agreement that we
plan to sign with Diageo. We have scheduled a Special Meeting of Stockholders
for these votes, which we will hold at:
, , 2000
a.m. (local time)
[Place]
[Address]
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF
THE PROPOSED TRANSACTION AND RECOMMENDS THAT YOU APPROVE EACH OF THE TRANSACTION
PROPOSALS BEING SUBMITTED TO YOU FOR APPROVAL.
YOUR VOTE IS VERY IMPORTANT. Please take the time to vote by completing and
mailing the enclosed proxy card or by following the Internet or telephone voting
instructions set forth on the proxy card. We describe the Internet and telephone
arrangements in greater detail on the proxy card. If you hold your shares
through a bank, broker or other holder of record, there may be different
telephone and Internet instructions on your proxy card. Please follow the
instructions on the proxy card you receive. If you attend the special meeting,
you may vote in person if you wish, even though you have previously returned
your proxy card. If your shares are held by a bank or broker, you must request a
legal proxy from your bank or broker to vote at the meeting. If you need special
assistance at the meeting because of a disability, please contact the Corporate
Secretary of General Mills at the address above.
Sincerely,
Stephen W. Sanger
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
GENERAL MILLS, INC.
P.O. BOX 1113
MINNEAPOLIS, MINNESOTA 55440
(763) 764-2311
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
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To the Stockholders of GENERAL MILLS, INC.:
We will hold a Special Meeting of Stockholders of General Mills, Inc. on
, 2000 at a.m., local time, at [place], [address], for the
purpose of considering and voting upon the following matters:
1. To approve the issuance of 141 million shares of General Mills common
stock to subsidiaries of Diageo plc under the Agreement and Plan of Merger,
dated as of July 16, 2000, among General Mills, General Mills North American
Businesses, Inc., Diageo and The Pillsbury Company. This approval will include
any additional shares that we may have to issue to Diageo under the operating
working capital purchase price adjustment and indemnification provisions of the
agreement.
2. To approve an amendment to the Restated Certificate of Incorporation of
General Mills to eliminate Article V. Article V generally requires a stockholder
vote to authorize specified transactions between General Mills and a holder of
10% or more of our common stock. Please note that we will not go forward with
the amendment eliminating Article V of General Mills' Restated Certificate of
Incorporation unless we complete the Pillsbury acquisition.
3. To transact such other business as may properly come before the special
meeting or any adjournment.
We describe these matters more fully in the Proxy Statement accompanying this
Notice.
Your Board of Directors has fixed the close of business on , 2000
as the record date for the determination of stockholders entitled to receive
notice of, and to vote at, the special meeting. You can vote at the special
meeting if you held General Mills common stock at the close of business on that
date or on that date still held shares of Ralcorp Holdings, Inc. common stock
that can be exchanged for General Mills common stock as a result of the 1997
acquisition of the Ralcorp branded cereal and snack businesses by General Mills.
By Order of the Board of Directors
Siri S. Marshall
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
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WE INVITE ALL STOCKHOLDERS TO ATTEND THE SPECIAL MEETING. WHETHER OR NOT YOU
EXPECT TO ATTEND, WE URGE YOU TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU DO NOT NEED TO PUT A
STAMP ON THE ENVELOPE IF YOU MAIL IT IN THE UNITED STATES. IF YOU ARE A
STOCKHOLDER OF RECORD, YOU MAY ALSO VOTE BY TELEPHONE BY CALLING (800) OR
ON THE INTERNET AT HTTP://WWW. . TELEPHONE AND INTERNET VOTING
FACILITIES WILL CLOSE AT [TIME] ON [DATE]. EACH PROXY IS REVOCABLE AND WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE SPECIAL MEETING.
IF YOU HOLD YOUR SHARES THROUGH A BANK, BROKER OR OTHER HOLDER OF RECORD, THERE
MAY BE DIFFERENT TELEPHONE AND INTERNET INSTRUCTIONS ON YOUR PROXY CARD. PLEASE
FOLLOW THE INSTRUCTIONS ON THE PROXY CARD YOU RECEIVE.
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This notice and the proxy statement are dated , 2000. We are
first mailing these documents to stockholders on , 2000.
TABLE OF CONTENTS
PAGE
--------
QUESTIONS AND ANSWERS ABOUT THE
TRANSACTION AND THE SPECIAL
MEETING............................. 1
SUMMARY............................... 3
The Companies and Pillsbury......... 3
Recommendations to Stockholders..... 3
The Transaction..................... 4
Special Meeting Proposals........... 6
Markets and Market Prices........... 7
SELECTED HISTORICAL FINANCIAL DATA OF
GENERAL MILLS....................... 8
SELECTED HISTORICAL FINANCIAL DATA OF
PILLSBURY........................... 9
SELECTED PRO FORMA FINANCIAL
INFORMATION OF GENERAL MILLS........ 10
THE SPECIAL MEETING................... 11
Matters to Be Considered............ 11
Date, Time and Place of Meeting..... 11
Record Date, Shares Outstanding and
Entitled to Vote.................. 11
Voting and Revocation of Proxies.... 11
Vote Required....................... 12
Quorum; Broker Nonvotes............. 12
Solicitation of Proxies and
Expenses.......................... 13
Discussion of Charter Amendment
Proposal.......................... 13
Attendance of General Mills'
Independent Certified Public
Accountants....................... 14
THE TRANSACTION....................... 15
Background of the Transaction....... 15
Reasons for the Transaction......... 17
Recommendations of the Board of
Directors......................... 18
Factors Considered by the Board of
Directors......................... 19
Opinions of General Mills' Financial
Advisors.......................... 20
United States Federal Income Tax
Consequences...................... 33
Accounting Treatment................ 33
Regulatory Matters.................. 33
Absence of Appraisal Rights......... 35
SPECIAL CONSIDERATIONS................ 36
The presence of a significant
stockholder may affect the ability
of a third party to acquire
control of General Mills.......... 36
Existing General Mills stockholders
will own a smaller share of
General Mills following completion
of the transaction................ 36
PAGE
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General Mills' increased debt may
impair its financial and operating
flexibility....................... 37
DESCRIPTION OF THE TRANSACTION........ 38
Description of the Transaction...... 38
The Merger Agreement................ 38
The Stockholders Agreement.......... 45
Interests of Certain Persons in the
Transaction....................... 48
FINANCIAL AND BUSINESS INFORMATION.... 49
Pillsbury........................... 49
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 52
Qualitative and Quantitative
Disclosures about Market Risks.... 56
UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION......................... 57
SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.... 62
BACKGROUND INFORMATION REGARDING
DIAGEO DESIGNEES TO THE GENERAL
MILLS BOARD OF DIRECTORS............ 63
DESCRIPTION OF CAPITAL STOCK OF
GENERAL MILLS....................... 63
Capital Stock....................... 63
Preference Share Purchase Rights.... 64
ADDITIONAL INFORMATION................ 67
Cautionary Statement Concerning
Forward-Looking Statements........ 67
Stockholder Proposals............... 67
Where You Can Find More
Information....................... 68
INDEX TO FINANCIAL
STATEMENTS.......................... F-1
APPENDICES
APPENDIX A Agreement and Plan of Merger
APPENDIX B Form of Stockholders
Agreement
APPENDIX C Fairness Opinion of Evercore
Partners
APPENDIX D Fairness Opinion of Merrill
Lynch
i
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
AND THE SPECIAL MEETING
Q: WHY IS GENERAL MILLS ACQUIRING PILLSBURY?
A: Your Board of Directors believes that combining General Mills and Pillsbury
will create significant long-term value for General Mills stockholders by
providing opportunities for accelerated topline and bottom-line growth. We
believe that the combined company's more balanced product portfolio and
greater scale and scope will enhance our current growth strategy through:
- the addition of faster-growing retail categories,
- growth opportunities through product and marketing innovation,
- enhanced growth opportunities in the foodservice channel,
- expanded opportunities in international markets, and
- significant opportunities for cost savings through consolidation of supply
chain and other activities.
Q: WHAT HAS BEEN PILLSBURY'S HISTORICAL PROFIT PERFORMANCE?
A: Pillsbury brands hold leading positions in attractive market categories, and
have delivered consistently strong earnings before interest and taxes over
the last five fiscal years (see page 9), although its net results have been
materially affected by significant intercompany debt as a subsidiary of
Diageo. At closing, Pillsbury's total debt will be reduced by approximately
$2.5 billion, resulting in substantially lower interest expense. See in
particular pages 52-53, the pro forma combined balance sheet on page 58 and
footnote (d) to the pro forma combined statement of earnings on page 61.
Pillsbury's historical financial data can be found on pages F-1 through F-24
of this proxy statement.
Q: HOW WILL THE TRANSACTION AFFECT ME?
A: You will continue to own the same number of shares of General Mills common
stock that you owned immediately before the transaction. Each share of
General Mills common stock, however, will represent a smaller ownership
percentage of a significantly larger company.
Q: WHEN DO YOU EXPECT TO COMPLETE THE TRANSACTION?
A: We are working to complete the transaction as soon as possible. We currently
expect to complete the transaction in late calendar 2000.
Q: WHAT STOCKHOLDER APPROVALS DO YOU NEED TO APPROVE THE TRANSACTION?
A: We must obtain approval from both the General Mills stockholders and the
Diageo shareholders, as we describe in this proxy statement.
Q: AM I ENTITLED TO APPRAISAL RIGHTS?
A: No. You will have no right under Delaware law to seek appraisal of the value
of your General Mills shares in connection with the transaction.
Q: ARE THERE ANY SIGNIFICANT DISADVANTAGES TO ME FROM THE TRANSACTION?
A: We do not believe so. Your Board of Directors has approved the transaction,
and believes it is in the best interests of General Mills' stockholders.
Q: WHAT DO I NEED TO DO NOW?
A: Just sign and mail your proxy card in the enclosed return envelope as soon
as possible, so that we may vote your shares at the special meeting. If you
are a stockholder of record, you may also vote by telephone by calling
(800) - or on the Internet at HTTP://WWW. . If you hold
your shares through a bank, broker or other holder of record, there may be
different telephone and Internet voting instructions on your proxy card that
you must follow. The meeting will take place on , 2000. YOUR BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH
1
PROPOSAL BEING SUBMITTED TO YOU FOR APPROVAL.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD OR VOTED BY
TELEPHONE OR ON THE INTERNET?
A: Yes. You can change your vote at any time before we vote your proxy at the
special meeting. You can do so in one of four ways. First, you can send a
written notice stating that you would like to revoke your proxy to us at the
address given below. Second, you can complete a new proxy card and send it
to us at the address given below. If you choose either of these two methods,
you must submit your notice of revocation or new proxy before the special
meeting. Third, you can submit your new vote by telephone or on the
Internet. Fourth, you can attend the special meeting and vote in person.
You should send any revocation notice or new proxy card to the Corporate
Secretary of General Mills at the following address: General Mills, Inc.,
P.O. Box 1113, Minneapolis, Minnesota 55440. You may request a new proxy
card by calling Georgeson Shareholder Communications Inc., our proxy
solicitor, at the telephone numbers listed below.
If you hold your shares through an account at a brokerage firm or bank, you
should contact your brokerage firm or bank to change your vote.
Q: HOW WILL YOU VOTE MY DIVIDEND REINVESTMENT AND GENERAL MILLS SAVINGS PLAN
SHARES?
A: If you are a participant in General Mills' dividend reinvestment plan
(including employee payroll deduction), we have added your shares held under
the plan to your other holdings on your proxy card. If you have shares in a
General Mills Savings Plan account, your proxy also serves as voting
instructions to the plan trustee. The plan trustee, Boston Safe Deposit and
Trust Company, votes allocated shares of common stock for which it has not
received voting instructions, as well as shares not allocated to individual
participant accounts, in the same proportions as the shares for which it has
received instructions.
Q: WHAT IF I DON'T VOTE?
A: Except as described in the preceding Q & A, if you fail to respond, it will
have no effect on the proposal to issue General Mills common stock in the
transaction and will have the same effect as a vote against the charter
amendment proposal. If you respond and do not indicate your voting
preference on a proposal, we will count your proxy as a vote in favor of the
proposal. If you respond and abstain from voting, your proxy will have no
effect on the proposal to issue General Mills common stock in the
transaction and will have the same effect as a vote against the charter
amendment proposal.
If you hold your shares through an account at a brokerage firm or bank and
do not provide voting instructions to that brokerage firm or bank, the firm
or bank may vote your shares except on non-routine matters for which the New
York Stock Exchange has decided the firm or bank does not have discretionary
voting authority.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means you have multiple accounts at the transfer agent and/or with banks
or stockbrokers. Please vote all your shares.
Q: WHOM SHOULD I CALL IF I HAVE QUESTIONS?
A: If you have questions about the transaction or how to submit your proxy
card, or if you need additional copies of this proxy statement or the
enclosed proxy card, you should contact:
Georgeson Shareholder Communications Inc.
17 State Street, 10th Floor
New York, NY 10004
Bankers & Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free: (800) 223-2064
General Mills, Inc.
P.O. Box 1113
Minneapolis, Minnesota 55440
Attention: Investor Relations
Telephone: (763) 764-2607
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT, AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. TO UNDERSTAND THE
TRANSACTION FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
TRANSACTION, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "ADDITIONAL INFORMATION--WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 68.
THE COMPANIES AND PILLSBURY
GENERAL MILLS
General Mills, Inc.
Number One General Mills Boulevard
Minneapolis, Minnesota 55426
(763) 764-2311
Website: http://www.generalmills.com
General Mills is a leading manufacturer and marketer of consumer foods
products, with fiscal 2000 worldwide sales of $7.5 billion (which includes
General Mills' $0.8 billion share of non-consolidated joint venture sales).
Major U.S. businesses include: Big G ready-to-eat cereals, Betty Crocker
dessert, baking and dinner mix products, snack products, and Yoplait and Colombo
yogurt. General Mills' expanding international operations include a worldwide
cereal joint venture (outside of the United States and Canada) with Nestle and a
snacks joint venture in continental Europe with PepsiCo, as well as
company-owned businesses in Canada, Mexico and China.
For more information relating to General Mills, you should read the
documents that we reference in "Additional Information--Where You Can Find More
Information" on page 68.
PILLSBURY (PAGES 49 AND F-1)
If we complete the transaction, General Mills will acquire through a merger
all of the outstanding shares of The Pillsbury Company and General Mills
subsidiaries will acquire the stock and/or assets of the Diageo subsidiaries and
investments that conduct those non-U.S. Pillsbury businesses that The Pillsbury
Company does not directly or indirectly own. The financial statements and the
other financial data of Pillsbury in this proxy statement include financial data
of all of these businesses, taken together.
Pillsbury produces and distributes leading food brands including Pillsbury
refrigerated dough and baked goods, Green Giant canned and frozen vegetables,
Old El Paso Mexican foods, Progresso soups, Totino's frozen pizza products and a
wide range of foodservice products. Pillsbury had sales of $6.1 billion in its
fiscal year ended June 30, 2000.
DIAGEO
Diageo plc
8 Henrietta Place
London WlM 9AG
England
011-44-20-7927-5200
Website: http://www.diageo.com
Diageo is one of the world's leading consumer goods companies. Formed in
December 1997 through the merger of GrandMet and Guinness, Diageo's portfolio of
consumer brands includes Smirnoff, Johnnie Walker, Guinness, J&B, Gordon's,
Tanqueray, Pillsbury and Burger King. Diageo's shares trade on the London Stock
Exchange and trade as American Depositary Shares on the New York Stock Exchange.
THE COMBINED BUSINESS
If we complete the transaction, General Mills will become the largest
publicly-traded U.S. food company based on market capitalization, will rank
third in the food industry based on North American food sales and will rank
fifth based on global food sales.
RECOMMENDATIONS TO STOCKHOLDERS
Your Board of Directors recommends that you vote FOR the proposals we
describe in this proxy statement. Although stockholders will vote on the
proposals separately, approval of both proposals is a condition to completing
the transaction.
3
THE TRANSACTION
MERGER AGREEMENT (PAGE 38)
The merger agreement is the main legal document that governs the
transaction. We have attached a copy as Appendix A and we encourage you to read
it. The merger agreement provides that:
- The Pillsbury Company will merge with a newly formed acquisition
subsidiary of General Mills, and, as a result, will become a subsidiary of
General Mills. At the same time as the merger, other subsidiaries of
General Mills will purchase the stock and/or assets of the Diageo
subsidiaries (and the equity interests owned by Diageo subsidiaries in
other related entities) that conduct the non-U.S. Pillsbury businesses
that The Pillsbury Company does not directly or indirectly own.
- General Mills will issue a total of 141 million shares of General Mills
common stock to the Diageo subsidiary that owns The Pillsbury Company and
the Diageo subsidiaries that conduct those non-U.S. Pillsbury businesses.
We refer to these Diageo subsidiaries throughout this proxy statement as
the Diageo stockholder group. References throughout this proxy statement
to "Pillsbury" refer to the worldwide Pillsbury operations and product
lines that General Mills will acquire. If we complete the transactions,
the Diageo stockholder group will own approximately 33% of the outstanding
shares of General Mills common stock as of the closing date.
- Before the acquisition, Pillsbury will incur new third party debt and will
distribute the proceeds to Diageo, either as a dividend and/or by repaying
intercompany obligations. When we acquire Pillsbury, it will have a total
of up to $5.142 billion of debt.
- The purchase price may be adjusted upward or downward following the
closing of the transaction based on the amount of operating working
capital that Pillsbury has as of the closing date. General Mills will make
any payment it owes under this provision by issuing additional shares of
General Mills common stock, while Diageo will pay any adjustment it owes
in cash.
- Diageo will establish an escrow fund at the time we complete the
transaction that will pay General Mills up to $642 million, plus interest,
on the first anniversary of the closing. The amount paid will depend on
General Mills' average common stock price around that time and on the
number of shares the Diageo stockholder group continues to hold on the
first anniversary. If the Diageo stockholder group still holds all of the
shares acquired by it in the transaction, we will receive only the
interest earned by the escrow fund if our average stock price is $38.00
per share or below, and we will receive the full amount of the fund if our
average stock price is $42.55 per share or above. If our average stock
price is between $38.00 and $42.55, we will receive a portion of the fund.
Under all circumstances, General Mills will receive the full amount of
interest earned on the escrow fund.
- General Mills will pay Diageo a $105 million termination fee if either
General Mills or Diageo terminates the merger agreement because the
General Mills stockholders fail to approve the transaction proposals
described in this proxy statement. That fee will increase to $315 million
if there is a pending publicly announced takeover proposal involving
General Mills at the time the General Mills stockholders fail to approve
the proposals. General Mills also will pay Diageo a $315 million
termination fee if Diageo terminates the merger agreement based on the
General Mills board of directors withdrawing or adversely modifying its
recommendation to approve the transaction proposals.
- Diageo will pay General Mills a $105 million termination fee if either
Diageo or General Mills terminates the
4
merger agreement because the Diageo shareholders fail to approve the
transaction. That fee will increase to $315 million if there is a pending
publicly announced competing proposal for Pillsbury or a takeover proposal
involving Diageo at the time the Diageo shareholders fail to approve the
transaction. Diageo also will pay General Mills a $315 million termination
fee if General Mills terminates the merger agreement based on the Diageo
board of directors withdrawing or adversely modifying its recommendation
to approve the transaction.
- General Mills will not solicit or participate in any takeover discussions
involving General Mills before it acquires Pillsbury. Diageo will not
solicit or participate in discussions concerning any competing transaction
involving Pillsbury.
STOCKHOLDERS AGREEMENT (PAGE 45)
At the closing of the transaction, General Mills, Diageo and the Diageo
stockholder group will enter into a stockholders agreement. We have attached a
copy of the agreed form of the stockholders agreement as Appendix B, and we
encourage you to read it carefully.
The stockholders agreement will:
- govern how many shares of General Mills common stock Diageo and the Diageo
stockholder group may own;
- require the Diageo stockholder group to dispose of at least 75% of its
General Mills shares by the tenth anniversary of the closing date;
- require Diageo to vote its General Mills shares on most matters in
proportion to the vote of the other General Mills stockholders;
- give Diageo a right to designate two individuals to the General Mills
Board of Directors (or more, if the size of the General Mills Board of
Directors is increased to 16 or more directors) so long as the Diageo
stockholder group continues to own at least 50% of its General Mills
common stock, or one individual so long as the Diageo stockholder group's
shares represent at least 5% of the outstanding General Mills common
stock;
- restrict the transfer of General Mills common stock owned by the Diageo
stockholder group;
- permit the Diageo stockholder group to participate on a pro rata basis in
General Mills' share repurchase programs; and
- give the Diageo stockholder group the right to have its General Mills
common stock registered so that it can be sold to the public.
OPINIONS OF FINANCIAL ADVISORS (PAGE 20)
In deciding to approve the transaction, your Board of Directors considered,
among other matters, advice from Evercore Partners Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, General Mills' financial advisors. The
Board received independent opinions from both Evercore and Merrill Lynch, on
July 16, 2000, that as of that date and considering the factors and assumptions
set forth in the opinions, the consideration to be paid by General Mills in the
transaction was fair from a financial point of view to General Mills. We have
attached Evercore's opinion as Appendix C and Merrill Lynch's opinion as
Appendix D. We encourage you to read them thoroughly. THESE OPINIONS ARE
DIRECTED TO THE GENERAL MILLS BOARD OF DIRECTORS AND ARE NOT RECOMMENDATIONS TO
STOCKHOLDERS ON ANY MATTER RELATING TO THE TRANSACTION.
ACCOUNTING TREATMENT (PAGE 33)
We expect to account for the transaction as a purchase business combination
in accordance with accounting principles generally accepted in the United
States.
REGULATORY MATTERS (PAGE 33)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, we cannot
complete the transaction until we furnish information and documents for review
by the Federal Trade
5
Commission and the Antitrust Division of the Department of Justice and we
satisfy the required waiting periods. General Mills and Diageo submitted their
required notification and report forms on August 1, 2000 and July 27, 2000
respectively. As a result, the waiting period under the Hart-Scott-Rodino Act
will expire on August 31, 2000, unless General Mills or Diageo receives a
request for additional information, in which case the waiting period will expire
20 days after both companies have substantially complied with the request.
The transaction is also subject to review under the competition laws of the
European Union and other jurisdictions. The parties are preparing the necessary
filings under these laws. We are not required to complete the merger unless the
closing conditions relating to regulatory approvals are satisfied.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGE 33)
For U.S. federal income tax purposes, the stockholders of General Mills will
recognize no income, gain or loss in connection with the transaction.
SPECIAL CONSIDERATIONS (PAGE 36)
For a description of various other factors you should consider in connection
with the proposed transaction, please see "Special Considerations."
SPECIAL MEETING PROPOSALS
PROPOSAL TO APPROVE THE ISSUANCE OF GENERAL MILLS COMMON STOCK (PAGE 38)
Because the number of shares of General Mills common stock to be issued in
the transaction will exceed 20% of the number of shares of General Mills common
stock outstanding before the transaction, the rules of the New York Stock
Exchange require stockholder approval of the issuance of the General Mills
common stock.
PROPOSAL TO ELIMINATE ARTICLE V OF GENERAL MILLS' RESTATED CERTIFICATE OF
INCORPORATION (PAGE 13)
At the special meeting, we will also ask you to approve a proposal to
eliminate Article V of General Mills' charter. Article V generally requires a
stockholder vote to authorize specified transactions between General Mills and a
holder of 10% or more of General Mills' common stock. Article V could require
time-consuming and expensive stockholder votes to approve the issuance of
General Mills common stock under the purchase price adjustment and
indemnification provisions of the merger agreement and any repurchases by
General Mills of the Diageo stockholder group's shares permitted or required
under the stockholders agreement. We are asking you to approve the elimination
of Article V in order to eliminate that burden and expense, which we believe
outweighs any takeover protections Article V may provide as a result of
generally requiring a General Mills stockholder vote to approve specified
transactions between General Mills and holders of 10% or more of our common
stock. However, we will not go forward with the amendment eliminating Article V
unless we complete the Pillsbury acquisition.
RECORD DATE; VOTES REQUIRED FOR GENERAL MILLS STOCKHOLDER APPROVAL OF THE
PROPOSALS (PAGE 11)
Only holders of record of General Mills common stock (and holders of Ralcorp
Holdings, Inc. common stock that can be exchanged for General Mills common stock
as a result of General Mills' 1997 acquisition of the Ralcorp branded cereal
business) at the close of business on , 2000 are entitled to receive
notice of and to vote at the special meeting. If you hold unexchanged Ralcorp
Holdings common stock (these are the green certificates), please contact Wells
Fargo Shareowner Services, N.A., 161 North Concord Exchange, P.O. Box 64854, St.
Paul, MN 55164-0854, Phone: 800-670-4763, e-mail: stocktransfer@WellsFargo.com
for assistance in obtaining your General Mills shares. Each share of General
Mills common stock entitles the holder to one vote per share on each proposal.
The holders of a majority of shares of General Mills common stock casting
votes on
6
the proposal must approve the proposal to issue General Mills common stock in
connection with the transaction.
The holders of at least 51% of the outstanding shares of General Mills
common stock must approve the proposal to eliminate Article V of General Mills'
charter.
MARKETS AND MARKET PRICES
General Mills common stock trades on the New York Stock Exchange and Chicago
Stock Exchange under the symbol "GIS."
On July 14, 2000, the last trading day prior to the public announcement of
the proposed transaction, General Mills common stock closed at $36.31 per share.
On , 2000, the last trading day before the printing of this proxy
statement, General Mills common stock closed at $ per share.
7
SELECTED HISTORICAL FINANCIAL DATA OF GENERAL MILLS
We are providing the following historical financial information for General
Mills to aid you in your analysis of the financial aspects of the transaction.
We derived this information from the audited consolidated financial statements
of General Mills for fiscal years 1996 through 2000. The information is only a
summary and you should read it together with the historical financial statements
and related notes of General Mills contained in the annual reports and other
information that we have filed with the Securities and Exchange Commission. See
"Additional Information--Where You Can Find More Information."
FISCAL YEAR ENDED
----------------------------------------------------------
MAY 28, MAY 30, MAY 31, MAY 25, MAY 26,
2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
EARNINGS STATEMENT DATA:
Sales........................................ $6,700.2 $6,246.1 $6,033.0 $5,609.3 $5,416.0
Net earnings................................. 614.4 534.5 421.8 445.4 476.4
Net earnings per share--Basic................ 2.05 1.74 1.33 1.41 1.50
Net earnings per share--Diluted.............. 2.00 1.70 1.30 1.38 1.47
Dividends declared per share................. 1.10 1.08 1.06 1.015 .955
Average common shares outstanding:
Basic...................................... 299.1 306.5 316.3 316.4 317.8
Diluted.................................... 307.3 314.7 324.6 323.3 324.1
BALANCE SHEET DATA (AS OF THE END OF THE
PERIOD):
Total assets................................. $4,573.7 $4,140.7 $3,861.4 $3,902.4 $3,294.7
Long-term debt, excluding current portion.... 1,760.3 1,702.4 1,640.4 1,530.4 1,220.9
Stockholders' equity......................... (288.8) 164.2 190.2 494.6 307.7
8
SELECTED HISTORICAL FINANCIAL DATA OF PILLSBURY
The following table presents selected historical financial data of
Pillsbury. We derived this information from the audited combined financial
statements of The Pillsbury Company and related affiliates as of June 30, 2000
and 1999, for each of the years in the two-year period ended June 30, 2000 and
for the nine-month period ended June 30, 1998. Pillsbury changed its fiscal year
end in 1998 from September 30 to June 30. We derived the historical selected
financial data of Pillsbury as of June 30, 1998, September 30, 1997 and
September 30, 1996, and for each of the years in the two-year period ended
September 30, 1997 from the unaudited combined financial information of The
Pillsbury Company and related affiliates for those periods. The unaudited
combined financial information (which we have not presented in this proxy
statement) reflects all adjustments which, in the opinion of Pillsbury's
management, are necessary for a fair statement of the combined financial
condition and results of operations as of and for the periods presented.
NINE
FISCAL YEAR ENDED MONTHS FISCAL YEAR ENDED
------------------- ENDED -----------------------------
JUNE 30, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 1998 1997 1996
-------- -------- -------- ------------- -------------
(IN MILLIONS)
EARNINGS STATEMENT DATA:
Net sales...................................... $6,078 $6,137 $4,502 $6,103 $5,812
Amortization of intangibles.................... 206 201 150 196 199
Unusual expense items.......................... 63 93 60 -- 13
Earnings before interest, taxes and earnings
from joint ventures.......................... 533 398 272 492 374
Interest expense, net, factoring and other
charges from affiliated companies............ 700 621 459 639 569
Net (loss)..................................... (141) (230) (164) (128) (132)
BALANCE SHEET DATA (AS OF THE END OF THE
PERIOD):
Total assets................................... $9,464 $9,388 $9,130 $9,306 $9,838
Long-term debt, excluding current portion...... 7,647 7,460 6,647 6,550 7,041
Stockholders' equity (deficit)................. (618) (595) (19) 88 206
THE INFORMATION IS ONLY A SUMMARY AND YOU SHOULD READ IT TOGETHER WITH THE
HISTORICAL COMBINED FINANCIAL STATEMENTS OF PILLSBURY AND RELATED NOTES FOUND
ON PAGES F-1 THROUGH F-24 IN THIS PROXY STATEMENT AND "FINANCIAL AND BUSINESS
INFORMATION--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PILLSBURY" ON PAGES 52 THROUGH 56. PLEASE SEE
"FINANCIAL AND BUSINESS INFORMATION--UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION" ON PAGES 57 THROUGH 61 FOR A DESCRIPTION OF THE PRO FORMA
ADJUSTMENTS TO THE HISTORICAL FINANCIAL INFORMATION OF PILLSBURY AND GENERAL
MILLS SHOWING THE EFFECT OF THE TRANSACTION.
9
SELECTED PRO FORMA FINANCIAL INFORMATION OF GENERAL MILLS
The following table presents unaudited pro forma combined financial
information of General Mills giving effect to the transaction. We derived the
unaudited pro forma combined financial data from, and you should read the data
with, the unaudited pro forma combined financial statements and related notes
included elsewhere in this proxy statement. See "Financial and Business
Information--Unaudited Pro Forma Combined Financial Information" on page 57. The
unaudited pro forma combined balance sheet data illustrate the effect of the
transaction as if it had occurred on May 28, 2000. The unaudited pro forma
combined statement of earnings and other data for the fiscal year ended May 28,
2000 illustrate the effect of the transaction as if it had occurred on May 31,
1999. We present the unaudited pro forma combined financial data for
informational purposes only, and the information is not necessarily indicative
of the actual or future results had we completed the transaction on the dates
indicated.
FISCAL YEAR ENDED
MAY 28, 2000
-----------------
(IN MILLIONS,
EXCEPT
PER SHARE DATA)
EARNINGS STATEMENT DATA:
Sales....................................................... $12,778
Interest expense, net....................................... 512
Net earnings................................................ 638
Basic net earnings per share................................ 1.45
Diluted net earnings per share.............................. 1.42
Dividends declared per share................................ 1.10
BALANCE SHEET DATA (AS OF THE END OF THE PERIOD):
Total assets................................................ $16,139
Long-term debt, excluding current portion................... 6,902
Stockholders' equity........................................ 4,762
PLEASE SEE "FINANCIAL AND BUSINESS INFORMATION--UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION" ON PAGES 57 THROUGH 61 FOR A DESCRIPTION OF THE PRO
FORMA ADJUSTMENTS TO THE HISTORICAL FINANCIAL INFORMATION OF PILLSBURY AND
GENERAL MILLS SHOWING THE EFFECT OF THE TRANSACTION.
10
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
We are furnishing this proxy statement to holders of General Mills common
stock in connection with the solicitation of proxies by the General Mills Board
of Directors for use at a special meeting of General Mills stockholders. We are
enclosing a form of proxy for use at the special meeting with each copy of the
proxy statement that we mail. There are two transaction proposals that we will
ask General Mills stockholders to approve at the special meeting:
- The issuance of 141 million shares of General Mills common stock in
connection with the transaction. This approval will include any additional
shares that we must issue to Diageo under the purchase price adjustment
and indemnification provisions of the merger agreement.
- An amendment to the Restated Certificate of Incorporation of General Mills
to eliminate Article V of that document. See "Discussion of Charter
Amendment Proposal" below.
We will not go forward with the amendment eliminating Article V of General
Mills' Restated Certificate of Incorporation unless we complete the Pillsbury
acquisition.
DATE, TIME AND PLACE OF MEETING
We will hold the special meeting on , 2000 at a.m., local
time, at [place], [address].
RECORD DATE, SHARES OUTSTANDING AND ENTITLED TO VOTE
Only holders of record of General Mills common stock (and holders of Ralcorp
Holdings, Inc. common stock that can be exchanged for General Mills common stock
as a result of General Mills' 1997 acquisition of the Ralcorp branded cereal
business) at the close of business on , 2000 are entitled to notice
of and will be entitled to vote at the special meeting. Each share of General
Mills common stock entitles the holder to one vote on each proposal. At the
close of business on the record date, there were shares of General
Mills common stock, including shares of General Mills common stock set
aside for the exchange of shares of Ralcorp common stock, outstanding and
entitled to vote, held of record by stockholders.
VOTING AND REVOCATION OF PROXIES
We are soliciting the proxy accompanying this proxy statement on behalf of
the General Mills Board of Directors for use at the special meeting. Please
complete, date and sign the accompanying proxy card and promptly return it in
the accompanying envelope or otherwise mail it to General Mills. If you are a
stockholder of record, you may also vote by telephone by calling (800) or
on the Internet at HTTP://WWW . We describe the Internet and
telephone arrangements in greater detail on your proxy card. Telephone and
Internet voting facilities will close at [time] on [date]. If you hold your
shares through a bank, broker or other holder of record, there may be different
telephone and Internet instructions on your proxy card. Please follow the
instructions on the proxy card you receive.
We will vote all proxies that are properly executed and returned, and that
are not revoked, at the special meeting in accordance with the instructions
indicated on the proxy cards. If you do not indicate any instructions, we will
vote these proxies FOR each of the proposals described in this proxy statement.
The General Mills Board of Directors does not currently intend to bring any
business before the special meeting other than the specific proposals referred
to in this proxy statement and specified in
11
the notice. General Mills' bylaws provide that no matters may be brought before
any special meeting of stockholders except as set forth in the notice of
meeting.
A stockholder who has given a proxy may revoke it at any time before we
exercise it at the special meeting by (1) delivering to General Mills a written
notice, bearing a date later than the proxy, stating that the proxy is revoked,
(2) signing and so delivering a proxy relating to the same shares and bearing a
later date, (3) submitting a new vote by telephone or on the Internet or
(4) attending the special meeting and voting in person, although attendance at
the special meeting will not, by itself, revoke a proxy. If you choose either of
the first two methods, you must submit your notice of revocation or new proxy
before the special meeting. You should send any written notice or new proxy card
to General Mills at the following address: Corporate Secretary, P. O. Box 1113,
Minneapolis, Minnesota 55440. You may request a new proxy card by calling
Georgeson Shareholder Communications, our proxy solicitor, at (800) 223-2064.
If you hold your shares through an account at a brokerage firm or bank, you
should contact your brokerage firm or bank to change your vote.
VOTE REQUIRED
The New York Stock Exchange rules require a stockholder vote for a listed
company to issue common stock if the number of shares of common stock to be
issued is 20% or more of the number of shares of common stock outstanding before
the issuance. Therefore, the proposal to issue 141 million shares of General
Mills common stock in connection with the transaction must be approved by the
affirmative vote of the holders of a majority of shares of General Mills common
stock casting votes on the proposal, whether present in person or represented by
proxy. In addition, the total votes cast on the proposal must represent over 50%
of the shares of General Mills common stock entitled to vote on the proposal.
Under General Mills' Restated Certificate of Incorporation, the proposal to
eliminate Article V of the certificate of incorporation must be approved by the
affirmative vote of holders of 51% of the outstanding shares of General Mills
common stock.
QUORUM; BROKER NONVOTES
The required quorum for the transaction of business at the special meeting
is a majority of shares of General Mills common stock (including those shares
set aside for the exchange of shares of Ralcorp common stock), or
shares, issued and outstanding on the record date. These shares must be present
in person or represented by proxy at the special meeting for there to be a valid
quorum. We will count both abstentions and broker nonvotes as present for
purposes of determining whether there is a quorum at the special meeting. A
broker nonvote occurs when shares held of record by a broker on behalf of the
beneficial owner are present by proxy but the broker does not vote them on a
proposal according to rules prohibiting brokers from voting on non-routine
matters without instructions from the beneficial owner of the shares. The New
York Stock Exchange determines whether brokers have discretionary authority to
vote on a given proposal.
If we do not obtain a quorum, we expect to postpone or adjourn the special
meeting in order to permit additional time for soliciting and obtaining
additional proxies or votes. At any subsequent reconvening of the special
meeting, we will vote all proxies in the same manner as we would have voted
these proxies at the original convening of the special meeting, except for any
proxies that the holder has effectively revoked or withdrawn.
With respect to voting, our bylaws provide that we must treat abstentions as
not having voted for or against a proposal, and broker nonvotes as if the broker
did not vote on the proposal. Therefore, abstentions and broker nonvotes will
have the same effect as "no" votes on the proposal to eliminate
12
Article V of General Mills' Restated Certificate of Incorporation (since the
number of shares outstanding determines the required vote), but will have no
effect on the proposal concerning the issuance of shares of General Mills common
stock (since the number of votes cast for or against determines the required
vote) so long as holders of over 50% of the shares of General Mills common stock
entitled to vote on the proposal actually cast votes on the proposal.
General Mills has a policy of confidential voting; Wells Fargo Bank
Minnesota, our transfer agent, tabulates the votes received.
SOLICITATION OF PROXIES AND EXPENSES
General Mills will bear the cost of soliciting proxies from its
stockholders. In addition to solicitation by mail, the officers and employees of
General Mills may solicit proxies from stockholders by telephone, telegram,
letter, facsimile or in person. Following the original mailing of the proxies
and other soliciting materials, General Mills will request brokers, custodians,
nominees and other record holders to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of General Mills
common stock and to request authority for the exercise of proxies. Upon the
request of these record holders, General Mills will reimburse the holders for
their reasonable expenses.
General Mills has retained Georgeson Shareholder Communications to
distribute proxy solicitation materials to brokers, banks and other nominees and
to assist in soliciting proxies from General Mills stockholders. We estimate the
fee for this firm's services will not exceed $ plus reimbursement for
reasonable out-of-pocket costs and expenses.
DISCUSSION OF CHARTER AMENDMENT PROPOSAL
DESCRIPTION OF ARTICLE V OF GENERAL MILLS' RESTATED CERTIFICATE OF
INCORPORATION
Article V of General Mills' Restated Certificate of Incorporation requires
the affirmative vote of not less than 51% of the voting stock of General Mills,
excluding the voting stock of an interested stockholder (defined generally as a
holder of 10% or more of the outstanding shares of General Mills common stock),
to authorize a proposed business combination transaction between General Mills
and the interested stockholder. For these purposes, business combinations
include issuances of capital stock to the interested stockholder, dispositions
of assets of the interested stockholder to General Mills and mergers or
consolidations with the interested stockholder. Article V would not, however,
require a stockholder vote if, by a two-thirds vote, the disinterested members
of the General Mills Board of Directors determine that: (1) the interested
stockholder is the beneficial owner of not less than 80% of the voting stock of
General Mills and has declared its intention to vote in favor of or approve the
business combination or (2) the holders of each class or series of stock of
General Mills will receive or retain consideration in the business combination
for each of their shares having a fair market value equal to or greater than the
consideration per share (including brokerage commissions and soliciting dealers'
fees) paid by the interested stockholder in acquiring the largest number of
shares of such class of stock previously acquired in any one transaction or
series of related transactions, whether before or after the interested
stockholder became an interested stockholder, and the interested stockholder has
not received and will not receive the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances, guarantees, pledges
or other financial assistance provided by General Mills. In the event of any
required vote of holders of voting stock of General Mills, we must mail an
information statement describing the applicable business combination to all
stockholders of General Mills. The statement must contain, among other
information, an opinion of an investment banking firm as to the fairness of the
terms of the business combination.
13
REASON FOR ELIMINATION OF ARTICLE V
The merger agreement will require General Mills to issue additional shares
of General Mills common stock to Diageo in the event General Mills must make
payments under the merger agreement's operating working capital purchase price
adjustment or indemnification provisions. See "Description of the
Transaction--The Merger Agreement." In addition, under the stockholders
agreement, General Mills has the right to repurchase shares of General Mills
common stock from the Diageo stockholder group under specified circumstances.
General Mills must, if Diageo so elects, repurchase shares from the Diageo
stockholder group in connection with any General Mills share repurchase program.
See "Description of the Transaction--The Stockholders Agreement." Each of these
transactions generally would require a time-consuming and expensive stockholder
vote under Article V.
In order to eliminate that burden and expense, which we believe outweighs
any takeover protections Article V may provide, we are asking General Mills
stockholders to approve the elimination of Article V. Obtaining stockholder
approval to eliminate Article V is a condition to completing the transaction. We
do not intend to go forward with the amendment eliminating Article V unless we
complete the transaction.
ATTENDANCE OF GENERAL MILLS' INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We expect representatives of KPMG LLP, General Mills' independent certified
public accountants, to attend the special meeting, where they will have the
opportunity to make a statement if they desire to do so and respond to
appropriate questions.
14
THE TRANSACTION
BACKGROUND OF THE TRANSACTION
On January 25, 2000, representatives of Merrill Lynch met with a
representative of senior management of General Mills to preliminarily explore
whether General Mills would be interested in pursuing an acquisition of
Pillsbury. On February 1, 2000, representatives of UBS Warburg met with
representatives of General Mills senior management to also preliminarily explore
whether General Mills would be interested in pursuing an acquisition of
Pillsbury.
On February 21, 2000, at a regularly scheduled meeting of the General Mills
Board of Directors, a representative of senior management of General Mills
reviewed with the General Mills Board a number of strategic alternatives that
might be available to General Mills, including the possibility of acquiring
Pillsbury.
On March 9, 2000, Paul S. Walsh, Diageo's Chief Operating Officer,
telephoned Stephen W. Sanger, General Mills' Chairman and Chief Executive
Officer, and stated that Diageo would be interested in exploring a possible
business combination involving Pillsbury and General Mills. Mr. Sanger agreed to
meet with Mr. Walsh on March 15, 2000. On March 10, 2000, a representative of
UBS Warburg informed representatives of General Mills senior management that
Diageo had retained UBS Warburg as financial advisor to Diageo in connection
with a possible sale of Pillsbury.
Messrs. Sanger and Walsh met on March 15, 2000. At the meeting, the
executives discussed on a preliminary basis the general terms of a possible
acquisition of Pillsbury by General Mills. Messrs. Walsh and Sanger spoke on
several occasions during the following week and agreed that representatives of
General Mills' and Diageo's managements would meet as the next step in
evaluating a potential transaction. On March 16, 2000, representatives of
Merrill Lynch met with representatives of General Mills senior management to
discuss further the idea of General Mills acquiring Pillsbury.
In late March 2000, representatives of General Mills and Diageo began
negotiating a confidentiality agreement concerning the exchange of nonpublic
information between the companies. On April 12, 2000, General Mills and Diageo
executed a customary confidentiality agreement concerning the exchange of
nonpublic information between the companies.
On April 28, 2000, Diageo sent to General Mills background information on
Pillsbury as well as a draft of a presentation prepared by McKinsey & Co.,
consultants to Diageo, relating to a possible combination involving Pillsbury
and General Mills. Representatives of General Mills senior management met with
representatives of Diageo senior management and McKinsey & Co. on April 30,
2000. At the meeting, the parties discussed the general terms of a possible
acquisition of Pillsbury by General Mills and the strategic merits to General
Mills and Diageo of a potential transaction.
At a regularly scheduled meeting of the General Mills Board of Directors on
May 1, 2000, a representative of General Mills senior management discussed with
the Board the contacts that management had had with Diageo and the potential
terms of an acquisition of Pillsbury by General Mills. At the conclusion of the
discussion, the General Mills Board of Directors authorized General Mills senior
management to continue its discussions with Diageo.
On May 8, 2000, General Mills and Diageo exchanged business plan
information. During late May and early June 2000, representatives of General
Mills and Diageo and their financial advisors met and spoke by telephone on
several occasions to exchange business information about General Mills and
Pillsbury, explore the possible bases for cost savings that might be achievable
by combining General Mills and Pillsbury and discuss potential transaction
terms. During this period, General Mills' legal advisors provided Diageo's legal
advisors with a preliminary term sheet for a proposed transaction, which
contemplated payment by General Mills to Diageo of a fixed number of General
Mills shares, in an amount to be determined, as consideration for Pillsbury. The
term sheet also contemplated the
15
incurrence of a certain amount of debt by Pillsbury prior to the completion of
the transaction. In addition, the term sheet included proposed terms for a
stockholders agreement that would provide Diageo certain post-transaction
governance and registration rights, limit Diageo's voting and transfer of
General Mills shares and restrict Diageo from taking specified actions for a
period of time following the transaction. During this period, the parties were
not able to reach agreement on the financial terms of a possible transaction or
the terms of the proposed stockholders agreement.
On June 22, 2000, representatives of Evercore Partners, financial advisors
to General Mills, discussed with representatives of Greenhill & Co. and UBS
Warburg, both financial advisors to Diageo, a proposed contingent payment on the
first anniversary of the transaction that would depend on the trading price of
General Mills' shares around the anniversary and the number of General Mills
shares that Diageo continued to hold, as a possible approach to bridging the
parties' valuation differences.
On June 24, 2000, representatives of senior management of General Mills and
Diageo and their financial advisors met to discuss the financial terms of the
proposed transaction. At the meeting, the parties discussed the contingent
payment proposal that General Mills' advisors had earlier made to bridge the
parties' valuation differences. The representatives preliminarily agreed to
recommend certain basic economic terms of the transaction, subject to obtaining
necessary board approvals and negotiation of definitive transaction agreements.
These terms consisted of the issuance of 141 million shares of General Mills
common stock to Diageo, the incurrence of debt by Pillsbury, the proceeds of
which would be paid out as a dividend or to repay intercompany debt, and the
contingent payment at the first anniversary as discussed by the parties'
financial advisors.
On June 26, 2000, at a regularly scheduled meeting of the General Mills
Board of Directors, members of General Mills senior management and
representatives of General Mills' legal and financial advisors reviewed with the
General Mills Board the transaction terms that had been discussed with Diageo.
After discussion and consideration, the General Mills Board of Directors
authorized General Mills management to continue negotiations with Diageo based
on the terms discussed at the meeting.
On June 28, 2000, at a regularly scheduled meeting of the Diageo Board of
Directors, members of Diageo's senior management and representatives of its
financial advisors reviewed with the Diageo Board the transaction terms that had
been discussed with General Mills. Following discussion and consideration, the
Diageo Board of Directors authorized Diageo management to continue negotiations
with General Mills on the terms discussed at the meeting.
Also on June 28, 2000, General Mills engaged Merrill Lynch as a financial
advisor to General Mills. On June 29, 2000, General Mills commenced its due
diligence review of Pillsbury and Diageo commenced its due diligence review of
General Mills, which reviews continued through the week preceding announcement
of the execution of the merger agreement. On June 30, 2000, Diageo and General
Mills agreed in a letter agreement to negotiate exclusively with each other
through the earlier of execution of a definitive transaction agreement or
July 21, 2000.
On July 7, 2000, General Mills' legal advisors delivered a draft merger
agreement and a draft stockholders agreement to Diageo's legal advisors. On
July 8 and 9, 2000, representatives of senior management of General Mills met
with members of Diageo and Pillsbury senior management to conduct a further
business due diligence review of Pillsbury. On July 11, 2000, representatives of
senior management of Diageo and Pillsbury met with members of General Mills
senior management to conduct a further business due diligence review of General
Mills.
Throughout the week of July 10, 2000, representatives of senior management
of General Mills and Diageo and their legal and financial advisors met to
negotiate the terms of the merger agreement and the stockholders agreement. The
parties negotiated the structure of the contingent payment arrangement in light
of General Mills' desire to fix a maximum number of General Mills shares
issuable as payment and Diageo's desire for transaction value certainty. The
parties agreed that
16
Pillsbury would have an aggregate of up to $5.142 billion of third party debt
when General Mills acquired it. The parties further agreed that Diageo would
establish a $642 million escrow fund at the time of closing, all or a portion of
which would be paid to General Mills on the first anniversary of the transaction
based on the trading price of the General Mills common stock around that time,
with any remainder retained by Diageo.
On July 14, 2000, the Diageo Board of Directors received a presentation on
the terms of the proposed transaction from representatives of Diageo senior
management. Following discussion, the Diageo Board preliminarily authorized the
proposed transaction on substantially the terms discussed at the meeting and
delegated authority for final approval to a committee of the Diageo Board. On
July 16, 2000, the committee of the Diageo Board of Directors approved the
proposed transaction.
On July 16, 2000, the General Mills Board of Directors met to consider the
proposed transaction. Representatives of General Mills' senior management and
General Mills' legal and financial advisors made presentations and reviewed,
among other things, the matters discussed under "--Reasons for the Transaction"
and "--Factors Considered by the General Mills Board of Directors," including
the terms of the proposed transaction and the provisions of the draft merger
agreement and stockholders agreement. Each of General Mills' financial advisors
rendered an oral opinion, subsequently confirmed in writing as of July 16, 2000,
that as of that date and considering the factors and assumptions set forth in
the opinions, the consideration to be paid by General Mills in the transaction
was fair from a financial point of view to General Mills. After discussion and
consideration, the General Mills Board of Directors approved the merger
agreement and the stockholders agreement and all of the related transactions.
Following the meeting of the General Mills Board of Directors, General Mills
and Diageo finalized the terms of the merger agreement and the form of
stockholders agreement, and executed the merger agreement later that day. On
July 17, 2000, Diageo and General Mills issued press releases announcing the
execution of the merger agreement.
REASONS FOR THE TRANSACTION
General Mills believes that combining General Mills with Pillsbury will
create significant long-term value for General Mills stockholders by providing
opportunities for accelerated topline and bottom-line growth. Giving effect to
the transaction (and based on current industry structure), General Mills will be
the largest publicly-traded U.S. food company based on market capitalization,
will rank third in the food industry based on North American food sales (behind
only Kraft and ConAgra) and will rank fifth based on global food sales. Our
expanded business portfolio will focus on brands that hold leadership positions
across a number of refrigerated, frozen and dry goods categories, including
Pillsbury refrigerated baked goods, Yoplait yogurt, Hungry Jack frozen waffles,
Totino's frozen pizza and snacks, Betty Crocker dessert, dinner and side mixes,
and Big G cereals.
Our growth strategies focus on the following four key elements:
- PRODUCT INNOVATION--leading to unit volume growth and market share
improvement,
- CHANNEL EXPANSION--applying powerful brand equities in faster-growing
outlets beyond the traditional grocery store,
- INTERNATIONAL EXPANSION--extension of our brands in fast-growing global
markets, and
- MARGIN EXPANSION--increasing earnings faster than sales, primarily through
productivity gains.
17
We believe the Pillsbury acquisition will result in a more balanced product
portfolio and will create a combined company with greater scale and scope,
thereby enhancing our growth strategies through:
- Addition of faster growth retail categories. Overall sales in Pillsbury's
major retail categories have been growing at a faster rate than overall
sales in General Mills' retail categories. Thus, we expect the overall
growth rate across the combined company's categories to be greater than
for General Mills today. Adding Pillsbury's portfolio of quick-to-prepare
foods to our ready-to-eat lines will result in approximately 80% of the
combined company's pro forma retail sales being generated in these
convenience categories.
- Opportunities for accelerated topline growth through product and marketing
innovation. Virtually all of Pillsbury's leadership brands compete in
growing market categories. We believe there exist significant
opportunities to build Pillsbury's product lines with the same mix of
product and marketing innovation that has contributed to General Mills'
growth, particularly for Pillsbury's refrigerated dough and dough-based
products as well as its frozen food and shelf stable lines.
- Opportunities for growth in the foodservice channel. Foodservice industry
sales are expected to grow at twice the rate of retail food sales over the
next decade. We expect Pillsbury's capabilities and experience in the
growing foodservice channel will provide not only growth opportunities for
Pillsbury's brands but also expanded opportunities for General Mills'
brands through the significantly broader scale and capabilities of the
combined company in this channel. In addition, we believe good
opportunities exist to extend Pillsbury's brands to the foodservice
channels where General Mills has built a strong presence, such as schools
and colleges.
- Expanded opportunities in international markets. The Pillsbury acquisition
will add manufacturing, distribution and sales infrastructure in a number
of global markets, including the United Kingdom, Western Europe, Latin
America and Australia.
General Mills also expects to generate significant opportunities for cost
savings through consolidation of raw material purchasing activities and
resulting greater scale, improved utilization rates across our combined
manufacturing systems and distribution activities, streamlining of
administrative functions and cost savings from combined selling, merchandising
and marketing activities. Management expects to realize pre-tax cost savings of
approximately $25 million in fiscal 2001, $220 million in fiscal 2002 and
$400 million annually by fiscal 2003.
We expect to realize approximately 40% of the projected cost savings through
consolidating supply chain activities. These savings should result from the
greater purchasing volume and scale of the combined company as well as
productivity improvements in Pillsbury's operations. General Mills has what we
believe is a strong record of productivity gains across its supply operations.
Our cost to manufacture and distribute a case of product in fiscal 2000 was 9%
lower than it was in 1991, despite input cost inflation averaging 3% per year
over the same period. We believe we can apply similar productivity innovation to
improve Pillsbury's margins over time, although we can not assure that we will
be successful in these efforts or that we will achieve any of the other
anticipated cost savings.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
THE GENERAL MILLS BOARD OF DIRECTORS, BY A UNANIMOUS VOTE OF THOSE DIRECTORS
PRESENT, HAS APPROVED THE MERGER AGREEMENT, THE ISSUANCE OF THE GENERAL MILLS
COMMON STOCK TO THE DIAGEO STOCKHOLDER GROUP AND THE AMENDMENT TO ELIMINATE
ARTICLE V OF GENERAL MILLS' RESTATED CERTIFICATE OF INCORPORATION. THE BOARD
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GENERAL MILLS COMMON STOCK VOTE FOR
EACH OF THE TRANSACTION PROPOSALS DESCRIBED IN THIS PROXY STATEMENT. YOUR PROXY
WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
18
FACTORS CONSIDERED BY THE BOARD OF DIRECTORS
On June 26 and July 16, 2000, the General Mills Board of Directors met to
review and evaluate the terms of a potential acquisition of Pillsbury from
Diageo. On July 16, 2000, the General Mills Board of Directors determined by the
unanimous vote of those directors present that it is advisable and in the best
interests of General Mills and its stockholders to acquire Pillsbury on the
terms and subject to the conditions in the merger agreement. In the course of
its deliberations, and in reaching its decision regarding the transaction, the
General Mills Board of Directors reviewed and considered, in addition to their
view and belief in the matters described above under "--Reasons for the
Transaction," the following factors:
- information concerning General Mills' and Pillsbury's financial
performance, financial condition and operations;
- the results of the due diligence investigation of Pillsbury performed by
General Mills management, assisted by General Mills' legal and financial
advisors;
- the analysis by General Mills' management and General Mills' financial
advisors of the financial information of Pillsbury and the combined
company, which included financial information relating to Pillsbury's
sales, earnings and cash flows, the amount and timing of the cost savings
expected to result from the transaction and the expected costs to achieve
those savings, and the impact of the transaction on General Mills' capital
structure and expected debt rating, as well as the cash flow which General
Mills expects to generate to reduce its initial debt level;
- the expectation that the transaction will be accretive to General Mills'
diluted earnings per share excluding amortization of goodwill and
intangibles (often called cash earnings per share) in fiscal 2002, but
dilutive to reported earnings per share through fiscal 2003;
- consolidation activity across the food industry;
- the belief that the transaction provides the opportunity for General Mills
stockholders to participate in a larger and stronger company;
- the terms and conditions of the merger agreement, including the
consideration to be paid by General Mills, the obligation of Diageo to pay
General Mills up to $642 million, with interest, on the first anniversary
of the transaction if the average trading price of General Mills common
stock is above $38.00 per share during a specified period prior to the
first anniversary, the closing date operating working capital purchase
price adjustment (including the requirement to issue additional shares of
General Mills common stock to Diageo if closing date operating working
capital exceeds specified thresholds), the indemnification provisions, the
representations and warranties of the parties, the restrictions on General
Mills' ability to participate in discussions regarding business
combinations pending the closing and General Mills' obligation to seek
regulatory approvals;
- the terms of the stockholders agreement, including the provisions limiting
the ability of Diageo and the Diageo stockholder group to increase their
percentage ownership of General Mills for up to twenty years, Diageo's
agreement to dispose of at least 75% of the shares received by the Diageo
stockholder group in connection with the transaction by the tenth
anniversary of the closing and the limitations on voting of the Diageo
stockholder group's General Mills shares (see "Description of the
Transaction--The Stockholders Agreement");
- the proposed inclusion on the General Mills Board of Directors after the
transaction of two Diageo designees;
19
- the provisions of Article V of General Mills' charter, and the time and
expense of seeking General Mills stockholder approvals under those
provisions weighed against the takeover protections afforded by
Article V;
- the requirement that stockholders of General Mills must approve the
issuance of shares in the transaction and the proposed charter amendment
and that Diageo's shareholders must approve the transaction; and
- management's view that General Mills and Pillsbury have compatible
corporate cultures arising from shared geographic and product roots,
similar focuses on product innovation and a shared vision of corporate
citizenship, which factors should speed integration efforts.
In addition, the General Mills Board of Directors received independent
presentations from each of Evercore and Merrill Lynch, including their separate
oral opinions, which those firms subsequently confirmed in writing, that as of
the date of the opinions and based upon and subject to the factors and
assumptions set forth in the opinions, the consideration to be paid by General
Mills in the transaction was fair from a financial point of view to General
Mills. See "--Opinions of General Mills' Financial Advisors." Following its
deliberations concerning these factors and its review of the presentation and
fairness opinions of Evercore Partners and Merrill Lynch, the General Mills
Board of Directors concluded that the transaction was in the best interests of
General Mills and its stockholders.
In view of the wide variety of factors, both positive and negative,
considered by the General Mills Board of Directors, the Board did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered. In addition, individual members of the General
Mills Board of Directors may have given different weights to the various factors
considered.
OPINIONS OF GENERAL MILLS' FINANCIAL ADVISORS
EVERCORE PARTNERS
General Mills retained Evercore to act as financial advisor to General Mills
and to render a fairness opinion, from a financial point of view, in connection
with the transaction. On July 16, 2000, Evercore delivered its oral opinion,
which was subsequently confirmed in writing, to the General Mills Board of
Directors that, as of that date, the consideration to be paid by General Mills
in connection with the transaction was fair, from a financial point of view, to
General Mills.
The full text of Evercore's written opinion is attached as Appendix C to
this document and describes the assumptions made, general procedures followed,
matters considered and limits on the review undertaken. Evercore's opinion is
directed only to whether the consideration to be paid by General Mills in
connection with the transaction is fair, from a financial point of view, to
General Mills and does not constitute a recommendation to any General Mills
stockholder as to how such stockholder should vote with respect to the
transaction proposals described in this proxy statement or any related matter.
The summary of Evercore's written opinion below is qualified in its entirety by
reference to the full text of the opinion, attached as Appendix C. GENERAL MILLS
STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering its opinion, Evercore, among other things:
- Analyzed certain publicly available financial statements and other
information relating to General Mills and Pillsbury;
- Analyzed certain internal financial statements and other non-public
financial and operating data concerning General Mills and Pillsbury,
including the amount of the new third-party indebtedness to be incurred by
Pillsbury prior to and in connection with the transaction, proceeds of
which will be paid to the direct stockholder of The Pillsbury Company
and/or other affiliates of Diageo;
20
- Analyzed certain financial projections concerning General Mills and
Pillsbury furnished to Evercore or reviewed for Evercore by the
managements of General Mills, Diageo and Pillsbury;
- Discussed the past and current operation and financial condition and the
prospects of Pillsbury with the management of Pillsbury;
- Discussed the past and current operation and financial condition and the
prospects of General Mills with the management of General Mills;
- Compared the valuation of Pillsbury implied by the consideration to be
received by the Diageo stockholder group, and the financial performance of
Pillsbury, to that of certain comparable publicly-traded companies;
- Reviewed the financial terms, to the extent available, of certain
comparable acquisition transactions;
- Reviewed the relevant historical stock prices of the General Mills common
stock;
- Participated in discussions and negotiations among representatives of
General Mills, Diageo, Pillsbury and their financial and legal advisors;
- Reviewed the merger agreement and the related exhibits and schedules in
substantially final form and assumed that the final form of the merger
agreement would not vary in any manner that is material to Evercore's
analysis;
- Reviewed certain financial information concerning cost savings and
combination benefits (which we sometimes refer to as "synergies") expected
to result from the transaction that was provided to Evercore or reviewed
for Evercore by the managements of General Mills and Pillsbury; and
- Performed such other analyses and examinations and considered such other
factors as Evercore, in its sole judgment, deemed appropriate.
For purposes of its analysis and opinion, Evercore did not assume
responsibility for independently verifying the accuracy and completeness of the
information reviewed by Evercore or reviewed for Evercore for purposes of the
opinion. With respect to the financial projections of General Mills and
Pillsbury and the underlying analysis concerning the potential synergies that
were furnished to Evercore or reviewed for Evercore by the management of General
Mills, Evercore assumed that they were reasonably prepared on a basis which
reflects the best currently available estimates and good faith judgments of the
managements of General Mills and Pillsbury of the future financial performance
of General Mills and Pillsbury, and of the expected synergies. Evercore further
assumed that, in all material respects, those financial projections and
synergies will be realized in the amounts and in the time periods indicated.
Evercore expressed no view as to such financial projections or synergies, or the
assumptions upon which they were based. Evercore did not make nor assume any
responsibility for making any independent valuation or appraisal of the assets
or liabilities of General Mills or Pillsbury, nor was it furnished with any such
appraisals. Evercore's opinion was necessarily based on economic, market and
other conditions as in effect on, and the information and form of merger
agreement made available to it as of, July 16, 2000. Evercore's opinion did not
address General Mills' underlying business decision to effect the transaction.
Furthermore, Evercore expressed no opinion as to the price or range of prices at
which the shares of General Mills common stock would trade subsequent to the
announcement or the consummation of the transaction.
For purposes of rendering its opinion, Evercore assumed, in all respects
material to its analysis, that all conditions to the consummation of the
transaction would be satisfied without being waived.
In connection with a presentation to the General Mills Board of Directors on
July 16, 2000, Evercore advised General Mills' Board of Directors that, in
evaluating the fairness of the consideration
21
to be paid in connection with the transaction, Evercore had performed a variety
of financial analyses with respect to General Mills and Pillsbury, each of which
material analysis is summarized below.
SELECTED COMPARABLE COMPANY ANALYSIS. Evercore compared selected financial,
market and operating information of Pillsbury with corresponding data of
selected publicly traded companies with operations Evercore deemed to be similar
to those of Pillsbury, in order to compare the valuation implied by the
consideration to be paid by General Mills in connection with the transaction to
public companies with operations Evercore deemed to be similar to those of
Pillsbury. Evercore compared the implied enterprise value to EBITDA (earnings
before interest, taxes, depreciation and amortization) multiples and EBIT
(earnings before interest and taxes) multiples of Pillsbury (the "Pillsbury
Multiples") and the implied adjusted enterprise value to EBITDA multiples and
EBIT multiples of Pillsbury (the "Pillsbury Adjusted Multiples") to the
enterprise value to EBITDA multiples and the enterprise value to EBIT multiples
of a selected group of publicly traded food companies that Evercore deemed to be
comparable to Pillsbury. In calculating the implied enterprise value, Evercore
assumed that General Mills would receive no portion of the contingent payment.
Implied enterprise value for Pillsbury was defined as equity market value of the
General Mills common stock to be received by Diageo, plus $5.142 billion of debt
on Pillsbury's balance sheet as of the closing and plus transaction expenses. In
calculating the implied adjusted enterprise value, Evercore assumed that General
Mills would receive a portion of the contingent payment. This portion was
calculated by subtracting the implied value of the contingent payment calculated
based on Black-Scholes valuation methodology from the maximum nominal value of
the contingent payment (the "General Mills Contingent Payment"). The implied
adjusted enterprise value for Pillsbury was defined as the equity market value
of the General Mills common stock to be received by Diageo, plus $5.142 billion
of debt on Pillsbury's balance sheet as of the closing, less the General Mills
Contingent Payment, plus transaction expenses. Enterprise value for the selected
comparable companies was defined as equity market value plus total debt and
preferred stock, if any, less cash and cash equivalents, and plus the value of
any minority stakes in consolidated businesses, if any. The selected group of
publicly traded food companies used in this portion of Evercore's analysis
("Pillsbury Comparable Companies") was comprised of:
- General Mills, Inc.
- Campbell Soup Company
- H.J. Heinz Co.
- Kellogg Company
- Quaker Oats Co.
- Hershey Foods Corp.
- Keebler Foods Co.
- Unilever Group (pro forma for the pending acquisition of Bestfoods)
- Groupe Danone
- Nestle, S.A.
- ConAgra Inc. (pro forma for the pending acquisition of International Home
Foods)
Evercore selected these food companies because Evercore considered them to
have operations similar to the operations of Pillsbury in this business segment.
All multiples were calculated based on closing stock prices on July 14, 2000.
For Pillsbury, EBITDA and EBIT estimates and projections were based on General
Mills' estimates and adjusted to reflect a calendar year end. For the Pillsbury
Comparable Companies, EBITDA and EBIT estimates and projections were based on
publicly available Wall Street research estimates and, where appropriate, were
adjusted to reflect a calendar year end. Evercore noted that, based on the
closing price of General Mills common stock on July 14, 2000, the
22
Pillsbury Multiples and the Pillsbury Adjusted Multiples were all within the
range found for the Pillsbury Comparable Companies.
To illustrate, Evercore highlighted the following multiples of enterprise
value to last twelve months (referred to as LTM), estimated 2000 and projected
2001 EBITDA and enterprise value to LTM, estimated 2000 and projected 2001 EBIT:
ENTERPRISE VALUE TO:
---------------------------------------------
LTM EBITDA 2000E EBITDA 2001 PROJ. EBITDA
---------- ------------ -----------------
Pillsbury......................... 10.8x 10.7x 10.2x
Pillsbury Adjusted................ 10.5x 10.4x 9.9x
Food Companies
Average......................... 10.1x 9.7x 8.9x
High............................ 12.7x 12.2x 11.4x
Low............................. 9.1x 8.3x 6.4x
ENTERPRISE VALUE TO:
------------------------------------------
LTM EBIT 2000E EBIT 2001 PROJ. EBIT
---------- ----------- ---------------
Pillsbury......................... 12.4x 12.4x 12.0x
Pillsbury Adjusted................ 12.1x 12.1x 11.8x
Food Companies
Average......................... 12.9x 12.4x 11.3x
High............................ 15.5x 15.6x 14.7x
Low............................. 10.8x 10.0x 8.4x
Evercore also compared certain financial, market and operating information
of General Mills with corresponding data of other selected publicly traded
companies with operations Evercore deemed to be similar to those of General
Mills. Evercore compared the enterprise value to EBITDA multiples, enterprise
value to EBIT multiples and price to earnings multiples of General Mills to a
selected list of publicly traded food companies that Evercore deemed to be
comparable to General Mills. The selected group of publicly traded food
companies used in this portion of Evercore's analysis ("General Mills Comparable
Companies") was comprised of:
- Campbell Soup Company
- H.J. Heinz Co.
- Kellogg Company
- Quaker Oats Co.
- Hershey Foods Corp.
- Keebler Foods Co.
- Unilever Group (pro forma for the pending acquisition of Bestfoods)
- Groupe Danone
- Nestle, S.A.
- ConAgra Inc. (pro forma for the pending acquisition of International Home
Foods)
Evercore selected these food companies because Evercore considered them to
have operations similar to the operations of General Mills in this business
segment. All multiples were calculated based on closing prices on July 14, 2000.
For General Mills and the General Mills Comparable Companies, EBITDA and EBIT
estimates and projections were based on publicly available Wall Street research
estimates and, where appropriate, were adjusted to reflect a calendar year end.
Earnings estimates and projections were based on the Institutional Brokers
Estimate System estimates and, where appropriate,
23
were adjusted to reflect a calendar year end. Evercore noted that the closing
price of General Mills common stock on July 14, 2000 of $36.31 represented
multiples of EBITDA, EBIT and earnings that were in the range found for the
General Mills Comparable Companies.
To illustrate, Evercore highlighted the following multiples of enterprise
value to LTM, estimated 2000 and projected 2001 EBITDA, enterprise value to LTM,
estimated 2000 and projected 2001 EBIT and price to estimated 2000 and projected
2001 earnings:
ENTERPRISE VALUE TO:
---------------------------------------------
LTM EBITDA 2000E EBITDA 2001 PROJ. EBITDA
---------- ------------ -----------------
General Mills..................... 10.6x 10.3x 9.8x
Food Company Average.............. 10.1x 9.7x 8.8x
ENTERPRISE VALUE TO:
------------------------------------------
LTM EBIT 2000E EBIT 2001 PROJ. EBIT
---------- ----------- ---------------
General Mills..................... 12.6x 12.2x 11.6x
Food Company Average.............. 12.9x 12.4x 11.3x
PRICE TO:
------------------------------------
2000E EARNINGS 2001 PROJ. EARNINGS
-------------- -------------------
General Mills................................. 17.2x 15.6x
Food Company Average.......................... 19.5x 17.1x
Evercore noted that no Pillsbury Comparable Company reviewed was identical
to Pillsbury and that no General Mills Comparable Company reviewed was identical
to General Mills. Accordingly, any analysis of the fairness, to General Mills,
of the consideration to be paid by General Mills in connection with the
transaction involved complex considerations and judgments concerning differences
in financial and operational characteristics of Pillsbury and General Mills that
could affect their financial information and value relative to the companies to
which they were being compared.
SELECTED COMPARABLE TRANSACTION ANALYSIS. Evercore reviewed the implied
transaction multiples paid in certain merger and acquisition transactions that
Evercore deemed to be comparable to the transaction and compared these multiples
to the multiples implied by the consideration to be paid by General Mills in the
transaction. Evercore analyzed the Pillsbury Multiples and the Pillsbury
Adjusted Multiples and compared these multiples to the multiples of LTM EBITDA
and the multiples of LTM EBIT paid in selected mergers and acquisitions of food
companies. The following selection of mergers and acquisitions of food companies
was used for purposes of this analysis (target/acquiror):
- Nabisco Holdings/Philip Morris
- International Home Foods/ConAgra
- Bestfoods/Unilever
- Ben & Jerry's/Unilever
- Arisco/Bestfoods
- United Biscuits/Finalrealm
- Hillsdown Holdings/Hicks, Muse, Tate & Furst
- American Food Products/Hicks, Muse, Tate & Furst
- Kraft Foods--Baking/CPC International
24
- Pet Inc./Grand Metropolitan
- Pace Foods/Campbell Soup
- Borden/RJR Nabisco (KKR)
- Kraft/Philip Morris
- Pillsbury/Grand Metropolitan
- Rowntree PLC/Nestle
Evercore selected these transactions because they involved companies in
business segments in which Pillsbury has operations. Evercore noted that, as of
July 14, 2000, the Pillsbury Multiples and the Pillsbury Adjusted Multiples were
within the range of multiples paid in comparable transactions.
ENTERPRISE VALUE TO ENTERPRISE VALUE TO
LTM EBITDA LTM EBIT
------------------- -------------------
The Pillsbury Transaction
Pillsbury................................................. 10.8x 12.4x
Pillsbury Adjusted........................................ 10.5x 12.1x
Food Transactions
Average................................................... 11.1x 15.9x
High...................................................... 15.2x 28.9x
Low....................................................... 6.5x 8.7x
Evercore noted that no transaction used in the comparable transaction
analysis summarized above is identical to the transaction. Accordingly, any
analysis of the fairness, to General Mills, of the consideration to be paid by
General Mills in connection with the transaction involves complex considerations
and judgments concerning differences in financial and operational
characteristics of Pillsbury that could affect the acquisition value relative to
the transactions to which it was being compared.
DISCOUNTED CASH FLOW ANALYSIS. Primarily relying on General Mills'
estimates, Evercore estimated the present value of the future stand-alone,
unlevered free cash flows that could be produced by Pillsbury. Such analysis is
performed to determine the value that Pillsbury might be worth based on various
assumptions, certain of which are set forth below. The net present value ranges
were estimated by applying perpetual growth rates ranging from 3.0% to 4.0% to
the projected 2005 free cash flow of Pillsbury and discount rates ranging from
9.25% to 9.75%. Perpetual growth rates were based on both current public and
private market-based valuations. The discount rates were determined based on
General Mills' estimates of the appropriate weighted average cost of capital.
This analysis indicated a value for Pillsbury of between $8.7 billion and
$10.0 billion.
Evercore also estimated the present value of the future, unlevered free cash
flows that could be produced by Pillsbury, including the expected synergies as
estimated by the managements of General Mills and Pillsbury. In estimating the
net present value ranges for this analysis, Evercore used the same growth rates
and discount rates as set forth in the prior paragraph. This analysis indicated
a value for Pillsbury of between $11.8 billion and $13.5 billion.
Evercore also performed a discounted cash flow analysis for General Mills.
Primarily relying on General Mills' estimates, Evercore estimated the present
value of the future stand-alone, unlevered free cash flows that could be
produced by General Mills. The net present value ranges were estimated by
applying perpetual growth rates ranging from 3.5% to 4.5% to the projected 2005
free cash flow of
25
General Mills and discount rates ranging from 9.25% to 9.75%. Perpetual growth
rates were based on both current public and private market-based valuations. The
discount rates were determined based on General Mills' estimates of its own
weighted average cost of capital. This analysis indicated a value per share of
General Mills common stock ranging from approximately $34.69 to $42.15, as
compared to the per share price of General Mills common stock of $36.31 on
July 14, 2000.
PRO FORMA TRANSACTION ANALYSIS. Primarily relying on General Mills'
estimates, Evercore analyzed the potential pro forma effects of the transaction
on both General Mills' projected book earnings per share and General Mills'
projected cash earnings per share based on various assumptions regarding the
transaction. For the purposes of this analysis, cash earnings per share was
defined as diluted earnings per share plus amortization of goodwill and
intangibles. Evercore performed such analysis due to the fact that several Wall
Street research analysts use projected book earnings per share and projected
cash earnings per share, among other measurements, as valuation measurements.
This analysis indicated that the transaction would be dilutive to General Mills'
projected book earnings per share in projected fiscal 2001, 2002 and 2003. The
analysis indicated that the transaction would be dilutive to General Mills' cash
earnings per share in projected fiscal 2001, but would become accretive in
projected fiscal 2002 and 2003. The actual results achieved by the combined
company may vary from projected results and the variations may be material.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analysis or the summary set forth above,
without considering the analysis as a whole, could create an incomplete view of
the processes underlying the opinion of Evercore. In arriving at its fairness
determination, Evercore considered the results of all these constituent analyses
and did not attribute any particular weight to any particular factor or analysis
considered by it; rather, Evercore made its determination as to fairness on the
basis of its experience and professional judgment after considering the results
of all such analyses. No company or transaction used in any of the above
analyses as a comparison is directly comparable to Pillsbury or General Mills or
the contemplated transaction. Analyses based upon forecasts of future results
are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. As
described above, Evercore's opinion to the General Mills Board of Directors was
among the many factors taken into consideration by the General Mills Board of
Directors in making its determination to approve the merger agreement. The
parties to the merger agreement determined the amount of consideration to be
paid pursuant to the merger agreement as the result of arms' length
negotiations, and Evercore was not asked to, and did not, propose any amount to
the General Mills Board of Directors.
Evercore is a nationally recognized investment banking firm that is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. General Mills retained Evercore based
on these qualifications as well as its familiarity with General Mills and
Pillsbury. Evercore has previously provided various investment banking and
financial advisory services to General Mills, for which Evercore received
customary fees for the rendering of those services.
Under the terms of an engagement letter with Evercore, General Mills agreed
to pay Evercore a fee equal to $250,000 upon the signing of the engagement
letter, $1,250,000 upon the public announcement of the transaction and
$9,500,000 upon the closing of the transaction. Whether or not the transaction
is completed, General Mills has agreed under the engagement letter to reimburse
Evercore for all its reasonable out-of-pocket expenses, including the reasonable
fees and disbursements of its counsel, incurred in connection with its
engagement by General Mills, and to indemnify Evercore against liabilities and
expenses in connection with its engagement.
26
MERRILL LYNCH
General Mills retained Merrill Lynch to act as its financial advisor in
connection with the merger and subsidiary purchases (collectively referred to as
the transaction). On July 16, 2000, Merrill Lynch rendered to the Board of
Directors of General Mills its oral opinion, subsequently confirmed in writing,
that, as of such date and based upon and subject to the factors and assumptions
set forth therein, the consideration to be paid by General Mills pursuant to the
merger and by affiliates of General Mills pursuant to the subsidiary purchases,
taken as a whole, was fair from a financial point of view to General Mills. For
purposes of Merrill Lynch's opinion and analysis, the consideration to be paid
by General Mills pursuant to the transaction consists of 141 million shares of
General Mills common stock, as adjusted for any contingent payment (not to
exceed $642 million) by Diageo to General Mills on the anniversary of the
closing and a payment between the parties based on the level of operating
working capital at closing compared to a baseline target. In addition, the
opinion and analysis also reflect that, pursuant to the merger agreement, at the
time of closing the acquired business is expected to have $5.142 billion of
third-party indebtedness.
The full text of Merrill Lynch's written opinion, which sets forth the
assumptions made, matters considered, and qualifications and limitations on the
review undertaken by Merrill Lynch, is attached as Appendix D to this proxy
statement and is incorporated in this proxy statement by reference. The summary
of the Merrill Lynch opinion set forth in this proxy statement is qualified in
its entirety by reference to the full text of the Merrill Lynch opinion. General
Mills stockholders are urged to read the Merrill Lynch opinion in its entirety.
The Merrill Lynch opinion was provided to the Board of Directors of General
Mills for the Board's use and benefit and is directed only to the fairness from
a financial point of view of the consideration to be paid by General Mills and
its affiliates in the transaction, does not address the merits of the underlying
decision by General Mills to engage in the transaction and does not constitute a
recommendation to any General Mills stockholder as to how that stockholder
should vote on the proposed transaction, or any other matters relating to the
transaction. Merrill Lynch did not express any opinion as to the prices at which
the shares of General Mills common stock would trade following the announcement
or consummation of the transaction.
The consideration to be paid by General Mills and its affiliates in the
transaction was determined through negotiations between General Mills and
Diageo.
The summary set forth does not purport to be a complete description of the
analyses underlying the Merrill Lynch opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to partial analysis or summary description. In
arriving at its opinion, Merrill Lynch did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, General Mills and Diageo. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by those analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
those businesses or securities might actually be sold. Accordingly, these
analyses and estimates are inherently subject to substantial uncertainty. In
addition, the Merrill Lynch opinion was among several factors taken into
consideration by the Board of Directors of General Mills in making its
27
determination to approve the transaction. Consequently, the Merrill Lynch
analyses described below should not be viewed as determinative of the decision
of the Board of Directors of General Mills or its management with respect to the
fairness of the consideration to be paid by General Mills and its affiliates in
the transaction.
In arriving at its opinion, Merrill Lynch, among other things:
- reviewed certain publicly available business and financial information
relating to the acquired business (consisting of Diageo's food business
other than its fast food business) and General Mills that Merrill Lynch
deemed to be relevant;
- reviewed certain information which was furnished to Merrill Lynch by
General Mills, including financial forecasts, relating to the earnings,
cash flow, assets, liabilities and prospects of the acquired business and
General Mills, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the transaction;
- participated in discussions with members of senior management and
representatives of Diageo, the acquired business and General Mills
concerning the matters described in the preceding two bullet points, as
well as their respective businesses and prospects;
- reviewed the market prices and valuation multiples for the General Mills
common stock and the equity securities of companies with businesses that
Merrill Lynch deemed to be comparable to the acquired business;
- reviewed the results of operations of the acquired business and General
Mills and compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant;
- compared the proposed financial terms of the transaction with the
financial terms of certain other transactions that Merrill Lynch deemed to
be relevant;
- reviewed the potential pro forma impact of the transaction;
- reviewed a draft of the merger agreement and the stockholders agreement
among General Mills, Diageo and certain subsidiaries of Diageo; and
- reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including its
assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information or undertake an independent evaluation or appraisal
of any of the assets or liabilities of the acquired business or General Mills
and was not furnished with any such evaluation or appraisal. In addition,
Merrill Lynch did not assume any obligation to conduct any physical inspection
of the properties or facilities of the acquired business or General Mills. With
respect to the financial forecast information and the cost savings and related
expenses and synergies expected to result from the transaction furnished to or
discussed with Merrill Lynch by General Mills, Merrill Lynch assumed that they
had been reasonably prepared and reflected the best currently available
estimates and judgment of General Mills' management as to the expected future
financial performance of the acquired business or General Mills, as the case may
be, and the cost savings and related expenses and synergies expected to result
from the transaction. Merrill Lynch also assumed that the final form of the
merger agreement and the stockholders agreement among General Mills, Diageo and
certain subsidiaries of Diageo would be substantially similar to the last draft
reviewed by Merrill Lynch.
28
Merrill Lynch's opinion is necessarily based upon market, economic and other
conditions as they existed and could be evaluated on, and on the information
made available to Merrill Lynch as of, the date of the opinion. Merrill Lynch
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the transaction, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed in excess of the commitments of General Mills
referred to under "Description of the Transaction--The Merger
Agreement--Covenants of the Parties." Merrill Lynch also assumed that none of
the indemnification payments referred to under "Description of the
Transaction--The Merger Agreement--Indemnification" will be required to be made.
Set forth below is a summary of the material analyses presented by Merrill
Lynch to the Board of Directors of General Mills on July 16, 2000 in connection
with the Merrill Lynch opinion.
COMPARABLE COMPANY ANALYSIS. A comparable public company analysis reviews a
business's operating performance and outlook relative to a group of publicly
traded peer companies to determine an implied market valuation. Using publicly
available information and estimates of future financial results taken from
selected Wall Street equity research reports, Merrill Lynch compared certain
financial and other operating information related to the acquired business with
that of a group of companies in the branded packaged food and beverage industry.
For purposes of its analysis, Merrill Lynch identified the following seven
companies in the branded packaged food and beverage industry:
- Campbell Soup Company;
- H.J. Heinz Co.;
- Kellogg Company;
- Quaker Oats Co.;
- Groupe Danone;
- Nestle, S.A.; and
- Unilever Group.
Merrill Lynch analyzed the adjusted market capitalization of each of the
foregoing companies as a multiple of LTM EBITDA and EBIT and determined that the
relevant multiples ranged from 9.0x to 11.0x for LTM EBITDA and 11.0x to 13.0x
for LTM EBIT. The adjusted market capitalization of the selected companies was
calculated as equity value plus total debt plus the face value of preferred
stock, if any, plus the value of minority interests, if any, minus cash and
marketable securities and adjusted for off-balance sheet assets. The data was
derived from publicly available information. Based upon the application of the
relevant multiples, Merrill Lynch calculated a summary reference range for the
enterprise value of the acquired business of $8.598 billion to $10.781 billion.
Merrill Lynch noted that, based on the 141 million shares of General Mills
common stock to be paid to Diageo (valued at $5.358 billion based on an assumed
General Mills share price of $38.00), the $5.142 billion of third-party
indebtedness that the acquired business would have at closing, estimated
expensed transaction costs of $55 million and the contingent payment of up to
$642 million from Diageo to General Mills on the anniversary of the closing, the
value of the transaction ranged from a minimum of $9.913 billion (reflecting the
present value of the receipt by General Mills of the full contingent payment) to
a maximum of $10.555 billion (reflecting no receipt by General Mills of the
contingent payment).
No company in the group of comparable companies is identical to the acquired
business. Accordingly, an analysis of the results of such a comparison is not
purely mathematical; rather, it involves complex considerations and judgments
concerning differences in historical and projected financial, trading and
operating characteristics of the comparable companies and other factors that
could affect the value of such companies and the acquired business.
29
COMPARABLE ACQUISITION TRANSACTION ANALYSIS. A comparable acquisition
transaction analysis provides an implied valuation range based upon financial
information of companies which have been acquired in selected recent
transactions and which are in the same or similar industries as the business
being valued. Merrill Lynch reviewed the publicly available financial terms and
financial statistics of nineteen selected acquisition transactions in the
branded packaged food and beverage industry which were announced over an
observation period beginning July 1988 and extending through June 2000. Merrill
Lynch reviewed the following transactions (acquiror/target):
- Campbell Soup/Arnotts;
- Campbell Soup/Pace;
- ConAgra/International Home Foods;
- Groupe Danone/McKesson Water;
- Finalrealm/United Biscuits;
- Grand Metropolitan/Pet Inc.;
- Grand Metropolitan/Pillsbury;
- KKR/Borden;
- KKR/RJR Nabisco;
- PepsiCo/Tropicana;
- Philip Morris/Kraft;
- Philip Morris/Freia Maribou;
- Philip Morris/Nabisco Holdings;
- Philip Morris/Jacobs Suchard;
- Procter & Gamble/Iams;
- Quaker Oats/Snapple Beverage;
- Sandoz/Gerber;
- Unilever/Bestfoods; and
- Unilever/Slimfast.
For the selected acquisition transactions listed above, Merrill Lynch
analyzed the transaction value as a multiple of LTM EBITDA and LTM EBIT of the
target company for the year in which the transaction occurred (based on publicly
available information and selected Wall Street equity research reports) and
determined that the relevant multiplies ranged from 10.0x to 12.0x for LTM
EBITDA and 12.0x to 15.0x for LTM EBIT. The transaction value of the selected
acquisition transactions was calculated as offer value plus total debt plus the
face value of preferred stock, if any, plus the value of minority interests, if
any, minus cash and marketable securities and adjusted for off-balance sheet
assets. Based upon the application of the relevant multiples, Merrill Lynch
calculated a summary reference range for the enterprise value of the acquired
business of $9.553 billion to $12.440 billion. As discussed under "Comparable
Company Analysis" above, Merrill Lynch noted that, based on the assumptions
referred to in that discussion, the maximum value of the transaction ranged from
$9.913 billion to $10.555 billion.
No company utilized in the comparable acquisition transaction analysis was
identical to the acquired business. Accordingly, an analysis of the results of
this comparison is not purely mathematical;
30
rather, it involves complex considerations and judgments primarily concerning
differences in historical and projected financial, operating and trading
characteristics of the companies involved in such other acquisition transactions
and the circumstances surrounding those transactions.
DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis provides
insight into the intrinsic value of a business based on the projected earnings
and capital requirements and the net present value of the subsequent cash flows
anticipated to be generated by the assets of the business. Merrill Lynch
performed a discounted cash flow analysis by estimating the present value of the
future streams of the stand-alone, unlevered, after-tax free cash flows that
could be produced by the acquired business for fiscal years 2000 through 2010,
based upon forecasts for those years prepared by the management of General
Mills. Ranges of estimated terminal values were calculated for fiscal year 2010
based on estimated 2010 EBITDA exit multiples ranging from 8.5x to 10.5x.
Merrill Lynch discounted the free cash flow streams and the estimated terminal
values to a present value based upon an estimated discount rate of 9.5%. Based
upon the discounted cash flow analysis, Merrill Lynch calculated a summary
reference range for the enterprise value of the acquired business before taking
into account estimated synergies anticipated by the management of General Mills
to result from the transaction and a range after taking into account 68% of
those synergies (68% representing the percentage of the outstanding General
Mills common stock, on a fully diluted basis, that, on a pro forma basis for the
transaction, would be owned by the pre-transaction stockholders of General
Mills). The ranges were as follows:
ENTERPRISE VALUE
---------------------------------
LOW HIGH
--------------- ---------------
Before synergies.............................. $ 9.828 billion $11.204 billion
After 68% of synergies........................ $11.836 billion $13.489 billion
Merrill Lynch also performed a discounted cash flow analysis utilizing
terminal values calculated by applying a perpetual growth rate ranging from 3.0%
to 4.0% of the adjusted free cash flow of the acquired business for 2010. This
analysis resulted in the following ranges:
ENTERPRISE VALUE
---------------------------------
LOW HIGH
--------------- ---------------
Before synergies.............................. $ 9.184 billion $10.190 billion
After 68% of synergies........................ $11.397 billion $12.671 billion
As discussed under "Comparable Company Analysis" above, Merrill Lynch noted
that, based on the assumptions referred to in that discussion, the maximum value
of the transaction ranged from $9.913 billion to $10.555 billion.
PRO FORMA MERGER ANALYSIS. Merrill Lynch discussed with the Board of
Directors of General Mills the potential pro forma impact of the transaction on
General Mills' reported GAAP earnings per share and cash earnings per share
(defined as diluted earnings per share before amortization of goodwill and
intangibles), after taking into account estimated synergies anticipated by the
management of General Mills to result from the transaction and assuming that the
contingent anniversary payment is not required to be made by Diageo to General
Mills. Based on financial information provided by the management of General
Mills and based on the foregoing synergy and contingent payment assumptions,
Merrill Lynch analyzed the potential pro forma effect on General Mills'
projected reported GAAP earnings per share and cash earnings per share for the
fiscal years 2001 through 2005,
31
by comparing those projections to the projected GAAP earnings per share and cash
earnings per share for General Mills on a pro forma basis giving effect to the
transaction. According to the press release which General Mills issued on
July 17, 2000, General Mills expects the transaction to be accretive to its cash
earnings per share in fiscal 2002 and neutral to reported GAAP earnings per
share in fiscal 2004. The pro forma merger analysis by Merrill Lynch arrived at
conclusions substantially similar to that of General Mills.
REVIEW OF GENERAL MILLS. Merrill Lynch reviewed (1) the trading history of
General Mills common stock from July 14, 1997 to July 14, 2000, (2) a comparison
of the General Mills common stock price history for that three-year period to
the S&P Food, S&P500 and NASDAQ indices and (3) recent analyst research reports
and target prices with respect to General Mills common stock. Merrill Lynch also
performed a comparable company analysis with respect to General Mills based on
LTM EBITDA, LTM EBIT, calendar year 2000 price/earnings ratios and a comparison
of such ratios to projected EPS growth rates for the same companies utilized in
the comparable company analysis with respect to the acquired business. The data
was derived from publicly available information and selected Wall Street equity
research reports. Based on relevant multiples, the foregoing yielded a summary
reference range for the implied per share value of General Mills common stock of
approximately $31.75 to $42.25. Merrill Lynch also performed a discounted cash
flow analysis with respect to General Mills based upon forecasts supplied by the
management of General Mills. With an assumed terminal value ranging from 9.0x to
11.0x 2005 EBITDA and a discount rate of 9.5%, the analysis resulted in a
summary reference range for the implied per share value of General Mills common
stock of approximately $38.75 to $46.75. A discounted cash show analysis
utilizing terminal values calculated by applying a perpetual growth rate ranging
from 3.0% to 4.0% resulted in a summary reference range for the implied per
share value of General Mills common stock of approximately $38.50 to $45.50. The
closing stock price of General Mills common stock on July 14, 2000 was $36.31,
and the General Mills stock price assumed by General Mills and Merrill Lynch in
their analysis of this transaction was $38.00. As discussed under "Description
of the Transaction--The Merger Agreement--Contingent Payment by Diageo to
General Mills," the contingent payment from Diageo to General Mills must be paid
in full if the General Mills common stock price averages $42.55 during the
specified measurement period.
As described above, Merrill Lynch's opinion and presentation to the Board of
Directors of General Mills was one of many factors taken into consideration by
the Board in making its determination to recommend the transaction.
Consequently, the analyses described above should not be viewed as determinative
of the opinion of the Board of Directors or management of General Mills with
respect to the value of the acquired business or whether the Board would have
been willing to recommend a transaction at a different level of consideration.
General Mills retained Merrill Lynch to act as its financial advisor based
on Merrill Lynch's qualifications, expertise and reputation, as well as Merrill
Lynch's familiarity with General Mills. Merrill Lynch is an internationally
recognized investment banking and advisory firm. Merrill Lynch, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
Pursuant to an engagement letter dated June 28, 2000, General Mills engaged
Merrill Lynch to render the Merrill Lynch opinion. Pursuant to the terms of the
engagement letter, General Mills agreed to pay Merrill Lynch a fee of $3,000,000
upon the delivery of an opinion as to whether the consideration to be paid in
the transaction is fair to General Mills from a financial point of view. General
Mills has agreed to reimburse Merrill Lynch for its out-of-pocket expenses,
including attorneys' fees, incurred in connection with its engagement, and to
indemnify Merrill Lynch and certain related persons against certain liabilities
and expenses arising out of or in conjunction with its rendering of services
under its engagement.
32
Merrill Lynch has, in the past, provided financial advisory and financing
services to General Mills, Diageo and their affiliates and may continue to do so
and has received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade the securities of Diageo, as well as shares of common stock and
other securities of General Mills, for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
For U.S. federal income tax purposes, the stockholders of General Mills will
not recognize any income, gain or loss in connection with the transaction.
ACCOUNTING TREATMENT
In accordance with accounting principles generally accepted in the United
States, we expect to account for the transaction as a purchase business
combination with General Mills treated as the acquirer for accounting purposes
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations."
REGULATORY MATTERS
UNITED STATES ANTITRUST COMPLIANCE
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
that the Federal Trade Commission has promulgated under that Act, the parties to
certain acquisition transactions may not consummate those transactions unless
they have furnished certain information and documents to the Antitrust Division
of the Department of Justice and the Federal Trade Commission and they satisfy
certain waiting period requirements. The proposed acquisition of Pillsbury by
General Mills is subject to these requirements.
General Mills and Diageo filed their Notification and Report Forms with the
Antitrust Division and the Federal Trade Commission on August 1, 2000 and
July 27, 2000, respectively, and thus the waiting period applicable to the
transaction is scheduled to expire at 11:59 p.m., New York City time, on
August 31, 2000. However, prior to that time, the Antitrust Division or the
Federal Trade Commission may extend the waiting period by requesting additional
information or documentary material relevant to the transaction. Such a request
would extend the waiting period until 11:59 p.m., New York City time, on the
twentieth day after substantial compliance by General Mills and Diageo with the
request. Thereafter, only a court order can extend the waiting period.
The Antitrust Division and the Federal Trade Commission scrutinize the
legality under the antitrust laws of transactions such as the acquisition of
Pillsbury by General Mills. At any time before or after the consummation of any
such transaction, the Antitrust Division or the Federal Trade Commission could
take any action under the antitrust laws of the United States it deems necessary
or desirable in the public interest, including seeking to enjoin the transaction
or seeking divestiture of substantial assets of General Mills or Pillsbury.
Private parties (including individual States) may also bring legal actions under
the antitrust laws of the United States. General Mills does not, and Diageo has
advised General Mills that it does not, believe that the consummation of the
transaction will result in a violation of any applicable antitrust laws.
However, we cannot assure you that a governmental agency or private party will
not challenge the transaction on antitrust grounds, or if they make a challenge,
what the result will be. See "Description of the Transaction--The Merger
Agreement" for a description of the obligations of General Mills and Diageo to
seek required regulatory approvals and clearances and the conditions to the
transaction regarding litigation and governmental actions.
33
CANADIAN COMPETITION ACT
The merger provisions of the Canadian Competition Act permit the
Commissioner of Competition appointed under that Act to apply to the Competition
Tribunal to seek relief in respect of a merger or proposed merger which prevents
or lessens, or is likely to prevent or lessen, competition substantially. The
relief that the Competition Tribunal may order includes, in the case of a
completed merger, ordering any party to the merger to (a) dissolve the merger,
(b) dispose of assets or shares designated by the Competition Tribunal, or
(c) with the consent of the Commissioner and the person against whom the action
is taken, take any other action, and in the case of a proposed merger, ordering
any party to the merger to (a) not proceed with the merger, (b) not proceed with
a part of the merger, or (c) with the consent of the Commissioner and the person
against whom the action is taken, take any other action.
The Competition Act also requires parties to certain proposed mergers that
exceed specified size thresholds to provide the Commissioner with prior notice
of and information relating to the transaction and the parties to the
transaction, and to await the expiration or earlier termination of the
prescribed waiting periods, prior to completing the transaction. Notification
must be made on the basis of either a short-form filing or a long-form filing.
The waiting period in respect of a short-form filing is 14 days and in respect
of a long-form filing is 42 days. If a short-form filing is made, the
Commissioner may, within the 14-day waiting period, require that the parties
make a long-form filing, thereby extending the waiting period for a further
42 days following receipt of the long-form filing. A party to a proposed merger
may also apply to the Commissioner for an advance ruling certificate or a "no
action" letter, which the Commissioner may issue if the Commissioner is
satisfied there would not be sufficient grounds on which to apply to the
Competition Tribunal for an order under the merger provisions in respect of the
transaction. Where an advance ruling certificate is issued and the transaction
to which it relates is substantially completed within one year after the advance
ruling certificate is issued, the Commissioner cannot seek an order of the
Competition Tribunal in respect of the transaction solely on the basis of
information that is the same or substantially the same as the information on
which the advance ruling certificate was issued. The issuance of an advance
ruling certificate will also terminate the waiting period. The parties are
currently preparing and intend to file a short-form pre-notification with the
Commissioner and apply for an advance ruling certificate or some form of comfort
letter.
INVESTMENT CANADA ACT
The Investment Canada Act requires certain "non-Canadian" individuals,
governments, corporations or other entities that wish to acquire a Canadian
business to file either a notification or an application for review with a
governmental agency known as "Industry Canada". Indirect acquisitions of most
Canadian businesses by or from a World Trade Organization member (regardless of
asset value), as well as direct acquisitions which do not exceed certain
prescribed thresholds, are subject to the notification provision of the
Investment Canada Act, which require that the investor file a notification with
Industry Canada within 30 days after implementing the acquisition. Direct
acquisitions of Canadian businesses which exceed certain prescribed thresholds
are subject to the review provisions of the Investment Canada Act, which require
that certain acquisitions of control of a Canadian business by a non-Canadian
entity must be reviewed and approved by the minister of Industry on the basis
that the minister is satisfied that the acquisition is "likely to be of net
benefit to Canada", having regard to criteria set forth in the Investment Canada
Act. Certain reviewable acquisitions of control may not be implemented before
being approved by the minister. If the minister does not ultimately approve a
reviewable acquisition which has been completed, the acquired Canadian business
may have to be divested. Failure to comply with the review provisions of the
Investment Canada Act could result in, among other things, an injunction or a
court order directing disposition of assets or shares.
Within 45 days after a completed application for review has been received,
the minister must indicate whether the investment is likely to be of net benefit
to Canada or extend the review period for
34
a further 30 days, following which the minister must provide an assessment
regarding the likely net benefit to Canada. However, if the minister requires
more time, the investor may be requested to consent to an extension of the
review period. If the minister is not satisfied that the investment is likely to
be of net benefit to Canada, the applicant has the right to make representations
and submit undertakings within 30 days of the date of the notice of the
minister's decision (or any longer period that may be negotiated).
As part of the transaction, certain subsidiaries of General Mills will
purchase Pillsbury's Canadian businesses. The parties are currently analyzing
this portion of the transaction and, depending upon how it is ultimately
structured, it will be subject to either the notification or review provisions
of the Investment Canada Act, as discussed above.
EEA MERGER REGULATION
General Mills and Pillsbury each conduct operations in the European Economic
Area. Council Regulation (EEC) 4064/89, as amended, and Article 57 of the
European Economic Area Agreement (together, the "European Regulation") require
that concentrations with a "Community or EFTA dimension" be notified in
prescribed form to the Commission of the European Communities for review and
approval. In these cases, the European Commission, as opposed to the individual
countries within the European Economic Area, will, with certain exceptions, have
exclusive jurisdiction to review the concentration and the transaction cannot be
completed until clearance has been obtained.
General Mills and Diageo have determined that the acquisition by General
Mills of the Pillsbury businesses has a "Community dimension," and thus, intend
to file notification promptly in the prescribed form with the European
Commission in accordance with the European Regulation.
This filing will trigger a one-month review period in which the Commission
is required to determine whether the transaction is compatible with the European
common market or that there is sufficiently "serious doubt" about the proposed
transaction's compatibility with the common market to require a more complete
review of the proposed transaction. In some cases it may be necessary for the
parties to give undertakings in order for merger clearance to be obtained. Where
there are serious doubts as regards the compatibility of the transaction with
the European common market, the total review period can be as long as five
months from the date of complete notification and, ultimately, the Commission
can prohibit the Merger from taking place.
NATIONAL MERGER REGULATION IN THE EEA
Although the European Commission will have exclusive jurisdiction over the
acquisition by General Mills of the Pillsbury businesses, the acquisition by
Diageo of shares in General Mills does not constitute a concentration with a
Community dimension. Accordingly, pre-merger filings may have to be made with
the relevant authorities in certain countries within the EEA in respect of this
aspect of the transaction. The filing requirements of the EEA countries are
being analyzed by General Mills and Diageo and, where necessary, the parties
intend to make the required filings.
OTHER FILINGS
General Mills and Pillsbury each conduct operations in a number of foreign
countries, and may have to make filing with foreign governments under their
merger notification statutes. General Mills and Diageo are analyzing the filing
requirements of various nations and, where necessary, the parties intend to make
the required filings.
ABSENCE OF APPRAISAL RIGHTS
General Mills is incorporated in the State of Delaware and, accordingly, the
provisions of the Delaware General Corporation Law govern General Mills. The
Delaware General Corporation Law does not provide General Mills' stockholders
appraisal rights with respect to the transaction.
35
SPECIAL CONSIDERATIONS
YOU SHOULD CAREFULLY CONSIDER AND EVALUATE THE FOLLOWING FACTORS, AMONG
OTHERS, BEFORE VOTING.
THE PRESENCE OF A SIGNIFICANT STOCKHOLDER MAY AFFECT THE ABILITY OF A THIRD
PARTY TO ACQUIRE CONTROL OF GENERAL MILLS
The Diageo stockholder group will own approximately 33% of the outstanding
General Mills common stock at the time of closing of the transaction. These
shares will be subject to the terms of a stockholders agreement between General
Mills, Diageo and the Diageo stockholder group. See "Description of the
Transaction--The Stockholders Agreement" and Appendix B. The stockholders
agreement will generally entitle Diageo to nominate up to two directors for
election to the General Mills Board of Directors so long as the Diageo
stockholder group continues to own at least half of the General Mills shares
that they receive in connection with the transaction, and one director so long
as the Diageo Stockholder group holds at least 5% of the outstanding General
Mills common stock. Although these directors will not constitute a majority of
the Board of Directors, they may exercise influence over the decisions of the
Board.
The existence of a significant stockholder of General Mills may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from seeking to acquire, a majority of the
outstanding General Mills common stock in a tender offer or control of the
General Mills Board of Directors through a proxy solicitation. In that regard,
the Diageo stockholder group has agreed that it will not tender any shares of
General Mills common stock pursuant to any tender or exchange offer that the
General Mills Board of Directors has not recommended unless a majority of the
shares of General Mills common stock outstanding have been tendered and all
material conditions with respect to the offer have been satisfied or irrevocably
waived by the offeror. The stockholders agreement permits the Diageo stockholder
group to tender its shares in a tender offer or exchange offer recommended by
the General Mills Board of Directors and, so long as it owns 10% or more of the
outstanding General Mills common stock, requires the Diageo stockholder group to
vote its shares in proportion to the votes cast by other General Mills
stockholders on most matters submitted to stockholders for approval, including
business combination transactions. The stockholders agreement requires the
Diageo stockholder group to vote its shares in favor of the director nominees
recommended by the General Mills Board of Directors, so long as it owns 5% or
more of the outstanding General Mills common stock.
EXISTING GENERAL MILLS STOCKHOLDERS WILL OWN A SMALLER SHARE OF GENERAL MILLS
FOLLOWING COMPLETION OF THE TRANSACTION
General Mills stockholders will continue to own the same number of shares of
General Mills common stock that they owned immediately before the transaction.
Each share of General Mills common stock, however, will represent a smaller
ownership percentage of a significantly larger company. General Mills
stockholders, who currently own 100% of the outstanding General Mills common
stock, will, immediately following the transaction, own approximately 67% of the
total outstanding General Mills common stock, with the Diageo stockholder group
owning the rest.
36
GENERAL MILLS' INCREASED DEBT MAY IMPAIR ITS FINANCIAL AND OPERATING FLEXIBILITY
General Mills will have, on a consolidated basis, substantially more debt
than it currently has. The following table shows important credit statistics and
is presented assuming General Mills had completed the transaction on May 28,
2000.
AT MAY 28, 2000
---------------
($ IN MILLIONS)
Total indebtedness.......................................... $8,402
Stockholders' equity........................................ $4,762
Debt to equity ratio........................................ 1.76x
The debt agreements of General Mills and its subsidiaries, including those
that we expect Pillsbury to enter into in connection with the transaction, and
possible refinancings thereof, have and are expected to contain various
restrictive covenants. All of these restrictions, together with the increased
level of indebtedness, could:
- limit General Mills' ability to obtain additional financing to fund its
growth strategy, working capital, capital expenditures, debt service
requirements or other purposes;
- limit General Mills' ability to use operating cash flow in other areas of
its business as it must use a portion of these funds to make principal and
interest payments on its debt;
- increase General Mills' vulnerability to interest rate fluctuations
because a significant portion of the new debt will likely be at variable
interest rates;
- limit General Mills' ability to compete with its competitors who may have
more flexibility as to the use of their cash flow; and
- limit General Mills' ability to react to changing market conditions,
changes in its industry and economic downturns.
See "Description of the Transaction--The Merger Agreement--Pillsbury Debt."
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DESCRIPTION OF THE TRANSACTION
DESCRIPTION OF THE TRANSACTION
General Mills intends to purchase Pillsbury's worldwide operations according
to the terms of the merger agreement. This section of the proxy statement
describes material provisions of the merger agreement and related agreements,
including the stockholders agreement and the subsidiary purchase agreements.
Because the descriptions contained in this proxy statement summarize these
agreements, they do not contain all of the information that may be important to
you. As mentioned previously, copies of the merger agreement and the
stockholders agreement are attached as appendices to this proxy statement. You
should carefully read these agreements before you decide how to vote.
THE MERGER AGREEMENT
BUSINESSES TO BE ACQUIRED FROM DIAGEO
Under the merger agreement, The Pillsbury Company and a newly formed
acquisition subsidiary of General Mills will merge, with The Pillsbury Company
surviving the merger as a wholly owned subsidiary of General Mills. At the same
time, under separate subsidiary purchase agreements, subsidiaries of General
Mills will purchase the stock and/or assets of the Diageo subsidiaries (and the
equity interests owned by Diageo subsidiaries in other related entities) that
conduct those non-U.S. Pillsbury businesses that The Pillsbury Company does not
directly or indirectly own.
CONSIDERATION TO BE PAID IN THE TRANSACTION
If the transaction is completed, the Diageo stockholder group will receive
an aggregate of 141 million shares of General Mills common stock (subject to
adjustment in the event of a stock split, stock dividend, exchange of shares or
similar transaction).
PILLSBURY DEBT
At the closing, Pillsbury will have an aggregate of up to $5.142 billion of
debt, consisting of existing third party debt and new debt, the proceeds of
which Pillsbury will distribute to Diageo prior to closing the transaction, at
Pillsbury's election, either as a dividend and/or by repaying intercompany
obligations. At the time we complete the transaction, Pillsbury and Diageo will
settle all remaining intercompany obligations owed by any Pillsbury entity to a
Diageo entity not being acquired by General Mills in the transaction, and any
receivables of any Pillsbury entity owed by any such Diageo entity to a
Pillsbury entity (by way of capital contribution or dividend in kind).
General Mills must consent to the terms of the new debt. As of June 30,
2000, Pillsbury had approximately $200 million of third party debt. Pillsbury is
not permitted to incur new third party debt other than the debt described above,
or prepay existing third party debt, before the closing without General Mills'
consent.
CONTINGENT PAYMENT BY DIAGEO TO GENERAL MILLS
At the time we complete the transaction, Diageo will establish an escrow
fund in the amount of $642 million, which the escrow agent will invest as we and
Diageo agree. On the first anniversary of the closing of the transaction, Diageo
may retain a portion of the escrow fund and General Mills will receive the
remaining amount of the escrow fund as follows:
- If the average of the daily high and low per share sales prices for
General Mills common stock over the 20 full trading days preceding the
first anniversary of the closing is $42.55 or more, General Mills will
receive the entire amount of the escrow fund;
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- If the 20-trading-day average per share price described above is $38.00 or
less, Diageo will retain $4.55 for each share (out of the 141 million
shares received on the closing date) of General Mills common stock still
held by the Diageo stockholder group or their permitted affiliate
transferees as of the first anniversary of the closing, and General Mills
will receive the remainder of the escrow fund; and
- If the 20-trading-day average per share price described above is between
$38.00 and $42.55, Diageo will retain the amount by which $42.55 exceeds
the 20-trading-day average per share price for each share (out of the
141 million shares received on the closing date) of General Mills common
stock still held by the Diageo stockholder group or their permitted
affiliate transferees as of the first anniversary of the closing, and
General Mills will receive the remainder of the escrow fund.
Under all circumstances, General Mills will receive the full amount of
interest earned on the escrow fund.
The merger agreement adjusts the calculation of the amount of the escrow
fund, if any, that Diageo will retain (and the timing of the payments) in the
event that General Mills stockholders approve, before the first anniversary of
the closing, certain mergers, consolidations or other business combinations
involving General Mills or a disposition of all or substantially all of General
Mills' assets. The value of the consideration to be received for shares of
General Mills common stock in the business combination or sale would determine
those adjustments.
The calculations described above are also subject to adjustment in the event
of any stock split, stock dividend, exchange of shares or similar transaction
affecting the General Mills common stock that occurs before the first
anniversary of the closing of the transaction.
OPERATING WORKING CAPITAL PURCHASE PRICE ADJUSTMENT
The aggregate purchase price for Pillsbury may be adjusted upward or
downward after the closing date based on the operating working capital of
Pillsbury as of the closing date, as described below. Within 90 days after the
closing date, General Mills will deliver to Diageo a calculation of the
operating working capital of Pillsbury as of the closing date. General Mills
will prepare the calculation of the closing date operating working capital in
the same manner and based on the same line items as Diageo has historically
prepared operating working capital for Pillsbury. The merger agreement contains
procedures for resolving any objections that Diageo may have to General Mills'
calculation, and provides for resolution by independent auditors or arbitrators
of any disputes if the parties are unable to agree on the calculation.
- If the closing date operating working capital is less than $100 million
(or less than zero if the closing occurs between March 15 and April 15),
Diageo will pay General Mills the amount of the shortfall, with interest
from the closing date, in cash, as an adjustment to the purchase price.
- If the closing date operating working capital is greater than
$300 million (or greater than $400 million if the closing occurs between
October 15 and November 15), General Mills will pay Diageo the amount of
the excess, with interest from the closing date, in the form of shares of
General Mills common stock, as an adjustment to the purchase price. The
number of shares payable by General Mills will be based on the average of
the daily high and low per share sales prices for the General Mills common
stock over the 20 full trading days preceding the date of payment.
- If the closing date operating working capital is between the specified
thresholds, the parties will not make any adjustment to the purchase price
based on operating working capital.
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SUBSIDIARY PURCHASES
General Mills and Diageo agreed in the merger agreement to cooperate after
the date of the merger agreement to determine an appropriate structure and form
of agreement for each of the subsidiary purchases. Diageo and General Mills
agreed to base the structure of the subsidiary purchases and the forms of
agreement on compliance with the laws, regulations and other requirements of the
applicable local jurisdictions, tax efficiency and other relevant
considerations. Unless Diageo and General Mills otherwise agree, Diageo and
General Mills will structure the subsidiary purchases as stock purchases.
CLOSING
Unless General Mills and Diageo otherwise agree, the transaction will close
within five business days after satisfaction or waiver of all conditions
contained in the merger agreement. The parties currently expect to close the
transaction in late calendar 2000.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
The merger agreement contains various customary representations and
warranties of Diageo and Pillsbury, including:
- the Diageo stockholder group's good and valid title to the shares of The
Pillsbury Company and the equity interests in the foreign subsidiaries and
other entities to be acquired by General Mills;
- corporate authorizations and approvals;
- required governmental and third party approvals and consents;
- preparation of financial statements and absence of undisclosed
liabilities;
- properties and sufficiency of assets;
- absence of material adverse changes or events;
- litigation;
- intellectual property;
- compliance with applicable laws;
- environmental matters;
- employee and labor matters;
- insurance;
- material contracts; and
- tax matters.
The merger agreement also contains various customary representations and
warranties of General Mills, including:
- capitalization;
- corporate authorizations and approvals;
- required governmental and third party approvals and consents;
- filing of Securities and Exchange Commission documents, financial
statements and absence of undisclosed liabilities;
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- absence of material adverse changes or events;
- litigation;
- intellectual property;
- compliance with applicable laws;
- labor matters;
- insurance;
- material contracts;
- amendment of General Mills' shareholder rights plan;
- exemptions under Delaware antitakeover laws; and
- tax matters.
COVENANTS OF THE PARTIES
The merger agreement contains various mutual covenants of General Mills and
Diageo, including covenants relating to:
- using reasonable best efforts to obtain consents necessary to close the
transaction. In this regard, in seeking to obtain required approvals and
clearances under applicable antitrust laws, General Mills is not obligated
to proceed with the transaction if it is required to hold separate or
divest businesses or assets that accounted in the aggregate for more than
$650 million in revenues for the fiscal year ended June 30, 1999;
- providing continued access to corporate information;
- using reasonable best efforts to ensure the Pillsbury entities acquired by
General Mills have assets and liabilities relating only to the Pillsbury
businesses, to convey any assets or rights of the Pillsbury businesses
that remain in a Diageo entity not being acquired by General Mills and
reaching equitable transition arrangements for properties, assets, rights
and services shared between the Pillsbury businesses and the other
businesses of Diageo;
- agreeing upon and executing a strategic plan for certain Pillsbury joint
ventures;
- cooperating on public announcements regarding the transaction; and
- preparing this proxy statement and a circular to be distributed to
Diageo's shareholders, holding shareholder meetings and recommending the
transaction to General Mills stockholders and Diageo shareholders.
The merger agreement also contains customary covenants of Diageo and Pillsbury,
including:
- conducting Pillsbury's businesses in an ordinary manner prior to the
closing of the transaction; and
- not soliciting or participating in discussions concerning any competing
transaction involving Pillsbury.
The merger agreement also contains customary covenants of General Mills,
including:
- conducting General Mills' businesses in an ordinary manner prior to the
closing of the transaction;
- using reasonable best efforts to replace various Diageo guarantees of
Pillsbury obligations;
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- not amending or terminating General Mills' shareholder rights plan;
- electing Diageo's designees to the General Mills Board of Directors
effective as of the closing date;
- filing a supplementary listing application with the New York Stock
Exchange covering the General Mills common stock that the Diageo
stockholder group will receive in connection with the transaction; and
- not soliciting or participating in takeover discussions involving General
Mills.
EMPLOYEE AND RELATED MATTERS
In the merger agreement, General Mills has agreed to provide the United
States employees of Pillsbury as of the closing date who continue to be employed
following the closing date (excluding employees covered by collective bargaining
agreements) with:
- through the first anniversary of the closing date, base compensation no
less than their base compensation in effect immediately before the closing
date;
- through the first anniversary of the closing date, employee benefit plans
and arrangements that provide benefits no less favorable in the aggregate
than those provided under applicable Pillsbury plans and arrangements in
effect on the closing date or, at General Mills' election, than those
provided to General Mills' similarly situated employees;
- past service credit to the extent recognized by Pillsbury under its
comparable employee benefit programs, for purposes of participation,
eligibility and benefits, and for benefit accrual purposes under some
circumstances;
- credit for amounts paid or accrued toward deductibles and out-of-pocket
maximums under Pillsbury's welfare benefit plans in the calendar year in
which the closing occurs;
- waivers of pre-existing condition requirements, evidence of insurability
provisions, waiting period or similar requirements under General Mills
welfare benefit plans, other than pre-existing conditions and evidence of
insurability that would have applied under Pillsbury plans; and
- through the first anniversary of the closing, severance pay and benefits
to eligible employees that are at least equal to those that would have
been paid under applicable Pillsbury severance plans.
General Mills also has agreed to:
- maintain the special employee retention plan to be implemented by
Pillsbury prior to the closing date;
- pay the retention bonuses arising under Pillsbury's March 2000
reorganization retention program in accordance with its terms, upon the
payment due dates or upon earlier termination of employment, other than
for cause;
- assume vacation obligations to continuing U.S. employees to the extent
reflected in the closing date operating working capital calculation
previously described;
- comply with the provisions of Pillsbury's collective bargaining
agreements; and
- satisfy any continuation of benefits coverage obligations required by law
as to any "qualifying event."
Diageo also has agreed to:
- as of the closing date, subject to specified exceptions, vest equity
awards held by employees of Pillsbury and thereafter honor those awards;
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- retain responsibility for the 1998 and 1999 grants under the Diageo Long
Term Incentive Plan to employees of Pillsbury;
- transfer to General Mills assets to cover projected pension obligations
under Diageo sponsored pension plans and arrangements for which General
Mills elects (on a plan-by-plan basis) to assume responsibility as to
active participants employed by Pillsbury. Diageo will not, however, be
required to transfer assets for unfunded plans to the extent the
associated liabilities were reflected in the closing date operating
working capital calculation;
- except as described above, retain all responsibility under any benefit
plans and arrangements that are not sponsored by the Pillsbury entities;
and
- indemnify General Mills and Pillsbury against liabilities under Diageo
plans not relating to employees of Pillsbury based on "controlled group"
liability under certain statutes.
TAX MATTERS
In the merger agreement, Diageo has agreed, subject to limitations, to
indemnify and hold General Mills harmless from taxes imposed on or relating to
Pillsbury for periods ending before or on the closing date, taxes imposed on or
relating to Diageo and its continuing affiliates for any period, taxes relating
to or resulting from the subsidiary purchases or any restructuring undertaken in
contemplation of the merger or the subsidiary purchases and, subject to General
Mills' indemnity obligation for breaches of tax representations described below,
taxes relating to or resulting from the merger, the closing date operating
working capital purchase price adjustment, and the contingent payments described
above. General Mills has agreed to indemnify and hold Diageo harmless from taxes
imposed on or relating to Pillsbury for periods beginning after the closing date
and taxes imposed on the current stockholder of The Pillsbury Company on the
merger if the taxes would not have arisen absent a breach by General Mills of
certain representations and warranties relating to reorganization status of the
merger.
The merger agreement also:
- permits General Mills to make certain tax elections relating to the
subsidiary purchases and contains customary covenants of the parties
relating to such elections;
- specifies which party owns the right to tax refunds and tax credits
relating to Pillsbury;
- sets forth the obligations of the parties to prepare and file tax returns;
- contains notice and procedural requirements in the event a taxing
authority asserts a tax claim covered by the tax provisions of the merger
agreement; and
- provides for the termination of any tax sharing agreements or arrangements
between Pillsbury, on the one hand, and Diageo and its continuing
affiliates, on the other hand.
CONDITIONS TO CLOSING
The respective obligations of General Mills and Diageo to complete the
transaction are subject to fulfillment, prior to the closing date, of the
following conditions:
- the truthfulness and accuracy of representations and warranties and the
performance of the covenants and agreements made in the merger agreement
and the subsidiary purchase agreements;
- the absence of any law or order of a governmental authority prohibiting
the merger or the subsidiary purchases;
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- the expiration or termination of any waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act;
- the receipt of the approval of the European Commission under applicable
anticompetition laws;
- the receipt of any additional material approvals or consents of
governmental authorities;
- the approval for listing on the New York Stock Exchange of the shares of
General Mills common stock to be issued on the closing date in connection
with the transaction;
- execution and delivery of the stockholders agreement;
- approval of the issuance of shares of General Mills common stock in
connection with the transaction and of the amendment to eliminate
Article V of General Mills' certificate of incorporation by General Mills'
stockholders; and
- approval of the transaction by Diageo's shareholders.
In addition, General Mills' obligations under the merger agreement are
subject to Pillsbury having no more than an aggregate of $5.142 billion of
outstanding indebtedness as of the closing date.
In addition, Diageo's obligations under the merger agreement are subject to
the receipt of an opinion from its tax counsel as to the qualification of the
merger as a "reorganization" for U.S. federal income tax purposes.
INDEMNIFICATION
The merger agreement includes customary indemnification agreements relating
to breaches of representations, warranties and covenants of General Mills and
Diageo. Except for the obligations of General Mills for tax indemnification
payments relating to breaches of General Mills' tax representations and
warranties, the obligations of General Mills and Diageo to indemnify each other
for breaches of representations and warranties are subject to $100 million
deductible amounts. In addition, their obligations to indemnify each other for
breaches of representations and warranties (other than with respect to taxes)
are subject to minimum threshold amounts of $5 million per claim or series of
related claims. There are no minimum threshold requirements or deductibles for
indemnification for breaches of covenants or with respect to tax matters.
Diageo has also agreed to indemnify General Mills against losses resulting
from any liability or obligation of Pillsbury that relates to any business other
than Diageo's current food business (excluding the fast food business), and
General Mills has agreed to indemnify Diageo from losses resulting from all
other liabilities or obligations of Pillsbury.
Diageo may elect to make any required indemnification payments either in
cash or in the form of shares of General Mills common stock. General Mills will
make any required indemnification payments in the form of shares of General
Mills common stock. For payments in the form of common stock by either party,
the value per share delivered in payment will be based on the average of the
high and low daily per share sales prices of General Mills common stock during
the 20 full trading days preceding the payment date.
TERMINATION AND TERMINATION FEES
The merger agreement may be terminated, and the transaction abandoned, at
any time prior to the closing date:
- by mutual written consent of Diageo and General Mills;
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- by either Diageo or General Mills if the transaction is not completed by
March 31, 2001, so long as the failure to complete the transaction by that
date was not caused by a failure by the party seeking to terminate to
perform its obligations;
- by either Diageo or General Mills if approval by General Mills'
stockholders of the transaction proposals contained in this proxy
statement is not obtained upon a vote taken or if approval by Diageo's
shareholders of the transaction is not obtained upon a vote taken;
- by Diageo, if General Mills' Board of Directors withdraws or adversely
modifies its recommendation that General Mills' stockholders approve the
transaction proposals contained in this proxy statement, or by General
Mills, if the Diageo Board of Directors withdraws or adversely modifies
its recommendation that Diageo's shareholders approve the transaction; or
- by either Diageo or General Mills if any governmental authority takes any
final and nonappealable action prohibiting the merger or the subsidiary
purchases.
If either party terminates the merger agreement due to the failure to obtain
the requisite Diageo shareholder approval or the requisite General Mills
stockholder approvals, the party whose stockholders failed to give the requisite
approval will be required to pay the other party a termination fee of
$105 million. However, if at the time of the stockholder vote triggering the
termination fee, a takeover proposal involving General Mills was publicly
announced or generally known (in the case of a failed General Mills vote) or a
takeover proposal involving Diageo or a competing proposal involving Pillsbury
was publicly announced or generally known (in the case of a failed Diageo vote),
the fee payable will be increased to $315 million. Diageo or General Mills will
also be required to pay a $315 million termination fee to the other party if
that other party terminates the merger agreement based on a withdrawn or
adversely modified recommendation of the non-terminating party's Board of
Directors.
EXPENSES
Except as otherwise specifically provided in the merger agreement or the
subsidiary purchase agreements, whether or not the transaction is consummated,
the parties will bear their own transaction expenses (with Diageo bearing any
pre-closing expenses incurred by Pillsbury, including any fees due to Diageo's
and Pillsbury's financial advisors).
THE STOCKHOLDERS AGREEMENT
At the closing, General Mills, Diageo and the members of the Diageo
stockholder group will enter into a stockholders agreement in the form agreed to
and attached to this proxy statement as Appendix B. In the stockholders
agreement, the Diageo entities will agree to several restrictions on their
actions including their right to acquire, vote or transfer General Mills common
stock. Diageo will be entitled to representation on General Mills' Board of
Directors and registration rights. The provisions of the stockholders agreement
are described in more detail below.
REPRESENTATION ON THE GENERAL MILLS BOARD OF DIRECTORS
Paul S. Walsh and John M.J. Keenan are expected to join the General Mills
Board of Directors at the time we close the transaction. See "Background
Information Regarding Diageo Designees to the General Mills Board of Directors."
So long as the Diageo stockholder group or their permitted affiliate transferees
hold at least half of the shares of General Mills common stock issued to them
(the "Original Shares") under the merger agreement or the subsidiary purchase
agreements or issued in respect of those shares, these two individuals or their
successors (one of whom will always be the Chief Executive Officer of Diageo and
the other of whom will be mutually agreed by Diageo and General Mills) will be
renominated annually for election as directors of General Mills. When the Diageo
stockholder group or their permitted affiliate transferees dispose of more than
half of the Original
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Shares, so long as they continue to hold over 5% of the outstanding General
Mills shares, the Chief Executive Officer of Diageo will continue to be
renominated annually for election as a director of General Mills. If General
Mills increases its board size to 16 or more, Diageo's designees will increase
to three, and at 20 or more will increase to four, subject to reduction as the
Original Shares are sold.
VOTING RESTRICTIONS
During the twenty-year period after the closing of the transaction or, if
earlier, until the date on which the Diageo stockholder group owns less than 5%
of the shares of General Mills common stock outstanding, the Diageo stockholder
group will (1) vote their General Mills stock in favor of the director nominees
recommended by the General Mills Board of Directors (which will include any
nominees that Diageo has the right to designate) and (2) on votes relating to
other matters, vote all of their shares of General Mills stock in proportion to
the votes cast by the holders of shares of General Mills common stock not owned
by the Diageo stockholder group.
Notwithstanding the above restrictions, at such time as Diageo and the
Diageo stockholder group hold less than 10% of the shares of General Mills
common stock outstanding, they may vote their General Mills common stock at
their discretion on:
- any amendments to General Mills' Restated Certificate of Incorporation;
- any merger, consolidation or other business combination which results in
the stockholders of General Mills prior to the transaction owning less
than 80% of the voting securities of the surviving entity or its ultimate
parent entity;
- any acquisition by a third party of 20% or more of the outstanding voting
securities of General Mills;
- any sale or other disposition of 20% or more of the assets of General
Mills and its subsidiaries as a whole; and
- any transaction resulting in directors on the General Mills Board of
Directors immediately prior to the transaction ceasing to represent
two-thirds of the board of directors of the surviving entity or its
ultimate parent entity.
RESTRICTIONS ON DIAGEO STOCKHOLDER GROUP ACTIONS
In the stockholders agreement, Diageo and the Diageo stockholder group will
agree that, during the twenty-year period after the closing of the transaction
or, if earlier, until the third anniversary of the date on which Diageo and the
Diageo stockholder group own less than 5% of the outstanding shares of General
Mills common stock, Diageo and the Diageo stockholder group will not:
- acquire, offer to acquire or agree to acquire any voting securities of
General Mills, except pursuant to stock splits, reverse stock splits,
stock dividends or distributions, or combinations or similar
recapitalizations;
- acquire, offer to acquire or agree to acquire any business or material
assets of General Mills or any of its subsidiaries;
- initiate or propose any offer by any third party to acquire any voting
securities of General Mills, other than in connection with permitted
transfers as described below;
- initiate or propose any merger, tender offer, business combination or
other extraordinary transaction involving General Mills or any of its
subsidiaries;
- act, alone or in concert with others, to seek to affect or influence the
control of the General Mills Board of Directors or the management of
General Mills, or the business, operations, affairs or policies of General
Mills;
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- deposit any General Mills voting securities in a voting trust or subject
any such voting securities to any proxy or other voting arrangement or
agreement;
- initiate or propose any stockholder proposal or make, or in any way
participate in, directly or indirectly, any solicitation of proxies to
vote, or seek to influence any person with respect to the voting of, any
General Mills voting securities, or become a participant in a solicitation
with respect to General Mills voting securities;
- form, join or in any way participate in a group (other than the Diageo
stockholder group) of persons acquiring, holding, voting or disposing of
any General Mills voting securities which would be required to file a
statement on Schedule 13D with the Securities and Exchange Commission;
- propose, or agree to, or enter into any discussions, negotiations or
arrangements with, or provide any confidential information to, any third
party concerning any of the above;
- make any statement or disclosure inconsistent with the foregoing; or
- propose or seek an amendment or waiver of any of the above provisions of
the stockholders agreement.
TRANSFER RESTRICTIONS
In the stockholders agreement, Diageo and the Diageo stockholder group will
agree that so long as the stockholders agreement remains in effect, they will
not transfer any shares of General Mills common stock, except:
- with the prior approval of the General Mills Board of Directors;
- before the eight-month anniversary of the closing date or after the
fourteen-month anniversary of the closing date, in connection with an
underwritten public offering registered under the Securities Act of 1933
in a manner designed to result in a wide distribution;
- before the eight-month anniversary of the closing date or after the
fourteen-month anniversary of the closing date, in a private transaction
to a person or group that would, after giving effect to the transfer,
beneficially own General Mills voting stock representing in the aggregate
less than 5% of the total voting power of the outstanding General Mills
voting stock, or to a person or group that is permitted to file a
Schedule 13G under the Securities Exchange Act of 1934 (generally
including institutional investors and others who acquire shares without
the purpose of changing or influencing the control of General Mills) and
that, after giving effect to the transfer, would beneficially own General
Mills voting stock representing in the aggregate less than 10% of the
total voting power of the outstanding General Mills voting stock;
- following the fourteen-month anniversary of the closing date, according to
Rule 144 under the Securities Act of 1933;
- in connection with a business combination, tender or exchange offer or
other extraordinary transaction recommended by the General Mills Board of
Directors, or in connection with any other tender or exchange offer after
other General Mills stockholders have tendered more than 50% of the
outstanding General Mills common stock and all material conditions to the
offer have been satisfied or waived by the offeror;
- to General Mills or its subsidiaries;
- to a financial institution acting in the capacity of trustee with respect
to an exchangeable or convertible security of Diageo, but only if the
terms of the security and the powers of the trustee are consistent with
the rights, restrictions and limitations in the stockholders agreement and
the distribution of the security and the underlying shares of General
Mills common stock otherwise comply with the transfer restrictions in the
stockholders agreement; or
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- to Diageo or to any controlled affiliate of Diageo or to any new Diageo
holding company so long as the transferee agrees to be bound by the
provisions of the stockholders agreement.
AGREEMENT TO DISPOSE OF SHARES
Diageo and the Diageo stockholder group will agree in the stockholders
agreement to dispose of at least 75% of the Original Shares by the tenth
anniversary of the closing date.
PARTICIPATION IN SHARE REPURCHASE PROGRAMS
Under the stockholders agreement, the Diageo stockholder group will have the
right to participate in General Mills' share repurchase programs. Until the
twentieth anniversary of the closing date or, if earlier, the date on which
Diageo and the Diageo stockholder group own less than 5% of the shares of
General Mills common stock outstanding, following the end of each fiscal year,
General Mills will notify Diageo of the number of shares of General Mills common
stock, if any, repurchased by General Mills during that fiscal year through
general repurchase programs and the average per share price paid in the
repurchases. The Diageo stockholder group will have the right to sell a pro rata
portion of their holdings of General Mills common stock to General Mills at that
average price upon notice to General Mills within 15 days after Diageo receives
General Mills' notice. This right will not be available to the Diageo
stockholder group following the first fiscal year end occurring after the
closing date. However, repurchases from the closing date through the end of the
first-occurring fiscal year end will be included in the next cycle for purposes
of determining the number of shares repurchased, the average purchase price and
the percentage of outstanding shares repurchased.
DEMAND AND PIGGY-BACK REGISTRATION RIGHTS
The Diageo stockholder group will be entitled to demand that General Mills
register the sale of their shares of General Mills common stock a total of
twelve times (demand registration rights), with no more than one registration in
any nine-month period. A demand registration must cover at least $300 million
worth of General Mills common stock, measured on the date of demand, unless the
Diageo stockholder group holds less than $300 million worth of shares, in which
case a demand registration must cover all remaining shares held by the Diageo
stockholder group. Upon a demand registration request, General Mills will have
the right to elect to purchase some or all of the shares requested to be
registered, at a per share price equal to the average high and low per share
trading price of the General Mills common stock over the twenty trading days
ending on the date of the demand registration. The stockholders agreement will
contain customary provisions that limit the amount of General Mills common stock
registered for the Diageo stockholder group if it is inadvisable to register the
number of shares requested and permit General Mills to suspend or delay a demand
registration. The Diageo stockholder group is also entitled to participate in
registered offerings initiated by General Mills or a third party (piggyback
registration rights). All expenses incurred in connection with each
registration, excluding underwriters' discounts and commissions, agents' fees
and commissions and fees of counsel and accountants for the Diageo stockholder
group, will be paid by General Mills.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
The executive officers and directors of General Mills and their affiliates
beneficially owned General Mills common stock and options to purchase General
Mills common stock as set forth under "Security Ownership by Certain Beneficial
Owners and Management." General Mills is not aware of any interests that any of
those individuals has in the transaction that are different from or in addition
to the interests of stockholders of General Mills generally.
48
FINANCIAL AND BUSINESS INFORMATION
PILLSBURY
DESCRIPTION OF BUSINESS
Pillsbury produces and distributes leading food brands including Pillsbury
refrigerated dough and other dough based goods, Old El Paso Mexican foods,
Progresso soups, Green Giant vegetables, and foodservice products.
Pillsbury operates in one segment through three divisions: Pillsbury North
America, Pillsbury Bakeries and Foodservice, and Pillsbury International.
Pillsbury North America produces, markets and distributes a wide range of
consumer food packaged goods in the United States and Canada. Pillsbury Bakeries
and Foodservice manufactures and markets products to in-store/retail bakery and
foodservice businesses in the United States and Canada, and to wholesale bakery
businesses in the United States. Pillsbury International produces, markets, and
distributes consumer food products principally in Europe, Asia Pacific, Latin
America and South Africa.
Pillsbury's principal brands include:
Pillsbury refrigerated baked goods Green Giant frozen and canned vegetables
Pillsbury Grands! refrigerated biscuits and sweet rolls Green Giant Create a Meal! meal starters
Pillsbury Toaster breakfast pastries Totino's frozen pizza and snacks
Hungry Jack refrigerated baked goods, dehydrated Old El Paso Mexican foods
potatoes, frozen pancakes and pancake mixes, Progresso soups and Italian ingredient
foods
waffles and syrup Martha White baking mixes
Pillsbury desserts and baking mixes Pet-Ritz frozen pie shells
Haagen-Dazs ice cream, frozen yogurt and
sorbet products
The category information, given in the narrative below in respect of
Pillsbury, is sourced from information supplied by ACNielsen.
PILLSBURY NORTH AMERICA. Pillsbury North America ("PNA") is the largest
division in Pillsbury and comprises a number of branded food products.
DOUGH BASED PRODUCTS. Pillsbury manufactures refrigerated ready-to-bake
dough products, frozen breakfast products and frozen pizza and snacks. The
majority of volume is generated by products ranked number one or two in terms of
US sales revenue in the sub-categories in which they compete. Pillsbury is the
category leader in refrigerated baked goods in North America. In the US,
Pillsbury ranks second in the principal frozen breakfast category in which
Pillsbury competes, which comprises toaster pastries, frozen waffles, and frozen
pancakes. Pillsbury's frozen pizza and hot snacks products are sold under the
Totino's and Jeno's brand names. Pillsbury is the category leader in the United
States in terms of sales volume in the combined frozen pizza and hot pizza
snacks category.
Refrigerated baked goods include regular and premium biscuits and specialty
products, such as sweet rolls, breads, cookies, and refrigerated and frozen pie
crusts, sold under brand names including Pillsbury, Hungry Jack and Pet-Ritz.
Frozen breakfast products include pancakes, waffles, and Toaster Strudel and
Scrambles pastries. These products are produced at plants in Illinois, Indiana,
Tennessee, and Texas, and at a plant in Canada. Frozen pie shells are produced
at a facility in Georgia. Pizza products and snacks are primarily manufactured
at a facility in Ohio.
DESSERT AND SPECIALTY PRODUCTS. Pillsbury is a major participant in the
dessert and specialty product businesses in the United States. Dessert and
baking mix products include cakes, frostings, brownies, specialty bread mix
products, muffins, flour, cornmeal and grits. In the United States, Pillsbury
ranks
49
second in desserts and baking mixes, family flour, and pancake mixes and syrup.
These products are made by Pillsbury in Tennessee and by third parties through
contract manufacturing arrangements elsewhere. These products are marketed under
the Pillsbury, Hungry Jack and Martha White brand names. Pillsbury participates
in the dry side dish business, selling dehydrated potatoes under the Hungry Jack
brand name. Pillsbury's potato products are produced under a contract
manufacturing arrangement in Idaho.
VEGETABLES. The vegetables business is a leading marketer of branded frozen
and shelf stable vegetables in the United States. Pillsbury has focused on high
quality premium-priced vegetables, which are marketed under the Green Giant
brand name. In fiscal 2000, Pillsbury's vegetable products represented
approximately 20% of the total US sales of frozen and canned vegetables, with
Green Giant the sales leader in the combined frozen/canned vegetable segment.
Pillsbury's other marketed brand names include B in B and LeSueur. Green Giant
canned vegetables are processed by Seneca under a long term supply agreement. In
addition to the United States, PNA is the sales leader in shelf stable and
frozen vegetables in Canada, marketed primarily under the Green Giant brand
name.
MEXICAN FOODS. PNA is a leading US producer of a wide variety of Mexican
food products marketed primarily under the Old El Paso brand name. Old El Paso
participates in the shelf stable salsa, taco, dinner kit, canned refried beans
and seasoning categories. In total, the division's Mexican sauces and shelf
stable Mexican meal items are the US sales leader in the Mexican food category.
Production of Mexican foods is primarily based in plants located in Missouri and
Texas.
SOUPS AND INGREDIENT FOODS. Pillsbury manufactures and markets soups and
Italian ingredients. Progresso is a major participant in the ready-to-serve soup
category and is the second leading brand in the US canned soup industry.
Additionally, Progresso offers a number of specialty Italian ingredient
products, including breadcrumbs, seafood pasta sauces, beans, tomatoes, olive
oil, vinegar and specialty appetizers. Production of Progresso soups and
ingredients is primarily based in plants located in Georgia, New Jersey and
Missouri.
SALES ORGANIZATION. In March 2000, PNA announced a major change in its
method of selling all of its products. All Pillsbury businesses, including
frozen products, are now handled by Pillsbury direct sales teams for its largest
customers. Pillsbury's smaller customers and selling activities at all
customers' retail stores are handled by Crossmark, Inc., a national broker.
FROZEN DESSERTS JOINT VENTURE. The joint venture between Pillsbury and
Nestle USA was formed in October 1999 for the manufacture, marketing and
distribution of Haagen-Dazs and Nestle ice cream products in the United States.
PNA also has approximately 220 Haagen-Dazs franchised retail outlets
concentrated in the northeastern United States, Florida and California, which
are operated separately from the ice cream joint venture with Nestle USA.
COMPETITION. The branded food business in North America is highly
competitive. The majority of PNA products are sold through various types of
retail outlets, such as large supermarkets, medium-sized and small grocery
stores and convenience stores. Although this division's products are generally
either the category leader or a major participant, they face intense competition
from other manufacturers' products. PNA competes mainly on the basis of quality,
consumer loyalty and price. The division spends significant amounts on
advertising, marketing and promotion to strengthen the appeal of its brands and
to reinforce the quality image with which many of the products are associated.
The division's major competitors in the branded foods business tend to be
large national and international companies such as General Mills in dessert and
baking mixes, Kellogg in breakfast products, Kraft Foods in frozen pizza, Del
Monte and Dean Foods in vegetables, Nestle and Earthgrains in refrigerated
dough, Campbell Soup in Mexican foods and soups, Ben & Jerry's, Mars and
Unilever in frozen desserts, and, to a lesser extent, private label and regional
companies. In
50
addition to competition from other brands, PNA faces competition from generic
food products. The division is also affected by consumer trends emphasizing
healthy eating, convenience and eating away from home.
PILLSBURY BAKERIES AND FOODSERVICE. Pillsbury Bakeries and Foodservice
manufactures and markets bakery products to in-store/retail bakery, foodservice
and wholesale bakery businesses in the United States and to the in-store/retail
bakery and foodservice industry in Canada. Pillsbury Bakeries and Foodservice
also manufactures and markets certain non-bakery branded products for
foodservice businesses. Its products include a wide range of Pillsbury branded
bakery products and baking mixes, as well as Old El Paso and Progresso branded
non-bakery products. Recent acquisitions enhanced the position of the Pillsbury
Bakeries and Foodservice division as a manufacturer and supplier of frozen
unbaked and pre-baked dough products, as a manufacturer of variety and specialty
bread concentrates for wholesale bakers, and as a leading manufacturer of
high-quality frozen, partially baked breads and rolls for foodservice and
in-store/retail bakery customers. The manufacturing facilities for the Pillsbury
Bakeries and Foodservice division are located in Arizona, California, Florida,
Georgia, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota,
Missouri, Ohio, New Jersey, New York, Pennsylvania, Oklahoma, and five locations
in Canada.
COMPETITION. The wholesale bakery, in-store/retail bakery and foodservice
industries are highly competitive. The division's major competitors include
International Multifoods and General Mills in the bakery mix business, Sara Lee
and Rich Products in frozen bakery and Campbell Soup and Nestle in the
non-bakery foodservice regions. The division competes on the basis of quality,
technical support, innovation and price.
PILLSBURY INTERNATIONAL. Pillsbury International operates through
subsidiaries and joint ventures to manufacture and market the Pillsbury, Green
Giant, Haagen-Dazs and Old El Paso brands and other local brands outside the
United States and Canada. Pillsbury International also exports these major
Pillsbury brands to regions outside the United States and Canada.
LATIN AMERICA AND AFRICA. Pillsbury International operates through two
subsidiaries in Argentina: La Saltena and Deli France. La Saltena manufactures
and sells refrigerated dough products and fresh pasta, and Deli France is a
bakery and foodservice company. In Brazil, Pillsbury manufactures and markets
pasta primarily under the Frescarini brand. In Venezuela, canned meat spreads
are produced and sold through the Diveca subsidiary. In Puerto Rico,
refrigerated baked goods are manufactured and marketed under the Productos
Kikuet brand. Elsewhere in the region, Pillsbury's brands are distributed in
Mexico, Colombia, Caribbean Islands, Peru and other countries. Pillsbury baked
goods are also manufactured and distributed throughout the southern part of
Africa.
ASIA PACIFIC. In Australia and New Zealand, Pillsbury manufactures and
sells chilled pasta and Old El Paso Mexican food. Haagen-Dazs is marketed across
the region through joint ventures in Japan, Taiwan, Korea, the Philippines and
Thailand. Green Giant vegetables are marketed through a subsidiary in Taiwan and
through distributors elsewhere in the region. Chinese dumplings are manufactured
and marketed under the Wanchai Ferry brand in Hong Kong and China. In India,
whole-wheat flour is produced and marketed under the Pillsbury brand through a
joint venture.
EUROPE. Pillsbury International markets and manufactures Pillsbury,
Haagen-Dazs, Green Giant and Old El Paso brands, together with the Jus-rol
pastry brand in the United Kingdom and the Knack and Back refrigerated dough
brand in Germany. Manufacturing facilities for Haagen-Dazs are located in
France, for Green Giant in France and Spain and for Old El Paso in the
Netherlands and Spain. This region also includes Israel and the Middle East
countries where the Haagen-Dazs, Old El Paso, Green Giant and Pillsbury brands
are distributed.
51
COMPETITION. The competition to Pillsbury International varies by country,
ranging from large international companies to smaller national and regional
companies. The division competes mainly on the basis of brand, quality and
price.
ACQUISITIONS AND DISPOSALS. Pillsbury has made several acquisitions and
dispositions during the last five years. In February 2000, Pillsbury acquired
DCA Bakery, a manufacturer of bakery mixes, fillings, icings and glazes that
sells to the bakery industry in both the United States and Canada. Also in
fiscal 2000, Pillsbury acquired several businesses in the Asia Pacific and Latin
America regions, including Forno de Minas, a cheese bread business in Brazil. In
May 1999, Pillsbury acquired Hazelwood Farm Bakeries, one of the largest
manufacturers in the United States of frozen unbaked and par-baked dough
products for both in-store/retail businesses as well as the bakery foodservice
industry. In October 1998, Pillsbury acquired the bakery products division of
Heinz which provided the Pillsbury Bakeries and Foodservice division with two
new product offerings, frozen unbaked bagels and frozen unbaked bread dough.
Also in fiscal 1999, Pillsbury made three acquisitions outside of the United
States including Productos Kikuet, Puerto Rico's largest refrigerated dough
company, Haagen-Dazs Pinedale, a distributor of Haagen-Dazs ice cream in Hong
Kong, and Pasta Fresca, a leading brand of chilled pasta and sauces in New
Zealand. In fiscal 1997, Pillsbury acquired Deli France, a bakery and
foodservice company in Argentina. In fiscal 1996, Pillsbury acquired Pasta
House, the sales leader in Australia in fresh pasta and sauces, and Frescarini,
Brazil's leading brand of refrigerated dough and fresh pasta.
In recent years, Pillsbury has disposed of a number of its non-strategic
businesses. In June 2000, Pillsbury sold its Pacific Star distribution business
in Mexico. In March 1999, Pillsbury sold six regional branded businesses in the
United States which included Underwood Meat Spreads, B&M Baked Beans, Ac'cent
and Sa-son Ac'cent flavor enhancers, Las Palmas ethnic Mexican food and Joan of
Arc canned beans. Also in fiscal 1999, Pillsbury sold the Jus-rol potato
business in the United Kingdom. In fiscal 1997, Pillsbury sold Aunt Nellie's
Farm Kitchens, a vegetables business in the United States. In fiscal 1996,
Pillsbury sold the Dixie Lily rice and bean business, and the Primo Foods
business in Canada.
In October 1999, Pillsbury and Nestle USA formed a joint venture comprising
the Nestle USA Novelty ice cream business and Pillsbury's US Haagen-Dazs frozen
dessert business. The joint venture, Ice Cream Partners USA, LLC, merged the US
assets of Haagen-Dazs and the assets of Nestle's USA Ice Cream Division. The
parent companies retained ownership of the brands and applicable technology, and
licensed them to the joint venture. The joint venture does not include either
party's international operations or the Haagen-Dazs US retail shop system.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Pillsbury's principal business is its branded packaged food businesses in
the United States with a business strategy to strengthen and increase consumer
appeal for its branded products. Pillsbury's foodservice and bakery business
strategy is to grow the business through organic growth and with tactical
acquisitions to enable the business to become a major supplier to both the
wholesale and retail food industries in the United States and Canada.
Pillsbury's international business strategy is to pursue growth in other areas
of the world by focusing on the Pillsbury key brands, as well as select local
brands and foodservice opportunities.
As a part of Diageo, the Pillsbury capital and debt structure has been
determined principally by intercompany financing of the Pillsbury acquisition by
Grand Metropolitan Public Limited Company (now a wholly owned subsidiary of
Diageo) in 1989 and by Pillsbury's acquisition of Pet Incorporated in 1995 as
well as other Pillsbury acquisitions. This structure is highly leveraged,
resulting in significant interest expense for Pillsbury.
The merger agreement provides that at the closing of the combination with
General Mills, Pillsbury will have an aggregate of up to $5.142 billion of debt,
consisting of existing third party debt
52
and new debt. Pillsbury will distribute the proceeds of this new debt to Diageo
prior to closing, at Pillsbury's election, either as a dividend and/or by
repaying intercompany obligations. At the time the transaction is completed,
Pillsbury and Diageo will settle all remaining intercompany obligations owed by
any Pillsbury entity to any Diageo entity (other than those being acquired by
General Mills), and any receivables of any Pillsbury entity owed by any such
Diageo entity to a Pillsbury entity (by way of capital contribution or dividend
in kind).
In the discussion below, organic movement refers to the local currency
movements excluding the impact of acquisitions and disposals.
YEAR ENDED JUNE 30, 2000 COMPARED WITH YEAR ENDED JUNE 30, 1999
YEAR ENDED JUNE 30
-------------------
SELECTED FINANCIAL INFORMATION 2000 1999
- ------------------------------ -------- --------
($ IN MILLIONS)
Net sales................................................... 6,078 6,137
Cost of sales............................................... 3,438 3,467
Selling, general and administrative......................... 1,853 1,930
Amortization of intangibles................................. 206 201
Unusual expense items....................................... 63 93
Earnings before interest, taxes and earnings from joint
ventures.................................................. 533 398
Interest expense, net, factoring and other charges from
affiliated companies...................................... 700 621
Net (loss).................................................. (141) (230)
In fiscal 2000, reported sales for Pillsbury declined 1% as sales increases
from acquisitions were more than offset by the absence of Haagen-Dazs sales due
to the October 1999 formation of the ice cream joint venture with Nestle, the
sales of which are not included in Pillsbury's net sales, and by lower sales
from several product lines. Sales on an organic basis were flat. The fiscal 2000
net loss of $141 million improved from a fiscal 1999 net loss of $230 million
due principally to a 4% decrease in selling, general and administrative expenses
(principally from the absence of Haagen-Dazs selling, general and administrative
expenses and lower selling and brokerage costs) and lower unusual expense items
(restructuring and acquisition integration costs) that more than offset an
increase in interest expense, net, factoring and other charges from affiliated
companies.
In the discussion below, consumer takeaway represents sales of Pillsbury
products in the retail grocery channel, not net sales of Pillsbury. The
percentage movements shown for consumer takeaway by category are given, as they
are regarded as the most meaningful comparison to determine market performance.
The consumer takeaway and category information provided below is sourced from
information supplied by ACNielsen.
In PNA, volume and net sales declined 2% on an organic basis reflecting the
strong competitive environment in refrigerated baked goods, frozen breakfast,
frozen vegetables, and Mexican foods and reduced marketing spending on shelf
stable vegetables. Marketing investment as a percentage of net sales rose
2 percentage points over last year as the decline in sales was greater than the
decrease in marketing spending.
Within dough based products, Refrigerated Baked Goods net sales and consumer
takeaway declined 3% and 2% respectively while the category grew 1%. In Frozen
Breakfast, net sales declined 7% while consumer takeaway was off 5% and the
category declined 2%. In Frozen Pizza and Snacks, net sales increased 9% with
consumer takeaway up 8% primarily driven by category growth of 9%.
In non-dough products, Desserts and Specialty Products net sales increased
1% but consumer takeaway and the category declined 1%. In Green Giant Shelf
Stable, net sales declined 15% and consumer takeaway was off 9% while the
category declined 1%. In Green Giant Frozen, net sales and
53
consumer takeaway declined 10% and 7% respectively and the category declined 2%.
In Progresso, net sales of ready-to-serve soup were up 17% and consumer takeaway
increased 14% driven by effective advertising and the total canned soup category
was flat. Mexican net sales declined 7% with a 4% drop in consumer takeaway
while the category grew 4%.
In Bakeries and Foodservice, a 5% organic increase in volume was achieved
due principally to continued growth in frozen dough from biscuits and cookies.
Volume in absolute terms increased 35% over last year including a full year of
Heinz bakery products (9 months previous year), a full year of Hazelwood Farms
Bakeries (versus one month in fiscal 1999) and approximately four months from
the recent DCA Bakery acquisition. Net sales increased 30% to $1,245 million.
Pillsbury International organic volume and net sales grew 1% and 4%
respectively. International recorded strong growth in Europe and Asia Pacific
regions while organic volume declined in Latin America from difficult economic
conditions in Argentina and Brazil.
Unusual expense items in the year ended June 30, 2000 amounted to
$63 million before income tax benefits. Included were $38 million in
restructuring costs for Pillsbury's March 2000 reorganization which included 400
employee terminations and transition payments to a new sales broker;
$17 million for integration costs related to the acquisitions of DCA Bakery,
Hazelwood Farms Bakeries and the bakery products division of Heinz; and
$8 million for costs incurred in connection with the creation of the ice cream
joint venture with Nestle USA.
Unusual expense items in the year ended June 30, 1999 amounted to
$93 million before income tax benefits. Included were $28 million for
integration costs related to the acquisitions of Hazelwood Farms Bakeries and
the bakery products division of Heinz; and $65 million for the closure of a
Haagen-Dazs production facility in New Jersey.
CASH FLOW
A summary of Pillsbury's cash flow for the two years ended June 30, 2000 is
as follows:
YEAR ENDED JUNE 30
-------------------
2000 1999
-------- --------
($ IN MILLIONS)
From operations............................................. 128 235
Net capital expenditures.................................... (258) (303)
Acquisitions of businesses.................................. (172) (526)
Disposals of businesses..................................... 7 221
External debt, net.......................................... 5 (117)
Net borrowings from affiliated companies.................... 303 957
Dividends................................................... (7) (482)
Other....................................................... 5 14
---- ----
Increase (decrease) in cash and cash equivalents............ 11 (1)
==== ====
In fiscal 2000, cash requirements for capital expenditures of $258 million
and acquisitions of businesses (principally foodservice and bakery acquisitions)
for $172 million were met by cash inflow from operations of $128 million (net of
$628 million for interest) and an increase ($303 million) in net borrowings from
financing affiliated companies of Diageo under Diageo's centralized cash
management system. In fiscal 1999, net cash flow was flat as cash inflows from
operations ($235 million, net of $555 million for interest), disposals of
businesses ($221 million), and net borrowings from affiliated companies
($957 million) were offset by capital expenditures ($303 million), acquisitions
of foodservice and other businesses ($526 million), external debt repayments
($117 million), and dividends ($482 million).
54
YEAR ENDED JUNE 30, 1999 COMPARED WITH 9 MONTHS ENDED JUNE 30, 1998 (AND
COMPARED WITH YEAR ENDED JUNE 30, 1998)
In fiscal 1998, Pillsbury changed its year end from September 30 to
June 30. The following discussion of sales for the year ended June 30, 1999 has
been prepared based on a comparison to the unaudited results of Pillsbury for
the year ended June 30, 1998.
9 MONTHS UNAUDITED
YEAR ENDED ENDED YEAR ENDED
JUNE 30 JUNE 30 JUNE 30
---------- -------- ----------
SELECTED FINANCIAL INFORMATION 1999 1998 1998
- ------------------------------ ---------- -------- ----------
($ IN MILLIONS)
Net sales................................................... 6,137 4,502 6,008
Cost of sales............................................... 3,467 2,550 (a)
Selling, general and administrative......................... 1,930 1,489 (a)
Amortization of intangibles................................. 201 150 (a)
Unusual expense items....................................... 93 60 (a)
Earnings before interest, taxes and earnings from joint
ventures.................................................. 398 272 (a)
Interest expense, net, factoring and other charges from
affiliated companies...................................... 621 459 (a)
Net (loss).................................................. (230) (164) (a)
- ------------------------
NOTES:
(a) Not available
Net sales for Pillsbury increased $129 million (2%) from $6,008 million in
the year ended June 30, 1998 to $6,137 million in the year ended June 30, 1999.
On an organic basis, net sales were up 2% compared to the year ended June 30,
1998 reflecting growth in all three divisions. Organic volume was up 1% for the
year.
In the discussion below, consumer takeaway represents sales of Pillsbury
products in the retail grocery channel, not net sales of Pillsbury. The
percentage movements shown for consumer takeaway by category are given, as they
are regarded as the most meaningful comparison to determine share of total
sales. The consumer takeaway information provided below is sourced from
information supplied by ACNielsen.
In PNA, volume for the year was flat. Organic net sales growth was 1% for
the year. In Refrigerated Baked Goods, net sales and consumer takeaway were up
2%. In Frozen Breakfast, net sales were up 8% and consumer takeaway up 9% with
consumer takeaway of toaster pastry up 19% following an increase in production
capacity. In Desserts and Specialty Products, net sales and consumer takeaway
declined 4%. In Green Giant Shelf Stable, volume and net sales increased 11% and
17% respectively. In Green Giant Frozen, volume was off 1% and net sales
declined 4%. In Progresso, net sales of ready-to-serve soup increased 11% and
consumer takeaway was up 10%. Mexican net sales in North America continued to
decline and were 6% less than the prior year. Internationally, the Old El Paso
brand continued to perform well with net sales in Europe up 35%.
In Bakeries and Foodservice, a 5% organic increase in volume was achieved.
Volume increased 29% including the acquisitions of the Heinz bakery products
unit in October 1998 and of the Hazelwood Farms Bakeries business in May 1999.
Net sales increased 17%.
A number of tactical acquisitions were made in the International business,
but weaker economic conditions in Japan, Brazil and Argentina depressed results.
Volume on a comparable basis was in line with last year, however net sales were
up 4% due to price increases and mix improvements.
55
Unusual expense items in the 9 months ended June 30, 1998 were $60 million
before income tax benefits and included $58 million arising from employee stock
option plans where the performance criteria were waived following the merger of
Grand Metropolitan Public Limited Company and Guinness PLC in December 1997.
CASH FLOW
A summary of the cash flow for the 9 months ended June 30, 1998 is as
follows:
9 MONTHS ENDED
JUNE 30
---------------
1998
---------------
($ IN MILLIONS)
From operations............................................. (23)
Net capital expenditures.................................... (204)
Acquisitions of businesses.................................. (16)
Disposals of businesses..................................... 28
External debt, net.......................................... (12)
Net borrowings from affiliated companies.................... 214
Dividends................................................... (4)
Other....................................................... 3
----
Decrease in cash and cash equivalents....................... (14)
====
In the 9 months ended June 30, 1998, cash requirements for capital
expenditures of $204 million were principally provided by an increase in net
borrowings from affiliated companies as there was a cash outflow of $23 million
from operations (of which $409 million was for interest).
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
RISK MANAGEMENT
Pillsbury's funding, liquidity and exposure to interest rate and foreign
exchange rate risks are managed by Diageo's treasury department on a group wide
basis.
COMMODITY PRICE RISK
Certain raw materials used in the production/distribution of Pillsbury's
products are exposed to price fluctuations. This risk is managed through an
integrated set of financial instruments including purchase orders,
non-cancellable contracts, futures contracts, futures options and swaps.
Pillsbury uses these financial instruments to hedge anticipated purchases of
wheat flour, soybean oil, corn flour and anticipated usage of diesel fuel.
Commodity futures are then either sold at the time the raw material is purchased
or they are exchanged with the company manufacturing the raw material to
determine the contract price. Commodity contracts are held in the balance sheet
at fair value but any gains or losses are deferred until the contracts are sold
or exchanged. As of June 30, 2000, Pillsbury has unrealized losses of
$2 million on open futures and options contracts for anticipated future
purchases of wheat flour, soybean oil and corn flour and deferred losses of
$2 million on closed contracts. Anticipated profits from the sale of the
finished goods are expected to cover these losses. The estimated maximum
potential one-day loss at fair value on the open futures and option contracts as
of June 30, 2000 is approximately $700,000. The estimated maximum one-day loss
was calculated using loss-limits in place at the exchanges in which Pillsbury
does business (principally the Kansas City Board of Trade).
56
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet of General Mills as
of May 28, 2000 and the unaudited pro forma combined statement of earnings of
General Mills for the fiscal year ended May 28, 2000 have been prepared to
illustrate the effects of the following transactions:
- General Mills' purchase of Pillsbury. In the merger agreement, General
Mills agreed to issue to the Diageo stockholder group 141 million shares
of General Mills common stock as consideration for Pillsbury. See
"Description of the Transaction--The Merger Agreement."
- Pillsbury will have an aggregate of up to $5.142 billion of debt when we
complete the transaction. This debt will consist of existing third party
debt and new third party debt arranged prior to completing the
transaction. Pillsbury will distribute the proceeds of the new debt to
Diageo prior to that time (either as a dividend and/or by way of repayment
of intercompany debt) and Diageo and Pillsbury will settle any remaining
intercompany debt owing to Diageo and its continuing affiliates at the
time we complete the transaction. See "Description of the Transaction--The
Merger Agreement--Pillsbury Debt."
The unaudited pro forma combined balance sheet as of May 28, 2000 gives
effect to the transaction and anticipated borrowings by Pillsbury as if they had
occurred on May 28, 2000. The unaudited pro forma combined statement of earnings
for the fiscal year ended May 28, 2000 assumes the transaction and anticipated
borrowings were effected on May 31, 1999. We will account for the transaction
under the purchase method. For purposes of preparing the General Mills'
consolidated financial statements, General Mills will establish a new basis for
Pillsbury's assets and liabilities based upon their fair values and the purchase
price paid by General Mills for Pillsbury, including the costs of the
transaction. General Mills has not yet made a final determination of required
purchase accounting adjustments, including the allocation of the purchase price
to the assets acquired and liabilities assumed based on their fair values.
Accordingly, the purchase accounting adjustments made in connection with the
development of the pro forma combined financial information are preliminary and
we have made them solely for purposes of developing the pro forma combined
financial information. General Mills will undertake a study to determine the
fair value of certain of Pillsbury's assets and liabilities and will make
appropriate purchase accounting adjustments upon completion of that study. The
final allocation may be different from the amounts reflected in this proxy
statement.
The unaudited pro forma combined statement of earnings does not include pro
forma adjustments to reflect cost savings from synergies which may be achievable
subsequent to the closing of the transaction or the impact of nonrecurring items
directly related to the transaction. The unaudited pro forma combined balance
sheet as of May 28, 2000 includes the estimated costs associated with the
transaction.
The accompanying notes to the unaudited pro forma combined financial
statements describe the pro forma adjustments and the assumptions on which they
are based.
We are presenting the unaudited pro forma combined financial statements for
illustrative purposes only to aid you in your analysis of the financial aspects
of the transaction. You should not rely on the unaudited pro forma combined
financial information as reflecting the combined financial position or results
of operations that General Mills would have realized had General Mills and
Pillsbury been a single entity during the periods presented. In addition, the
unaudited pro forma combined financial information does not necessarily reflect
the future results that the combined company will experience after the
transaction. You should read the unaudited pro forma combined financial
statements and related notes in conjunction with the historical financial
statements of General Mills and Pillsbury. The annual reports and other
information that we have filed with the Securities and Exchange Commission
contain the historical financial statements and related notes of General Mills.
See "Additional Information--Where You Can Find More Information." You can find
the historical combined financial
57
statements and related notes of Pillsbury on pages F-1 through F-24 in this
proxy statement. See also "Selected Historical Financial Data of Pillsbury" and
"Financial and Business Information--Management's Discussion and Analysis of
Financial Condition and Results of Operations".
PRO FORMA COMBINED BALANCE SHEET
AS OF MAY 28, 2000
(IN MILLIONS) (UNAUDITED)
PRO FORMA (A)
GENERAL --------------------------
MILLS PILLSBURY TRANSACTION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
Cash and cash equivalents......................... $ 26 $ 56 $ 82
Receivables, net.................................. 500 441 941
Inventories....................................... 510 468 10 (b) 988
Prepaids and other current assets................. 88 105 193
Deferred income taxes............................. 66 66
------- ------ ------- -------
Total Current Assets.......................... 1,190 1,070 10 2,270
------- ------ ------- -------
Land, buildings and equipment at cost, net........ 1,405 1,412 (c) 2,817
(6,648)(d)
Other assets (including intangibles).............. 1,979 6,982 8,739 (e) 11,052
------- ------ ------- -------
Total Assets.................................. $ 4,574 $9,464 2,101 $16,139
======= ====== ======= =======
Accounts payable.................................. $ 641 $ 472 50 (f) 1,163
Current portion of long-term debt................. 414 43 (43)(g) 414
Notes payable..................................... 1,086 1,086
Accrued taxes..................................... 105 129 234
Accrued payroll................................... 142 99 241
Other current liabilities......................... 141 244 385
------- ------ ------- -------
Total Current Liabilities..................... 2,529 987 7 3,523
------- ------ ------- -------
Long-term debt.................................... 1,760 7,647 (2,505)(g) 6,902
Deferred income taxes............................. 298 1,036 (1,070)(h) 264
Deferred income taxes--tax leases................. 90 90
Other liabilities................................. 186 412 598
------- ------ ------- -------
Total Liabilities............................. 4,863 10,082 (3,568) 11,377
------- ------ ------- -------
Common stock...................................... 681 3,169 1,882 (i) 5,732
Retained earnings................................. 2,114 (3,774) 3,774 (i) 2,114
Treasury stock.................................... (2,935) (2,935)
Unearned compensation............................. (63) (63)
Accumulated other comprehensive income............ (86) (13) 13 (i) (86)
------- ------ ------- -------
Total Stockholders' Equity.................... (289) (618) 5,669 4,762
------- ------ ------- -------
Total Liabilities and Equity.................. $ 4,574 $9,464 2,101 $16,139
======= ====== ======= =======
NOTES TO PRO FORMA COMBINED BALANCE SHEET
(a) The accompanying pro forma combined balance sheet combines the General Mills
balance sheet as of May 28, 2000 with the Pillsbury balance sheet as of
June 30, 2000 as if the transaction had been consummated at May 28, 2000.
The Pillsbury historical balance sheet includes those assets and liabilities
either directly attributable to Pillsbury or that have been allocated to
Pillsbury based
58
upon methods considered reasonable by Diageo's management. This pro forma
combined balance sheet includes the assets and liabilities of businesses
which may be divested. We have not finally determined the businesses to be
divested or the form of the dispositions. We therefore cannot reflect the
impact of any such divestitures on the pro forma combined balance sheet. We
do not expect any adjustments to the pro forma combined balance sheet as a
result of planned dispositions would be material. Also, the debt on this pro
forma combined balance sheet does not reflect a reduction for any estimated
proceeds associated with businesses which may be divested subsequent to the
transaction.
(b) This estimated adjustment for inventories is to reflect the new book basis
for the Pillsbury inventories, using the purchase method of accounting.
(c) It is assumed that the new book basis of the combined fixed assets from
Pillsbury using the purchase method of accounting is substantially the same
as the historical net book value to Pillsbury.
(d) This adjustment is to eliminate the book basis of intangible assets on the
Pillsbury balance sheet as of the closing.
(e) This adjustment represents the difference between the estimated market
valuation of the General Mills stock to be issued in the transaction ($5,051
million, based on the average closing price on the New York Stock Exchange
for the trading days from July 12, 2000 through July 19, 2000) and the net
value of the estimated amounts preliminarily assigned to identifiable assets
acquired less liabilities assumed in the transaction. This estimated amount
will ultimately be assigned to the identifiable assets acquired, less
liabilities assumed in the transaction and then to identified intangible
assets and goodwill as required by the application of the purchase method of
accounting.
(f) This adjustment represents the estimated accrued transaction costs to be
incurred as the transaction is completed. The costs are primarily General
Mills' financial advisory, legal, accounting and similar expenses.
(g) These adjustments are to reduce the total debt (current and long-term) on
the Pillsbury balance sheet to the $5,142 million external debt that should
be on the Pillsbury balance sheet at closing pursuant to the merger
agreement. Pillsbury and Diageo will settle all remaining long-term debt at
the completion of the transaction.
(h) This estimated adjustment for deferred taxes is to eliminate the book basis
of deferred income taxes on the Pillsbury balance sheet as of June 30, 2000
and reflect the tax effect on the difference between the new book basis and
the tax basis of the combined assets and liabilities of Pillsbury, using the
purchase method of accounting.
(i) These adjustments are to eliminate the Pillsbury stockholders' equity as of
the closing and to record the estimated market valuation ($5,051 million,
based on the average closing price on the New York Stock Exchange for the
trading days from July 12, 2000 through July 19, 2000) of the General Mills
stock to be issued in the transaction.
59
PRO FORMA COMBINED STATEMENT OF EARNINGS
AS OF MAY 28, 2000
(IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
PRO FORMA (A)
GENERAL -----------------------
MILLS PILLSBURY TRANSACTION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
Sales.............................................. $ 6,700 6,078 (b) $ 12,778
Cost of sales.................................... 2,697 3,438 6,135
Selling, general and administrative.............. 2,904 2,044 19 (c) 4,967
Interest, net.................................... 152 700 (340)(d) 512
Unusual items.................................... 63 63
-------- -------- ------ ---------
Earnings (loss) before taxes and earnings of joint
ventures......................................... 947 (167) 321 1,101
Income taxes (benefit)............................. 336 (4) 156 (e) 488
Earnings from joint ventures....................... 3 22 25
-------- -------- ------ ---------
Net earnings (loss)................................ $ 614 (141) 165 $ 638
======== ======== ====== =========
Earnings per share--basic.......................... $ 2.05 N/A N/A $ 1.45
Average number of common shares.................... 299.1 N/A 141.0 (f) 440.1
Earnings per share--diluted........................ $ 2.00 N/A N/A $ 1.42
Average number of common shares.................... 307.3 N/A 141.0 (f) 448.3
- ------------------------
NOTES TO PRO FORMA COMBINED STATEMENT OF EARNINGS
(a) The accompanying pro forma combined statement of earnings for the year ended
May 28, 2000 combines the General Mills statement of earnings for the 52
weeks ended May 28, 2000 with the Pillsbury statement of earnings for the
12 months ended June 30, 2000, as if the transaction had been consummated at
May 31, 1999. The Pillsbury historical statement of earnings includes those
revenues and expenses either directly attributable to Pillsbury or that have
been allocated based upon methods considered reasonable by Diageo's
management. This pro forma combined statement of earnings includes the
results of businesses which may be divested. We have not finally determined
the businesses to be divested or the form of the dispositions. We therefore
cannot reflect the impact of any such divestitures on the pro forma combined
statement of earnings. We do not expect any adjustments to the pro forma
combined statement of earnings as a result of planned dispositions would be
material. (Revenues of businesses which may be divested represent
approximately 5% of pro forma combined sales). The pro forma combined
statement of earnings does not include pro forma adjustments to reflect cost
savings from synergies which may be achievable subsequent to the closing of
the transaction. One-time, nonrecurring transaction and integration costs
associated with the transaction have not been reflected in this pro forma
combined statement of earnings. A final determination of the required
purchase accounting adjustments has not yet been made, and the earnings
results will vary from these pro forma earnings shown.
(b) Sales (and the implicit selling prices) are all as reported historically,
and have not been adjusted for any price changes.
(c) The $19 million adjustment represents the elimination of Pillsbury
amortization of intangibles ($206 million) and the addition of the estimated
amount of intangibles amortization expense ($225 million) to be recorded,
assuming straight-line amortization of an estimated $9.0 billion of
intangibles (resulting from this transaction) over a life of 40 years.
60
(d) The interest adjustment of a reduction of $340 million when included with
the $700 million of Pillsbury historical interest expense reflects one
year's estimated interest expense (assuming a rate of 7% per annum) for the
debt that should be on the Pillsbury balance sheet at closing pursuant to
the merger agreement. See note (g) to the pro forma combined balance sheet.
(e) The adjustment to tax expense results from providing taxes at a 37% rate
(net combined federal and state) against the pretax pro forma adjustments.
The adjustment also includes elimination of a tax benefit recorded on a
portion of Pillsbury's intangibles amortization. The amortization of the
intangibles resulting from this transaction is not deductible and therefore
receives no tax benefit. As a result of this and other factors discussed in
note 14 to the Pillsbury combined financial statements on page F-17, the
effective tax rate on the pro forma combined results is 44%.
(f) This adjustment reflects the 141 million shares of General Mills common
stock to be issued in the transaction. For purposes of the pro forma
information, such shares were deemed to be outstanding for the entire pro
forma period.
61
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of General Mills common
stock beneficially owned as of June 30, 2000 by (1) each person who is known to
General Mills to own beneficially more than 5% of the outstanding shares of
General Mills common stock, (2) each director of General Mills, (3) each of the
five most highly compensated executive officers of General Mills and (4) all
directors and executive officers of General Mills as a group. Amounts reflect
the two-for-one common stock split effected in November 1999. No director or
executive officer owns more than .73% of the total outstanding shares (including
exercisable options). All directors and executive officers as a group own 2.59%
of the total outstanding shares (including exercisable options).
DEFERRED STOCK EXERCISABLE
NAME SHARES (A) UNITS (B) TOTAL SHARES OPTIONS (C)
- ---- ---------- -------------- ------------ -----------
The Capital Research and Management Group (d) 25,175,500
333 South Hope Street, 52nd Floor
Los Angeles, CA 90071
* * * *
S. R. Demeritt (e)............................. 81,738 63,532 145,270 440,316
L. D. DeSimone................................. 33,777 -- 33,777 15,000
W. T. Esrey.................................... 16,608 -- 16,608 21,076
R. V. Gilmartin................................ 6,522 -- 6,522 10,000
J. R. Hope..................................... 17,825 -- 17,825 21,076
R. L. Johnson.................................. 2,015 -- 2,015 5,000
J.A. Lawrence.................................. 52,530 -- 52,530 10,600
S. S. Marshall................................. 58,568 -- 58,568 154,280
H. G. Miller................................... 1,215 -- 1,215 --
M. D. Rose (f) (g)............................. 20,144 -- 20,144 21,076
S. W. Sanger................................... 98,065 160,611 258,676 1,801,826
A. M. Spence................................... 11,031 -- 11,031 21,076
D. A. Terrell.................................. 7,127 -- 7,127 21,076
R. G. Viault................................... 40,108 2,850 42,958 167,640
C. A. Wurtele (g) (h).......................... 43,486 3,317 46,803 21,076
All directors and executive
officers as a group.......................... 1,515,591 5,965,464
- ------------------------
(a) Amounts in this column include restricted stock and restricted stock units
as well as shares allocated to participant accounts under the General Mills
VIP 401(k).
(b) Amounts for Mr. Wurtele and Mr. Viault are share equivalents held in a
deferred compensation account tracking the value of General Mills' common
stock. Amounts for Mr. Demeritt and Mr. Sanger reflect the deferral of
common stock to be issued upon a stock-for-stock exercise of a stock option
and any reinvestment of dividend equivalents. These will be paid in General
Mills common stock.
(c) These amounts include options that may become exercisable within 60 days of
June 30, 2000.
(d) According to the Report on Form 13F filed with the Securities and Exchange
Commission for the quarter ended March 31, 2000. Shares reported represent
approximately 8.87% of the outstanding General Mills common stock as of
June 30, 2000.
(e) Included in the shares for Mr. Demeritt are 1,840 shares owned by his
spouse, in which he disclaims any beneficial interest.
(f) Included in the shares for Mr. Rose are 1,200 shares owned by his former
spouse in custody for minor children, in which he disclaims any beneficial
interest.
(g) Messrs. Rose and Wurtele plan to retire from the General Mills Board of
Directors on September 25, 2000.
(h) Included in the shares for Mr. Wurtele are 248 shares owned by his spouse,
in which he disclaims any beneficial interest.
62
BACKGROUND INFORMATION REGARDING DIAGEO DESIGNEES
TO THE GENERAL MILLS BOARD OF DIRECTORS
Under the merger agreement, Paul S. Walsh and John M. J. Keenan are expected
to join the General Mills Board of Directors at the time we complete the
transaction. See "Description of the Transaction--The Merger Agreement" and
"--The Stockholders Agreement." Background information for Messrs. Walsh and
Keenan is set forth below:
PAUL S. WALSH, age 45, is currently Chief Operating Officer of Diageo. He
joined the Brewing division of Grand Metropolitan ("GrandMet") PLC (a
constituent corporation to the 1997 merger forming Diageo) in 1982 and became
Finance Director in 1986. He held financial positions with Inter-Continental
Hotels and the GrandMet Food sector from 1987 to 1989 and was appointed Division
Chief Executive of The Pillsbury Company in 1990, becoming Chief Executive
Officer of The Pillsbury Company in 1992. He was appointed to the GrandMet PLC
board in October 1995 and to the Diageo board in December 1997. He became Chief
Operating Officer of Diageo on January 1, 2000, and will become Group Chief
Executive of Diageo and Chief Executive of Guinness United Distillers and
Vintners on September 1, 2000. He is a non-executive director of Ceridian
Corporation and the Federal Express Corporation.
JOHN M. J. KEENAN, age 63, is currently Chief Executive Officer of United
Distillers and Vintners, Diageo's spirits and wine unit ("UDV"). He joined
International Distillers and Vintners and was appointed to the board of GrandMet
PLC in March 1996. Prior to this he spent over thirty years with the General
Foods Group and Kraft Foods International, subsidiaries of the Philip Morris
Companies. His final position was that of Chairman, Kraft Foods International.
He was appointed to the Diageo board, and became Chief Executive of UDV, in
December 1997. On September 1, 2000 he will become Deputy Chief Executive of
Guinness United Distillers and Vintners. He is also a director of Moet Hennessy
and a non-executive director of The Body Shop International PLC.
DESCRIPTION OF CAPITAL STOCK OF GENERAL MILLS
CAPITAL STOCK
The following description of certain terms of the capital stock of General
Mills does not purport to be complete and is qualified in its entirety by
reference to General Mills' Restated Certificate of Incorporation incorporated
herein by reference. See "Additional Information--Where You Can Find More
Information."
General Mills' Restated Certificate of Incorporation currently authorizes
the issuance of one billion shares of General Mills common stock, par value
$0.10 per share, and five million shares of Cumulative Preference Stock, without
par value, issuable in series (the "General Mills Preference Stock"). The
General Mills Board of Directors is authorized to approve the issuance of one or
more series of General Mills Preference Stock without further authorization of
the stockholders of General Mills and to fix the number of shares, the
designations, the relative rights and the limitations of any such series.
No shares of General Mills Preference Stock are currently outstanding, but
General Mills has reserved for issuance 2,000,000 shares of its Series B
Participating Cumulative Preference Stock (the "Preference Shares") issuable
upon exercise of the General Mills preference share purchase rights described
below. The General Mills Board, without stockholder approval, could authorize
the issuance of General Mills Preference Stock with voting, conversion and other
rights that could adversely affect the voting power and other rights of holders
of General Mills common stock or other series of General Mills Preference Stock
or that could have the effect of delaying, deferring or preventing a change in
control of General Mills. A summary of the General Mills preference share
purchase rights, which are
63
attached to and trade with the General Mills common stock, is set forth under
"--Preference Share Purchase Rights."
The holders of General Mills common stock are entitled to receive dividends
when and as declared by the General Mills Board of Directors out of funds
legally available therefor, provided that if any shares of General Mills
Preference Stock are at the time outstanding, the payment of dividends on
General Mills common stock or other distributions (including purchases of
General Mills common stock) may be subject to the declaration and payment of
full cumulative dividends, and the absence of arrearages in any mandatory
sinking fund, on outstanding shares of General Mills Preference Stock.
The holders of General Mills common stock are entitled to one vote for each
share on all matters voted on by stockholders, including election of directors.
The holders of General Mills common stock do not have any conversion, redemption
or preemptive rights. In the event of the dissolution, liquidation or winding up
of General Mills, holders of General Mills common stock are entitled to share
ratably in any assets remaining after the satisfaction in full of the prior
rights of creditors, including holders of General Mills' indebtedness, and the
aggregate liquidation preference of any General Mills Preference Stock then
outstanding.
All outstanding shares of General Mills common stock are fully paid and
nonassessable.
The transfer agent for the General Mills common stock is Wells Fargo Bank
Minnesota, N.A., 161 North Concord Exchange, P.O. Box 64854, St. Paul, Minnesota
55164. General Mills stockholders may contact Wells Fargo by telephone toll-free
at (800) 870-4763 or through e-mail at stocktransfer@WellsFargo.com.
PREFERENCE SHARE PURCHASE RIGHTS
On December 11, 1995, the Board of Directors of General Mills declared a
dividend of one preference share purchase right (a "Right") for each outstanding
share of General Mills common stock. The dividend was paid on February 1, 1996
to stockholders of record on January 10, 1996 (the "Record Date"). The following
description of the Rights, issued pursuant to the Rights Agreement dated as of
December 31, 1995 between General Mills and Wells Fargo Bank Minnesota, N.A.
(formerly known as Norwest Bank Minnesota, N.A.) (the "Rights Agent"), gives
effect to the two-for-one common stock split paid on November 8, 1999 and
separately describes Amendment No. 1 to the Rights Agreement (the "First
Amendment"), which was entered into as of July 16, 2000 between General Mills
and the Rights Agent in connection with the proposed acquisition of Pillsbury.
RIGHTS AGREEMENT
Each Right entitles the registered holder to purchase from General Mills one
two-hundredth of a Preference Share at a price of $120 per one two-hundredth of
a Preference Share (the "Purchase Price"), subject to adjustment.
Until the earlier to occur of (1) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
shares of General Mills common stock or (2) 10 business days (or such later date
as may be determined by action of the General Mills Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 20% or more of the outstanding
shares of General Mills common stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
common share certificates outstanding as of the Record Date, by such common
share certificate with a copy of a Summary of Rights attached to the
certificate.
64
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the shares of General Mills common stock. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new common share
certificates issued after the Record Date upon transfer or new issuance of
shares of General Mills common stock will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for shares of General Mills common stock outstanding as of the
Record Date, even without such notation or a copy of the Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the shares of General Mills common stock represented by such certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the shares of General Mills common stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on February 1, 2006, unless that expiration date is extended or unless
the Rights are earlier redeemed or exchanged by General Mills, in each case, as
described below.
The Purchase Price payable, and the number of Preference Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (1) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preference Shares, (2) upon the grant to holders of the Preference Shares of
certain rights or warrants to subscribe for or purchase Preference Shares at a
price, or securities convertible into Preference Shares with a conversion price,
less than the then-current market price of the Preference Shares or (3) upon the
distribution to holders of the Preference Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preference Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one two-hundredths of a
Preference Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the shares of General Mills common
stock or a stock dividend on the shares of General Mills common stock payable in
common shares or subdivisions, consolidations or combinations of the shares of
General Mills common stock occurring, in any such case, prior to the
Distribution Date.
Preference Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preference Share will be entitled to a minimum preferential
quarterly dividend payment of $10 per share but will be entitled to an aggregate
dividend of 200 times the dividend declared per share of General Mills common
stock. In the event of liquidation, the holders of the Preference Shares will be
entitled to a minimum preferential liquidation payment of $100 per share but
will be entitled to an aggregate payment of 200 times the payment made per
common share. Each Preference Share will have 200 votes, voting together with
the shares of General Mills common stock. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preference Share will be entitled to receive 200 times the amount received per
share of General Mills common stock. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preference Shares' dividend, liquidation and
voting rights, the value of the one two-hundredth interest in a Preference Share
purchasable upon exercise of each Right should approximate the value of one
share of General Mills common stock.
In the event that General Mills is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the
65
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right. In the event that any person or group of affiliated or
associated persons becomes an Acquiring Person, proper provision shall be made
so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of shares of General Mills common stock
having a market value at the time of such occurrence of two times the exercise
price of the Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of General Mills common stock, the
General Mills Board of Directors may exchange the Rights (other than Rights
owned by such person or group which will have become void), in whole or in part,
at an exchange ratio of one share of General Mills common stock, or one
two-hundredth of a Preference Share, per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preference Shares will be issued (other than
fractions which are integral multiples of one two-hundredth of a Preference
Share, which may, at the election of General Mills, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preference Shares on the last trading day prior to the date
of exercise.
At any time prior to the time any person or group of affiliated or
associated persons becomes an Acquiring Person, the General Mills Board of
Directors may redeem the Rights in whole, but not in part, at a price of $.005
per Right (the "Redemption Price"). The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the General
Mills Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by the Board without the consent of
the holders of the Rights, including an amendment to lower certain thresholds
described above to not less than the greater of (1) the sum of .001% and the
largest percentage of the outstanding shares of General Mills common stock then
known to General Mills to be beneficially owned by any person or group of
affiliated or associated persons and (2) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person, no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of General Mills, including, without limitation, the right to
vote or to receive dividends.
FIRST AMENDMENT TO RIGHTS AGREEMENT
General Mills amended the Rights Agreement (which was evidenced in writing
by the First Amendment) in connection with the merger agreement, providing,
among other things, that neither Diageo nor any members of the Diageo
stockholder group will become an Acquiring Person as a result of (1) the
approval, execution, delivery or performance of the merger agreement, the
subsidiary purchase agreements or the stockholders agreement, (2) the
consummation of the merger or the subsidiary purchases or any other transaction
contemplated by the merger agreement, the subsidiary purchase agreements or the
stockholders agreement or (3) the acquisition by any of them of General Mills
common stock at the time we close the transaction, additional shares of General
Mills common stock, if any, issued pursuant to the operating working capital
purchase price adjustment and indemnification provisions of the merger
agreement, or any shares of General Mills common stock issued in respect thereof
or into which any such shares shall be converted in connection with any stock
66
splits, reverse stock splits, stock dividends or distributions, or combinations
or similar recapitalizations on or after the date of the stockholders agreement.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to General Mills' Registration Statement on
Form 8-A dated December 18, 1995. A copy of the First Amendment has been filed
with the Securities and Exchange Commission as an Exhibit to the Registration
Statement on Form 8-A/A dated July 25, 2000. General Mills stockholders can
obtain a copy of each of the Rights Agreement and the First Amendment free of
charge from General Mills upon request to the Corporate Secretary's office. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement and the First
Amendment, which are hereby incorporated herein by reference.
ADDITIONAL INFORMATION
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject to
various risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
combined company set forth under "Special Considerations" and "The
Transaction--Background of the Transaction," "--Reasons for the Transaction" and
"--Opinions of General Mills' Financial Advisors" and those preceded by,
followed by or that include the words "believes," "expects," "anticipates" or
similar expressions. These statements reflect the current views of General Mills
and/or Diageo with respect to future events. For those statements as they relate
to General Mills or Pillsbury, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, to the extent provided by applicable law. You should understand
that the following important factors, in addition to those discussed elsewhere
in this document and in the documents that we incorporate by reference, could
affect the future results of General Mills, and could cause those results to
differ materially from those expressed in our forward-looking statements: our
predictions about the Pillsbury acquisition could be affected by regulatory and
stockholder approvals; integration problems; failure to achieve synergies;
unanticipated liabilities; inexperience in new business lines; and changes in
the competitive environment. In addition, our future results could be affected
by a variety of factors such as: competitive dynamics in the U.S. ready-to-eat
cereal market, including pricing and promotional spending levels by competitors;
the impact of competitive products and pricing; product development; actions of
competitors other than as described above; acquisitions or dispositions of
businesses or assets; changes in capital structure; changes in laws and
regulations, including changes in accounting standards; customer demand;
effectiveness of advertising and marketing spending or programs; consumer
perception of health-related issues; economic conditions, including changes in
inflation rates or interest rates; fluctuations in the cost and availability of
supply-chain resources; and foreign economic conditions, including currency rate
fluctuations. General Mills does not intend to update these forward-looking
statements.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at General Mills' 2001
Annual Meeting of Stockholders must be received by General Mills on or before
April 16, 2001, if the proposals are to be considered for possible inclusion in
the proxy statement and form of proxy relating to that meeting. Please address
your proposal to: Secretary, General Mills, Inc., P.O. Box 1113, Minneapolis,
Minnesota 55440.
Under our bylaws, if you wish to nominate a director or bring other business
before the stockholders at our 2001 annual meeting without having your proposal
included in our proxy statement:
- You must notify the Secretary of General Mills in writing between May 28,
2001, and June 27, 2001; and
67
- Your notice must contain the specific information required by our bylaws.
Please note that these two requirements relate only to matters you wish to bring
before the stockholders at an annual meeting. They do not apply to proposals
that you wish to have included in our proxy statement.
If you would like a copy of our bylaws, we will send you one without charge.
Please write to the Secretary of General Mills at the address shown above. Our
By-laws are also on file with the SEC. See "Where You Can Find More Information"
below.
WHERE YOU CAN FIND MORE INFORMATION
General Mills files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information that we file at the
Securities and Exchange Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the Public Reference Room. The
Securities and Exchange Commission maintains an Internet web site that contains
electronically filed reports, proxy and information statements and other
information regarding issuers that file electronically with the Securities and
Exchange Commission at "http://www.sec.gov". Reports, proxy statements and other
information should also be available for inspection at the offices of the New
York Stock Exchange.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this proxy statement, which means that we can
disclose important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this proxy statement, except
for any information superseded by information contained directly in this proxy
statement. This proxy statement incorporates by reference the documents set
forth below that we have previously filed with the Securities and Exchange
Commission. These documents contain important information about General Mills
and its finances.
GENERAL MILLS SEC FILINGS (FILE NO. 1-1185) PERIOD
- ------------------------------------------- ---------------------------------------------
General Mills Annual Report on Form 10-K
(including the financial and other
information filed as Exhibit 13 to the Form
10-K)...................................... Fiscal year ended May 28, 2000
General Mills Current Reports on Form 8-K.... Dated July 16, 2000 and July 17, 2000
We are also incorporating by reference additional documents we file with the
Securities and Exchange Commission under Section 13(a), 13(c), 14 or 15 of the
Securities Exchange Act of 1934 from the date of this proxy statement to the
date of the special meeting. Any statement in this document or in a document
incorporated or deemed to be incorporated by reference in this document shall be
deemed to be modified or superseded for purposes of this document to the extent
that a statement contained in this document or in any other subsequently filed
document which also is or is deemed to be incorporated by reference in this
document modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed to constitute a part of this document, except
as so modified or superseded.
General Mills has supplied all information contained or incorporated by
reference in this proxy statement relating to General Mills. Diageo has supplied
all information relating to Diageo or Pillsbury, other than General Mills' plans
for integrating Pillsbury with General Mills.
If you are a stockholder, we may have already sent you some of the documents
incorporated by reference, but you can obtain any document incorporated by
reference through us, the Securities and
68
Exchange Commission or the Securities and Exchange Commission's Internet web
site as described above. Documents incorporated by reference are available from
us without charge, excluding all exhibits unless we have specifically
incorporated by reference an exhibit in this proxy statement. Stockholders may
obtain documents incorporated by reference in this proxy statement by requesting
them in writing or by telephone to us at the following address:
General Mills, Inc.
P.O. Box 1113
Minneapolis, Minnesota 55440
Attn: Corporate Secretary
(763) 764-3616
If you would like to request documents from us, please do so by
, 2000 to receive them before the special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE PROPOSALS ADDRESSED IN THIS
PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY
STATEMENT IS DATED , 2000. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS
NOR THE ISSUANCE OF GENERAL MILLS COMMON STOCK IN THE TRANSACTION SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
69
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
THE PILLSBURY COMPANY AND SUBSIDIARIES
Independent Auditors' Report................................ F-2
Combined Balance Sheets as of June 30, 2000 and 1999........ F-3
Combined Statements of Operations for the Years Ended
June 30, 2000 and 1999 and the Nine Months Ended June 30,
1998...................................................... F-4
Combined Statements of Stockholders' Deficit and
Comprehensive Income (Loss) for the Years Ended June 30,
2000 and 1999 and the Nine Months Ended June 30, 1998..... F-5
Combined Statements of Cash Flows for the Years Ended
June 30, 2000 and 1999 and the Nine Months Ended June 30,
1998...................................................... F-6
Notes to Combined Financial Statements...................... F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Pillsbury Company:
We have audited the accompanying combined balance sheets of The Pillsbury
Company, its subsidiaries and its related entities (the Company), a Business of
Diageo plc, as of June 30, 2000 and 1999, and the related combined statements of
operations, stockholders' deficit and comprehensive income (loss), and cash
flows for the years ended June 30, 2000 and 1999 and the nine months ended
June 30, 1998. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Pillsbury
Company, its subsidiaries and its related entities, a Business of Diageo plc, as
of June 30, 2000 and 1999, and the results of their operations and their cash
flows for the years ended June 30, 2000 and 1999 and the nine months ended
June 30, 1998 in conformity with accounting principles generally accepted in the
United States of America.
August 10, 2000
Minneapolis, Minnesota
F-2
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
COMBINED BALANCE SHEETS
JUNE 30, 2000 AND 1999
2000 1999
--------- ---------
(IN MILLIONS, EXCEPT
SHARE INFORMATION)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 56 $ 45
Receivables:
Trade receivables, less allowance for returns, discounts
and doubtful accounts of $14 in 2000 and $12 in 1999... 399 439
Other accounts receivable............................... 42 51
Inventories............................................... 468 452
Prepaids and other assets................................. 105 98
------- -------
Total current assets.................................. 1,070 1,085
------- -------
Investment in joint ventures................................ 136 36
Goodwill and other intangibles, net......................... 6,648 6,716
Property, plant and equipment, net.......................... 1,412 1,375
Other long-term assets...................................... 198 176
------- -------
Total assets.......................................... $ 9,464 $ 9,388
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 354 350
Accrued advertising and promotions........................ 118 134
Accrued compensation and benefits......................... 99 155
Accrued income taxes...................................... 129 144
Current portion of long-term debt......................... 43 38
Other current liabilities................................. 244 274
------- -------
Total current liabilities............................. 987 1,095
------- -------
Payables to affiliated companies, net..................... 7,486 7,299
Long-term debt............................................ 161 161
Deferred taxes............................................ 1,036 1,012
Other long-term liabilities............................... 412 416
------- -------
Total liabilities..................................... 10,082 9,983
------- -------
Stockholders' deficit:
Common stock and paid-in capital--par value $1 per share;
1,000 shares authorized, issued and outstanding......... 3,169 3,053
Accumulated deficit....................................... (3,774) (3,626)
Accumulated other comprehensive loss...................... (13) (22)
------- -------
Total stockholders' deficit........................... (618) (595)
------- -------
Total liabilities and stockholders' deficit........... $ 9,464 $ 9,388
======= =======
See accompanying notes to the combined financial statements.
F-3
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 AND THE NINE MONTHS ENDED JUNE 30,
1998
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- -----------------
(IN MILLIONS)
Sales............................................... $ 6,078 $ 6,137 $ 4,502
Costs and expenses:
Cost of sales..................................... (3,438) (3,467) (2,550)
Selling, general and administrative............... (1,853) (1,930) (1,489)
Amortization of intangibles....................... (206) (201) (150)
Other income...................................... 28 28 7
Unusual items..................................... (63) (93) (60)
Net interest expense--external.................... (14) (11) (13)
Net interest expense--affiliated companies........ (616) (540) (398)
Factoring and other charges from affiliated
companies....................................... (70) (70) (48)
(Losses)/gains on disposal of businesses and
tangible fixed assets........................... (13) (76) 12
------- ------- -------
Total costs, expenses and losses.............. (6,245) (6,360) (4,689)
------- ------- -------
Loss before taxes and earnings from joint
ventures.................................... (167) (223) (187)
Income tax benefit (expense)........................ 4 (17) 16
Earnings from joint ventures, net of income taxes... 22 10 7
------- ------- -------
Net loss............................................ $ (141) $ (230) $ (164)
======= ======= =======
See accompanying notes to the combined financial statements.
F-4
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 AND THE NINE MONTHS ENDED JUNE 30,
1998
COMMON ACCUMULATED
STOCK AND OTHER
PAID-IN ACCUMULATED COMPREHENSIVE
CAPITAL DEFICIT INCOME (LOSS) TOTAL
--------- ----------- ------------- --------
(IN MILLIONS)
Balance at September 30, 1997...................... $2,851 $(2,747) $ (16) $ 88
Comprehensive income (loss):
Net loss......................................... (164) (164)
Other comprehensive income:
Foreign currency translation................... 3 3
------ -----
Other comprehensive income................... 3 3
------ -----
Total comprehensive loss..................... (161)
-----
Stock compensation plans........................... 58 58
Dividends declared to affiliated entities.......... (4) (4)
------ ------- ------ -----
Balance at June 30, 1998........................... 2,909 (2,915) (13) (19)
Comprehensive income (loss):
Net loss......................................... (230) (230)
Other comprehensive income (loss):
Foreign currency translation................... (9) (9)
------ -----
Other comprehensive loss..................... (9) (9)
------ -----
Total comprehensive loss..................... (239)
-----
Capital contributions from parent entity........... 144 144
Dividends declared to affiliated entities.......... (481) (481)
------ ------- ------ -----
Balance at June 30, 1999........................... 3,053 (3,626) (22) (595)
Comprehensive income (loss):
Net loss......................................... (141) (141)
Other comprehensive income:
Foreign currency translation................... 9 9
------ -----
Other comprehensive income................... 9 9
------ -----
Total comprehensive loss..................... (132)
-----
Capital contributions from parent entity........... 116 116
Dividends declared to affiliated entities.......... (7) (7)
------ ------- ------ -----
Balance at June 30, 2000........................... $3,169 $(3,774) $ (13) $(618)
====== ======= ====== =====
See accompanying notes to the combined financial statements.
F-5
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 AND THE NINE MONTHS ENDED JUNE 30,
1998
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- -----------------
(IN MILLIONS)
Cash flows--operating activities:
Net loss............................................... $(141) $(230) $(164)
Adjustments to reconcile net loss to cash flow:
Depreciation and amortization........................ 363 340 241
Deferred income taxes................................ 67 (58) (31)
Write-downs of property, plant and equipment......... -- 43 4
Loss (gain) on disposals............................. 13 76 (12)
Stock compensation charge............................ -- -- 58
Change in current assets and liabilities, net of
effects from businesses acquired:
Receivables........................................ 26 (22) 84
Inventories........................................ (47) 1 46
Prepaids and other assets.......................... (37) (25) 27
Accounts payable................................... 17 35 (176)
Accruals and other current liabilities............. (133) 75 (100)
----- ----- -----
Net cash provided by (used in) operating
activities..................................... 128 235 (23)
----- ----- -----
Cash flows--investment activities:
Purchases of property, plant and equipment............. (262) (333) (205)
Proceeds from disposal of property, plant and
equipment............................................ 4 30 1
Acquisitions of businesses............................. (172) (526) (16)
Proceeds from disposition of businesses................ 7 221 28
----- ----- -----
Net cash used by investment activities........... (423) (608) (192)
----- ----- -----
Cash flows--financing activities:
Proceeds from long-term debt........................... 29 11 8
Payment of long-term debt.............................. (24) (128) (20)
Net borrowings from affiliated entities................ 303 957 214
Dividends paid......................................... (7) (482) (4)
Other, net............................................. 5 14 3
----- ----- -----
Net cash provided by financing activities........ 306 372 201
----- ----- -----
Increase (decrease) in cash and cash
equivalents.................................... 11 (1) (14)
Cash and cash equivalents--beginning of period........... 45 46 60
----- ----- -----
Cash and cash equivalents--end of period................. $ 56 $ 45 $ 46
===== ===== =====
Supplemental cash flow information:
Cash paid for interest................................. $ 628 $ 555 $ 409
Cash paid (received) for taxes......................... (16) 10 104
See accompanying notes to the combined financial statements.
F-6
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) OWNERSHIP OF THE COMPANY
The Pillsbury Company (hereafter "Pillsbury"), its subsidiaries and its
related entities (hereafter "the Company") included in the combined
financial statements is a wholly owned indirect subsidiary of Diageo plc
("Diageo"), a company incorporated under the laws of England and Wales.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
The Company operates in a single segment, the production, marketing and
distribution of packaged food. Pillsbury operates through three
divisions: Pillsbury North America, Pillsbury Bakeries and Foodservice,
and Pillsbury International. Pillsbury North America produces, markets,
and distributes a wide range of consumer food packaged goods in the
United States and Canada. Pillsbury Bakeries and Foodservice manufactures
and markets products to in-store/retail bakery and foodservice markets in
the United States and Canada, and to wholesale bakery markets in the
United States. Pillsbury International produces, markets, and distributes
consumer food products principally in Europe, Asia Pacific, Latin
America, and South Africa. Pillsbury's principal brands include:
Pillsbury refrigerated baked goods, Pillsbury Grands! refrigerated
biscuits and sweet rolls, Pillsbury Toaster breakfast pastries, Hungry
Jack refrigerated baked goods, dehydrated potatoes, frozen pancakes and
pancake mixes, waffles and syrup, Pillsbury desserts and baking mixes,
Green Giant frozen and canned vegetables, Green Giant Create a Meal! meal
starters, Totino's frozen pizza and snacks, Old El Paso Mexican foods,
Progresso soups and Italian ingredient foods, frozen yogurt and sorbet
products, Martha White baking mixes, Pet-Ritz frozen pie shells, and
Haagen-Dazs ice cream through its joint venture with Nestle USA.
(B) BASIS OF PRESENTATION--PRINCIPLES OF COMBINATION AND FISCAL YEAR END
The combined financial statements include all entities managed and
controlled by Pillsbury which are legally owned by Pillsbury, Diageo, or
its affiliates. All material intercompany balances and transactions have
been eliminated in combination. Effective October 1, 1997, the Company
changed its fiscal year end from September 30 to June 30. Therefore, the
combined financial statements include twelve months of results for 2000
and 1999 and nine months for 1998. All numbers in the accompanying
footnote tables are presented in millions of dollars unless otherwise
identified.
(C) REVENUE RECOGNITION
Revenue from product sales are recognized upon shipment of the product.
(D) FOREIGN CURRENCY TRANSLATION
Foreign currency balance sheets are translated into U.S. dollars at the
end of period exchange rates and operating statements are translated at
the weighted average exchange rates for each period. Local currencies
have been determined to be the functional currencies. The resulting
translation gains or losses are included in "Accumulated Other
Comprehensive Income (Loss)" within stockholders' deficit.
F-7
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(E) CASH EQUIVALENTS
Cash and cash equivalents, include short-term highly liquid investments
with original maturities of three months or less.
(F) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method for certain domestic
inventories, and the first-in, first-out ("FIFO") method for other
inventories.
(G) FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage its exposures
to fluctuations in commodity prices. Derivative instruments are used for
risk management purposes only within a framework of policies and
guidelines authorized by the Pillsbury board of directors.
(H) INVESTMENTS IN JOINT VENTURES
Investments in the common stock of joint ventures are accounted for by
the equity method.
(I) PROPERTY, PLANT AND EQUIPMENT
Owned property, plant and equipment are stated at cost. Plant and
equipment under capital leases are stated at the present value of minimum
lease payments.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets within the following
ranges: buildings--10 to 50 years; machinery and equipment--5 to
20 years; and computer software--3 to 5 years. Plant and equipment held
under capital leases and leasehold improvements are amortized straight
line over the estimated useful life of the asset.
(J) GOODWILL
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, generally 40 years. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(K) RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS
Research and development and advertising costs are expensed as incurred.
Research and development costs were $75 million, $82 million and
$58 million in 2000, 1999 and 1998,
F-8
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
respectively. Advertising costs were $192 million, $197 million and
$183 million in 2000, 1999 and 1998, respectively.
(L) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Deferred taxes are not
provided on the unremitted earnings of foreign affiliates which
management considers to be invested indefinitely.
(M) STOCK OPTION PLANS
Certain employees of the Company participate in stock based compensation
plans of its parent entity, Diageo. The Company records compensation
expense related to these plans based on a systematic allocation by
Diageo. Diageo applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, in
accounting for its fixed plan stock options.
(N) PENSION AND OTHER POSTRETIREMENT PLANS
The cost of providing pensions and other postretirement benefits is
charged against income on a systematic basis, with pension surpluses and
deficits allocated over the expected remaining lives of current
employees. Differences between the amounts charged in the statements of
operations and payments made to pension and other plans are treated as
assets or liabilities. Deferred tax is provided for on these assets and
liabilities. Unfunded postretirement medical benefit liabilities are
included in other long term liabilities in the balance sheet.
(O) SALE OF ACCOUNTS RECEIVABLE
The Company entered into an agreement with Diageo to sell, on an ongoing
basis and without recourse, trade accounts receivable to an affiliated
entity issuer of receivable-backed paper. The Company is responsible for
servicing the receivables.
(P) RECOVERABILITY OF LONG-LIVED ASSETS
The Company reviews long-lived assets, including identifiable intangibles
and associated goodwill, for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An asset is deemed impaired and written down to its fair
value if estimated related future cash flows are less than its carrying
amount.
F-9
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(Q) NEW ACCOUNTING STANDARDS
In June of 1998, Statement of Financial Accounting Standard ("SFAS")
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES was
issued. In June 2000, this statement was amended by SFAS No. 138. This
statement establishes comprehensive accounting and reporting standards
for derivative instruments and hedging activities.
The provisions for SFAS Nos. 133 and 138 are effective for fiscal 2001.
The Company has not yet determined the impact, if any, this new standard
may have on the Company's combined financial position or results of
operations.
(R) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(3) ACQUISITIONS AND DISPOSITIONS
(A) ACQUISITIONS
In February 2000, the Company acquired DCA Bakery, for $100 million with
resulting goodwill of $80 million. DCA Bakery makes and sells a variety
of bakery mixes, fillings, icings, and glazes. During fiscal 2000, the
Company acquired a Brazilian business and several other international
businesses for a total of $71 million which resulted in $59 million of
goodwill.
In May 1999, the Company acquired Hazelwood Farms Bakeries, one of the
country's largest manufacturers of frozen dough sold to stores for making
their own bakery products, for $350 million with resulting goodwill of
$307 million. In October 1998, the Company acquired the bakery products
division of Heinz that makes frozen unbaked bagels and frozen unbaked
bread dough, for $178 million with resulting goodwill of $111 million.
During fiscal 1999, the Company acquired several international businesses
for $10 million, which resulted in goodwill of $7 million.
During fiscal 1998, the Company acquired several international businesses
for $15 million resulting in goodwill of $10 million.
All acquisitions have been accounted for using the purchase method of
accounting and the resulting goodwill is being amortized over 40 years.
The results of acquired businesses have been included in the combined
financial statements since their respective acquisition dates. Financial
results would not have been materially different if these acquisitions
would have been made at the beginning of the fiscal year in which they
were acquired.
(B) DISPOSITIONS
During fiscal 2000, the Company sold its Mexican distribution company and
several other international businesses. These dispositions resulted in a
loss of $13 million.
F-10
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(3) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In March 1999, the Company sold several non-core businesses involving six
regional brands. This sale resulted in a loss of $50 million. Also,
during fiscal 1999, the Company sold its foodservice and European
dehydrated and frozen potato businesses, and other businesses and assets,
respectively, resulting in a loss of $26 million.
During fiscal 1998, the Company sold businesses in Japan and South
Africa. Those disposals resulted in a gain of $12 million.
(4) UNUSUAL ITEMS
In March 2000, the Company recorded restructuring charges of
$38 million. The charges were principally related to reducing costs and
restructuring the sales organization. The charges were principally for
related employee termination costs (400 positions), and sales broker
transition payments. At June 30, 2000, there was a remaining reserve of
$17 million related primarily to the completion of the employee
terminations and completion of the transition to brokers.
In fiscal 2000, in connection with the creation of the ice cream joint
venture with Nestle USA, the Company incurred $8 million in professional
fees and severance costs.
During fiscal 2000, the Company incurred $9 million of integration costs
related to the February 2000 acquisition of DCA Bakery including the
headquarters employee terminations and R&D product quality and
consolidation costs. At June 30, 2000, there was a remaining reserve of
$7 million related primarily to the completion of the headquarters
closure in August 2000.
During fiscal 2000, the Company recorded $8 million for the completion of
the integration of the fiscal 1999 acquisitions of the bakery products
division of Heinz and Hazelwood Farms Bakeries. At June 30, 2000, there
was a remaining reserve of $4 million for completion of a plant closure
and product consolidation costs.
During fiscal 1999, the Company recorded $28 million of integration costs
related to the 1999 acquisitions of the bakery products division of Heinz
and Hazelwood Farms Bakeries. These charges were for employee
terminations, plant closures including asset write-downs of $7 million,
and other exit costs. At June 30, 2000, there was no remaining liability
for these fiscal 1999 actions.
During fiscal 1999, the Company incurred costs of $65 million for the
closure of a Haagen-Dazs production facility. The costs were principally
for employee terminations ($16 million) and asset write-downs
($36 million). At June 30, 2000, there was $1.5 million in reserves
remaining for closed plant maintenance and security.
During fiscal 1998, the Company recorded a $58 million charge arising
from employee stock option plans where the performance criteria were
waived following the merger of the Company's U.K. parent with another
company.
During fiscal 1998, the Company incurred costs of $2 million for system
changes resulting from the Company's change in fiscal year end from
September to June.
F-11
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(5) INVENTORIES
The components of inventories are as follows:
2000 1999
-------- --------
Raw materials, work in process and supplies................. $117 113
Finished goods.............................................. 351 342
----- -----
468 455
Reserve for LIFO valuation method........................... -- (3)
----- -----
$468 452
----- -----
----- -----
At June 30, 2000 and 1999, respectively, inventories of $361 million and
$348 million were valued at LIFO.
(6) PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
2000 1999
-------- --------
Land and improvements...................................... $ 37 32
Building and improvements.................................. 703 694
Machinery and equipment.................................... 1,140 1,127
Computer software.......................................... 37 28
Construction in process.................................... 249 236
------ ------
2,166 2,117
Less accumulated depreciation.............................. (754) (742)
------ ------
$ 1,412 1,375
------ ------
------ ------
Included in gross property, plant and equipment is $27 million and
$26 million as of June 30, 2000 and 1999, respectively, in respect of
assets held under capital leases.
(7) INTANGIBLE ASSETS
Goodwill and other intangibles arise primarily from the acquisitions of
Pet Incorporated in 1995 and The Pillsbury Company in 1989 and are being
amortized principally over 40 years. Accumulated amortization included in
goodwill and other intangible assets was $1,679 million and
$1,476 million as of June 30, 2000 and 1999, respectively.
F-12
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
Notes to Combined Financial Statements (Continued)
(8) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined commodity price risks.
The Company uses purchased options and futures contracts to hedge
anticipated purchases of wheat flour, soybean oil and corn flour. Heating
oil options are used to hedge anticipated purchases of diesel fuel. Under
the option contracts, the Company has the right, but not the obligation, to
buy these commodities at an agreed-to price.
The aggregate fair value of the Company's futures and option contracts were
$8 million and $2 million at June 30, 2000 and 1999, respectively. The fair
value is estimated using option pricing models that value the potential for
the option to become in-the-money through changes in commodity prices during
the remaining term of the agreement. Unrealized gains and losses are
recorded monthly and deferred until the production flows through cost of
sales. As of June 30, 2000, the Company had unrealized losses of $2 million
on open futures and option contracts for anticipated future purchases of
wheat flour, soybean oil, and corn flour, and deferred losses of $2 million
on closed contracts. Expected profits on anticipated sales exceed the
unrealized losses of $4 million on the futures and options agreements, based
on sales prices for the Company's products at June 30, 2000.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its futures and option contracts. The Company
anticipates, however, that counterparties will be able to fully satisfy
their obligations under the contracts. The Company does not obtain
collateral to support financial instruments, but monitors the credit
standing of the counterparties.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at June 30, 2000 and 1999. Note 8
presents the estimated fair values of derivative financial instruments. The
fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties.
2000 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents.......................... $ 56 56 45 45
Trade accounts receivables......................... 399 399 439 439
Other receivables.................................. 42 42 51 51
Other current assets............................... 105 105 98 98
Financial liabilities:
Trade accounts payable............................. 354 354 350 350
Accrued expenses................................... 346 346 433 433
Other current liabilities (nonderivatives)......... 242 242 272 272
Long-term debt..................................... 204 202 199 201
Due to affiliated companies........................ 7,486 7,217 7,299 7,055
F-13
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
Notes to Combined Financial Statements (Continued)
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts shown in the table are included in the combined balance
sheets under the indicated captions.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, trade accounts receivables, other receivables,
other current assets, trade accounts payables, accrued expenses, and other
current liabilities (nonderivatives): The carrying amounts approximate fair
value because of the short maturity of these instruments.
Long-term debt and due to affiliated companies: The fair value of the
Company's long-term debt is estimated by discounting the future cash flows
of each instrument at rates currently offered to the Company for similar
debt instruments of comparable maturities by the Company's bankers.
(10) INVESTMENTS IN JOINT VENTURES
The Company has a number of investments in joint ventures which are
generally 50% owned and are carried in the combined balance sheet under the
equity method. Royalty income is also received from most of these joint
ventures, various expenses, primarily research and development, are
incurred, and tax impacts of certain of the joint ventures are recorded by
the Company since they are structured as partnerships.
The investment in joint ventures was $136 million and $36 million at
June 30, 2000 and 1999.
Most of the joint ventures are for the manufacture and distribution of
Haagen-Dazs ice cream products. The principal investment is Ice Cream
Partners USA, LLC ("ICP"), a joint venture with Nestle USA formed during
fiscal 2000 for the manufacture, marketing, and distribution of Haagen-Dazs
and Nestle ice cream products in the United States.
(11) TRANSACTIONS WITH AFFILIATED COMPANIES
The Company factors its domestically held and certain foreign held trade
accounts receivable, without recourse, to Diageo Finance Ireland. Total
receivables factored during the year ended June 30, 2000 amounted to
$5,174 million. Factored receivables of $323 million and $382 million are
included as a trade accounts receivable and a related payable to affiliate
on the balance sheet at June 30, 2000 and 1999, respectively.
F-14
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
Notes to Combined Financial Statements (Continued)
(12) LEASES
The Company is obligated under various capital leases for property, plant
and equipment. At June 30, 2000 and 1999, the gross amount of plant and
equipment and related accumulated amortization recorded under capital leases
were as follows:
2000 1999
-------- --------
Building and improvements............................... $23 22
Machinery and equipment................................. 4 4
--- --
27 26
Less accumulated amortization........................... (8) (7)
--- --
$19 19
----- -----
----- -----
Amortization of assets held under capital leases is included with
depreciation expense.
The Company also has several noncancelable operating leases, primarily for
property plant and equipment. These leases generally contain renewal options
for periods ranging from one to ten years and require the Company to pay all
executory costs such as maintenance and insurance. Rental expense for
operating leases for the years ended June 30, 2000 and 1999 and for the nine
months ended June 30, 1998 was $52 million, $52 million and $30 million,
respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of June 30, 2000 are:
CAPITAL OPERATING
YEAR ENDING JUNE 30 LEASES LEASES
- ------------------- -------- ---------
2001....................................................... $2 42
2002....................................................... 2 32
2003....................................................... 1 22
2004....................................................... 1 16
2005....................................................... 1 15
Thereafter................................................. 2 98
-- ----
Total minimum lease payments......................... 9 $225
------
------
Less amount representing interest.......................... 2
--
Present value of net minimum capital lease
payments........................................... 7
Less current installments of obligations under capital
leases................................................... 1
--
Obligations under capital leases, excluding current
installments....................................... $6
----
----
F-15
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
Notes to Combined Financial Statements (Continued)
(13) LONG-TERM DEBT
Long-term debt at June 30, 2000 and 1999 consists of the following:
2000 1999
-------- --------
Unsecured debt to affiliate, Diageo Investment Corporation
(DIC), at 9% due no later than June 2008................. $ 4,249 4,248
Net unsecured debt to DIC, at various rates based on
LIBOR.................................................... 2,977 2,593
Unsecured debt outside the U.S., payable to Diageo
affiliates............................................... 261 458
Third party debt in the U.S. (face amounts totaling $165.0
million), primarily at a rate of 6.5%.................... 161 161
Third party debt outside the U.S., at variable rates....... 42 38
------- ------
Total long-term debt................................. 7,690 7,498
Less current installments.................................. (43) (38)
------- ------
Long-term debt, excluding current installments....... $ 7,647 7,460
------ ------
------ ------
Long-term debt to third parties is either guaranteed by Diageo or supported
by a letter of credit that is guaranteed by Diageo. The debt agreements do
not contain any significant covenants.
The aggregate maturities of long-term debt for each of the five years
subsequent to June 30, 2000 are as follows: 2001, $43 million; 2002,
$1 million; 2003, $1 million; 2004, $88 million and 2005, $1 million.
Thereafter, $7,556 million.
(14) INCOME TAXES
The Company files a consolidated U.S. income tax return with Diageo Inc.,
its U.S. parent. Pursuant to a tax sharing arrangement with Diageo Inc., the
Company calculates the financial statement expense, income tax provision and
related balance sheet amounts, exclusive of certain reserves maintained by
the parent, computed as if the Company filed a separate return.
Losses from operations of the Company before income taxes comprised:
2000 1999 1998
-------- -------- --------
United States......................................... $ (190) (281) (213)
Rest of the world..................................... 23 58 26
----- ------ ------
$ (167) (223) (187)
----- ------ ------
----- ------ ------
F-16
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
Notes to Combined Financial Statements (Continued)
(14) INCOME TAXES (CONTINUED)
Income tax (expense) benefit attributable to loss before taxes consists of:
CURRENT DEFERRED TOTAL
-------- -------- --------
Year ended June 30, 2000:
U.S. federal....................................... $ 65 (18) 47
State and local.................................... (9) (4) (13)
Foreign............................................ 15 (45) (30)
----- ----- -----
$ 71 (67) 4
----- ----- -----
----- ----- -----
Year ended June 30, 1999:
U.S. federal....................................... $ (14) 57 43
State and local.................................... (24) 5 (19)
Foreign............................................ (37) (4) (41)
----- ----- -----
$ (75) 58 (17)
----- ----- -----
----- ----- -----
Nine months ended June 30, 1998:
U.S. federal....................................... $ 21 32 53
State and local.................................... (8) (2) (10)
Foreign............................................ (28) 1 (27)
----- ----- -----
$ (15) 31 16
----- ----- -----
----- ----- -----
The following table reconciles the U.S. statutory income tax rate with the
effective income tax rate:
2000 1999 1998
-------- -------- --------
Expected tax benefit using the U.S. statutory rate at
35%.................................................... $ 58 78 65
Increase (reduction) in income taxes resulting from:
Losses unable to be utilized........................... (12) (10) (8)
Effect of foreign taxes................................ 7 (7) (3)
State and local income taxes, net of federal income tax
benefit.............................................. (8) (12) (3)
Difference in tax basis................................ (3) (36) --
Intangible amortization................................ (37) (33) (27)
Other, net............................................. (1) 3 (8)
----- ----- -----
Tax benefit (expense) as recorded.................. $ 4 (17) 16
----- ----- -----
----- ----- -----
F-17
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
Notes to Combined Financial Statements (Continued)
(14) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 2000 and 1999 are presented below.
2000 1999
-------- --------
Deferred tax assets:
Net operating loss carryforwards........................ $ 33 21
Restructuring and integration costs..................... 27 40
Compensation and employee benefits...................... 120 148
Other................................................... 33 48
------ -------
Total gross deferred tax assets..................... 213 257
Less valuation allowance.................................. (33) (21)
------ -------
Net deferred tax assets............................. 180 236
------ -------
Deferred tax liabilities:
Depreciation............................................ (134) (137)
Intangible assets....................................... (1,074) (1,104)
Inventories............................................. (8) (7)
------ -------
Total gross deferred liabilities.................... (1,216) (1,248)
------ -------
Net deferred tax asset (liability).................. $ (1,036) (1,012)
------ -------
------ -------
The valuation allowance for deferred tax assets as of June 30, 2000 and 1999
was $33 million and $21 million, respectively. The net change in the total
valuation allowance for the years ended June 30, 2000 and 1999 was an
increase of $12 million and an increase of $10 million, respectively. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
the Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at June 30, 2000.
At June 30, 2000, Pillsbury has net operating loss carryforwards in various
foreign jurisdictions of $94 million which are available to offset future
taxable income.
F-18
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(15) STOCK OPTION PLANS
DESCRIPTION OF THE PLANS
Prior to the merger of Grand Metropolitan Public Limited Company (GrandMet)
and Guinness PLC (Guinness) in December 1997 that formed Diageo (the
Merger), Pillsbury participants in certain of the former GrandMet executive
share option plans could only exercise options if a performance criteria was
satisfied. In summary, this required that the company's ordinary share price
outperformed the 'FTSE 100' Index over a five year rolling period. As a
result of the merger, participants in these former GrandMet share option
plans had a choice of exercising their options or exchanging their options
in respect of GrandMet ordinary shares for options of an equivalent number
of Diageo ordinary shares, in each case with no performance criteria
applying.
(A) EXECUTIVE PLANS (FIXED PLANS)
U.S. SHARE OPTION PLAN (`USSOP')
This is a long term incentive plan under which options to purchase
Diageo's American Depository Shares (ADSs) are granted to senior U.S.
executives. Under the plan senior executives are granted an option to
purchase ADSs at the higher of the nominal value of the ADSs and the
market price of the ADSs at the time the option is granted. Options
granted prior to January 1, 1994 may normally only be exercised between
three and seven years after their grant.
UK EXECUTIVE SHARE OPTION PLANS (`ESOP')
The Diageo group operates executive share option plans and a supplemental
plan for senior executives. ESOP incorporates the former GrandMet plan.
Options issued under these plans may normally be exercised between three
and ten years after the date granted. No new awards have been made under
this plan since 1997.
(B) SAVINGS PLANS (FIXED PLANS)
During the 1999 fiscal year, the Diageo group funded a trust to acquire
14.6 million Diageo shares to meet obligations in respect of options
previously granted to employees under savings-related share option plans;
in the past, Diageo has issued new shares to employees upon their
exercising such options.
UK SAVINGS-RELATED SHARE OPTION PLAN (`SRSOP')
The UK savings-related share option plan is an Inland Revenue approved
plan available to all UK employees. The plan provides a long term savings
opportunity for employees who have been with Diageo for at least one year
and who work eight hours or more a week. The options may be exercised
normally after three, five or seven years, according to the length of the
option period chosen by the employee, at a price not less than 80% of the
market value of the shares at the time of the option grant.
F-19
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(15) STOCK OPTION PLANS (CONTINUED)
INTERNATIONAL SAVINGS-RELATED SHARE OPTION PLAN (`INTERNATIONAL')
The group also operates an international savings-related share option
plan. The plan provides a long term savings opportunity for employees
outside the United States and United Kingdom. The plan has employment and
discount criteria devised in accordance with local conditions and
practices. Options to buy shares are discounted by rates ranging from
zero to 20%.
U.S. EMPLOYEE STOCK PURCHASE PLAN (`USESPP')
This plan provides a long term savings and investment opportunity for
U.S. employees who have been with the company for at least one year and
who work more than 20 hours a week. The options may normally be exercised
27 months after the grant of the option at a price equivalent to 85% of
the market value of the ADSs at the time of the grant.
(C) EXECUTIVE INCENTIVE PLANS (VARIABLE PLANS)
Awards of shares were granted to senior executives under the GrandMet
restricted share plan (`RSP'), with eventual transfer in the case of the
RSP dependent on the performance of GrandMet's annualized total
shareholder return (`TSR') against a comparator group of companies at the
end of a minimum of three years after the date of grant.
(D) EXPENSES OF THE PLANS
As described previously, the Company records compensation expense on
these plans as allocated to it by its parent entity, Diageo. Any
liabilities associated with these plans are carried on Diageo's books and
have not been reflected in the Company's combined financial statements.
The allocated expense is based upon the number of Company participants in
the respective plans. The allocated expense recorded by the Company for
the years ended June 30, 2000 and 1999 and the nine months ended
June 30, 1998 was $8 million, $12 million, and $1 million, respectively.
Additionally in fiscal 1998, as a result of the Merger accelerating the
vesting of certain stock options, the Company incurred an additional
$58 million in compensation expense. This additional cost was directly
funded by Diageo and has been treated as an additional contribution to
paid in capital.
(16) PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors several noncontributory defined benefit retirement
plans covering substantially all of its employees. The benefits are based on
years of credited service and benefit multipliers. Substantially all of the
plans are funded by annual contributions to tax-exempt trusts. Plan assets
consist principally of equity securities, corporate obligations and
government bonds.
In addition to the Company's defined benefit pension plan, the Company and
its subsidiaries provide health care and other benefits to substantially all
retired employees and covered dependents. Generally employees who have
attained certain age and service requirements are eligible for these
benefits.
F-20
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(16) PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the plan's benefit obligations, fair value of
plan assets, and funded status at June 30, 2000 and 1999.
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Projected benefit obligations at beginning of the year...... $ 886 885 206 212
Service cost................................................ 23 23 3 4
Interest cost............................................... 62 60 14 14
Plan amendments............................................. -- 5 -- --
Actuarial gain.............................................. (98) (36) (13) (9)
Benefits and expenses paid.................................. (54) (51) (15) (15)
Other....................................................... -- -- 1 --
----- ----- ---- ----
Projected benefit obligations at end of the year............ 819 886 196 206
----- ----- ---- ----
Plan assets at fair value at beginning of the year.......... 1,253 1,225 12 13
Actual return on plan assets................................ 285 78 -- 1
Contributions by the Company................................ 1 1 14 13
Benefits and expenses paid.................................. (54) (51) (15) (15)
----- ----- ---- ----
Plan assets at fair value at end of the year................ 1,485 1,253 11 12
----- ----- ---- ----
Excess (deficiency) of plan assets
over benefit obligations.................................... 666 367 (185) (194)
Unrecognized net transition obligation...................... (2) (3) -- --
Unrecognized prior service cost............................. 16 17 (3) (4)
Unrecognized net gain....................................... (585) (315) (67) (57)
Other....................................................... -- -- 4 3
----- ----- ---- ----
Net prepaid asset (accrued liability) at end of the year.... $ 95 66 (251) (252)
===== ===== ==== ====
The following weighted average assumptions were used to determine the
Company's obligations under the plans:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Weighted-average assumptions as of June 30:
Discount rate............................................. 8.00% 7.25% 8.00% 7.25%
Expected return on plan assets............................ 10.00% 10.00% 10.00% 10.00%
Rate of compensation increase............................. 6.25% 6.25% 6.00% 6.00%
Annual decrease in cost of benefits....................... -- -- 1.00% 1.00%
For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000 (8% in 1999). The rate
was assumed to decrease gradually to 5% for 2002 and remain at that level
thereafter.
F-21
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(16) PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
Components of pension net income for the years ended June 30, 2000 and 1999
and for the nine months ended June 30, 1998 are as follows:
2000 1999 1998
-------- -------- --------
Service cost............................................ $ 23 23 14
Interest cost........................................... 62 60 44
Expected return on assets............................... (108) (96) (65)
Amortization of:
Unrecognized prior service cost....................... 1 1 1
Unrecognized transitional obligation.................. (1) (1) (1)
Unrecognized net gain................................. (5) -- --
------ ---- ----
Net periodic pension income....................... $ (28) (13) (7)
====== ==== ====
Components of the postretirement medical and life insurance cost for the
years ended June 30, 2000 and 1999 and for the nine months ended June 30, 1998
are as follows:
2000 1999 1998
-------- -------- --------
Service cost.............................................. $ 3 4 3
Interest cost............................................. 14 14 12
Expected return on assets................................. (1) (1) (1)
Amortization of:
Unrecognized prior service cost......................... -- (1) (1)
Unrecognized net gain................................... (3) (2) (1)
Other..................................................... 1 -- --
---- --- ---
Net periodic cost................................... $ 14 14 12
==== === ===
The impact on the service and interest cost of the postretirement cost and
accumulated postretirement benefit obligations of a 1% increase and a 1%
decrease in future medical care inflation are as follows:
2000 1999 1998
-------- -------- --------
Impact of 1% increase in medical care inflation rates:
Aggregate of service and interest cost.................... $ 1 1 2
Accumulated postretirement benefit obligations
at end of the period.................................... 11 12 15
Impact of 1% decrease in medical care inflation rates:
Aggregate of service and interest cost.................... (1) (1) (2)
Accumulated postretirement benefit obligations
at end of the period.................................... (10) (12) (15)
The Company and certain of its subsidiaries sponsor various defined
contribution profit sharing and capital accumulation plans. Charges to earnings
for these plans were $10 million, $9 million and
F-22
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(16) PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
$6 million for the years ended June 30, 2000 and 1999 and the nine months ended
June 30, 1998, respectively.
(17) COMMITMENTS AND CONTINGENCIES
(A) LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters, either individually or in the
aggregate, will not have a material adverse effect on the Company's
combined financial position, results of operations or liquidity.
(B) PURCHASE COMMITMENTS
The Company has purchase commitments with a key alliance partner and its
financing institution to purchase $127 million in raw material packaging
products over the eighteen month period subsequent to the balance sheet
date.
(18) GEOGRAPHICAL INFORMATION
The following table presents sales (by destination) and total assets by
geographical location:
REST OF
U.S. EUROPE THE WORLD TOTAL
-------- -------- --------- --------
Year ended June 30, 2000:
Sales.................................... $4,925 370 783 6,078
Total assets............................. 8,654 278 532 9,464
Year ended June 30, 1999:
Sales.................................... 5,151 408 578 6,137
Total assets............................. 8,665 302 421 9,388
Nine months ended June 30, 1998:
Sales.................................... 3,654 314 534 4,502
Total assets............................. 8,471 334 325 9,130
The following table provides sales information for our three divisions (as
described in note 2):
PILLSBURY
PILLSBURY BAKERIES
NORTH AND PILLSBURY
AMERICA FOODSERVICE INTERNATIONAL TOTAL
--------- ----------- ------------- --------
Year ended June 30, 2000.............. $3,900 1,245 933 6,078
Year ended June 30, 1999.............. 4,254 959 924 6,137
Nine months ended June 30, 1998....... 3,196 608 698 4,502
F-23
THE PILLSBURY COMPANY AND SUBSIDIARIES
(WHOLLY OWNED BY DIAGEO PLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(19) SUBSEQUENT EVENT
On July 16, 2000, Diageo and General Mills, Inc. ("General Mills") entered
into an agreement whereby the Company will be acquired by General Mills in a
transaction valued at $10.5 billion. General Mills will acquire the Company
in a stock-for-stock exchange with Diageo to hold approximately one third of
the basic common shares outstanding of General Mills. Prior to, and as part
of, the transaction, the Company will borrow up to $5.1 billion from
external lenders for repayment of intercompany debt to Diageo and its
affiliates. The transaction is expected to close late in calendar 2000, but
is subject to regulatory reviews and the approval of both Diageo and General
Mills shareholders.
F-24
APPENDIX A
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 16, 2000
BY AND AMONG
GENERAL MILLS, INC.,
GENERAL MILLS NORTH AMERICAN BUSINESSES, INC.,
DIAGEO PLC
AND
THE PILLSBURY COMPANY
TABLE OF CONTENTS
PAGE
----
ARTICLE I
Certain Definitions............................................................. A-1
ARTICLE II
The Merger; Closing............................................................. A-8
Section 2.1. Time and Place of Closing................................... A-8
Section 2.2. The Merger.................................................. A-8
Section 2.3. Effective Time.............................................. A-8
Section 2.4. Effects of the Merger....................................... A-9
Section 2.5. Certificate of Incorporation................................ A-9
Section 2.6. By-Laws..................................................... A-9
Section 2.7. Officers and Directors of Surviving Corporation............. A-9
Section 2.8. Effect on Capital Stock..................................... A-9
Section 2.9. Subsidiary Purchases........................................ A-9
Section 2.10. Aggregate Consideration..................................... A-9
Section 2.11. Deliveries by Diageo and the Selling Affiliates............. A-9
Section 2.12. Deliveries by General Mills and the Buying Affiliates....... A-10
Section 2.13. Contingent Purchase Price Adjustment........................ A-11
Section 2.14. Operating Working Capital Purchase Price Adjustment......... A-12
ARTICLE III
Representations and Warranties of Diageo and Pillsbury.......................... A-13
Section 3.1. Incorporation; Authorization; etc........................... A-13
Section 3.2. Capitalization; Structure................................... A-15
Section 3.3. Financial Statements........................................ A-15
Section 3.4. No Undisclosed Liabilities.................................. A-16
Section 3.5. Properties; Sufficiency..................................... A-16
Section 3.6. Absence of Certain Changes.................................. A-17
Section 3.7. Litigation; Orders.......................................... A-17
Section 3.8. Intellectual Property....................................... A-17
Section 3.9. Licenses, Approvals, Other Authorizations, Consents, A-17
Reports, etc................................................
Section 3.10. Labor Matters............................................... A-18
Section 3.11. Compliance with Laws........................................ A-18
Section 3.12. Insurance................................................... A-18
Section 3.13. Material Contracts.......................................... A-18
Section 3.14. Brokers, Finders, etc....................................... A-19
Section 3.15. Opinion of Diageo Financial Advisor......................... A-19
Section 3.16. Board Approval.............................................. A-19
Section 3.17. Required Vote............................................... A-19
Section 3.18. Environmental Compliance.................................... A-19
Section 3.19. Employee Benefit Plans...................................... A-20
Section 3.20. Acquisition of Shares for Investment........................ A-22
Section 3.21. Products.................................................... A-23
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PAGE
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ARTICLE IV
Representations and Warranties of General Mills and Merger Sub.................. A-23
Section 4.1. Incorporation; Authorization; etc........................... A-23
Section 4.2. Capitalization; Structure................................... A-24
Section 4.3. Financial Statements........................................ A-25
Section 4.4. No Undisclosed Liabilities.................................. A-25
Section 4.5. Properties.................................................. A-25
Section 4.6. Absence of Certain Changes.................................. A-26
Section 4.7. Litigation; Orders.......................................... A-26
Section 4.8. Intellectual Property....................................... A-26
Section 4.9. Licenses, Approvals, Other Authorizations, Consents, A-26
Reports, etc................................................
Section 4.10. Labor Matters............................................... A-27
Section 4.11. Compliance with Laws........................................ A-27
Section 4.12. Insurance................................................... A-27
Section 4.13. Material Contracts.......................................... A-27
Section 4.14. Brokers, Finders, etc....................................... A-27
Section 4.15. Opinions of General Mills Financial Advisors................ A-27
Section 4.16. Board Approval; Rights Plan................................. A-28
Section 4.17. Required Vote............................................... A-28
Section 4.18. Antitakeover Statute........................................ A-28
ARTICLE V
Covenants of the Parties........................................................ A-28
Section 5.1. Investigation of Business; Access to Properties and A-28
Records.....................................................
Section 5.2. Filings; Other Actions; Notification........................ A-29
Section 5.3. Further Assurances.......................................... A-31
Section 5.4. Conduct of Business......................................... A-31
Section 5.5. Public Announcements........................................ A-35
Section 5.6. Intercompany Accounts; Guaranties........................... A-35
Section 5.7. Subsidiary Purchase Agreements.............................. A-36
Section 5.8. Allocation; Structure of Subsidiary Purchases............... A-36
Section 5.9. No Solicitation............................................. A-36
Section 5.10. Proxy Statement; Diageo Circular............................ A-37
Section 5.11. Stockholder Meetings; Board Recommendations................. A-38
Section 5.12. General Mills Board of Directors............................ A-38
Section 5.13. Stock Exchange Listing...................................... A-38
Section 5.14. Delivery of Financial Statements and Other Information...... A-38
Section 5.15. Closing Date Indebtedness................................... A-39
Section 5.16. Insurance................................................... A-39
ARTICLE VI
Post-Closing Employee Benefits Matters.......................................... A-40
Section 6.1 Employee Benefits Matters................................... A-40
ARTICLE VII
Tax Matters..................................................................... A-43
Section 7.1. Tax Representations of Diageo............................... A-43
Section 7.2. General Mills Reorganization-Related Representations........ A-43
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PAGE
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Section 7.3. Tax Indemnification......................................... A-44
Section 7.4. Section 338(g) Elections for Food Subsidiaries.............. A-45
Section 7.5. Allocation of Certain Taxes................................. A-45
Section 7.6. Carryovers, Refunds and Related Matters..................... A-46
Section 7.7. Preparation and Filing of Tax Returns....................... A-47
Section 7.8. Tax Contests................................................ A-48
Section 7.9. Cooperation................................................. A-49
Section 7.10. Termination of Tax Sharing Agreements....................... A-49
Section 7.11. General Mills Consolidated Returns.......................... A-50
Section 7.12. Diageo Consolidated Returns................................. A-50
Section 7.13. Definitions................................................. A-50
Section 7.14. Survival.................................................... A-51
Section 7.15. Adjustments................................................. A-51
Section 7.16. Tax Transactions............................................ A-51
ARTICLE VIII
Conditions Precedent............................................................ A-51
Section 8.1. Conditions to Each Party's Obligation....................... A-51
Section 8.2. Additional Conditions to General Mills' and Merger Sub's A-52
Obligations.................................................
Section 8.3. Additional Conditions to Pillsbury's Obligation............. A-53
ARTICLE IX
Survival; Indemnification....................................................... A-53
Section 9.1. Survival.................................................... A-53
Section 9.2. Indemnification by Diageo................................... A-53
Section 9.3. Indemnification by General Mills............................ A-54
Section 9.4. Indemnification Procedures.................................. A-54
Section 9.5. Limitations on Indemnification.............................. A-56
Section 9.6. Exclusive Tax Indemnification............................... A-56
ARTICLE X
Termination..................................................................... A-57
Section 10.1. Termination................................................. A-57
Section 10.2. Procedure and Effect of Termination......................... A-57
Section 10.3. Termination Fees............................................ A-57
ARTICLE XI
Miscellaneous................................................................... A-58
Section 11.1. Counterparts................................................ A-58
Section 11.2. Governing Law; Jurisdiction and Forum; Waiver of Jury A-58
Trial.......................................................
Section 11.3. Entire Agreement............................................ A-58
Section 11.4. Expenses.................................................... A-59
Section 11.5. Notices..................................................... A-59
Section 11.6. Successors and Assigns...................................... A-60
Section 11.7. Headings; Definitions....................................... A-60
Section 11.8. Amendments and Waivers...................................... A-60
Section 11.9. Specific Performance........................................ A-60
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LIST OF EXHIBITS
Exhibit A1 Food Subsidiaries
Exhibit A2 Non-Controlled Foreign Entities
Exhibit B Model Form of Subsidiary Purchase Agreement
Exhibit C Form of Stockholders Agreement
Exhibit D Selling Affiliates
Exhibit E Business Financial Statements
LIST OF SCHEDULES
Schedule 2.14 Balance Sheet Report
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of July 16,
2000, is by and among General Mills, Inc., a Delaware corporation ("GENERAL
MILLS"), General Mills North American Businesses, Inc., a Delaware corporation
and wholly owned subsidiary of General Mills ("MERGER SUB"), Diageo plc, a
public limited company incorporated under the laws of England and Wales
("DIAGEO"), and The Pillsbury Company, a Delaware corporation and indirect
wholly owned subsidiary of Diageo ("PILLSBURY"). Unless otherwise specified,
capitalized terms herein shall have the meaning ascribed to them in Article I.
WHEREAS, Pillsbury, its Subsidiaries, certain other Subsidiaries of Diageo
and other Persons in which Diageo or its Affiliates own equity interests listed
in EXHIBIT A1 hereto (such Subsidiaries and Persons listed on Exhibit A1, the
"FOOD SUBSIDIARIES") and certain other Persons in which Diageo or its Affiliates
own equity interests listed in Exhibit A2 hereto (the Persons listed on EXHIBIT
A2 hereto, the "NON-CONTROLLED FOREIGN ENTITIES"), together with their
respective Subsidiaries, conduct the entire food business (other than the fast
food business) of Diageo. (The Food Subsidiaries and the Non-Controlled Foreign
Entities collectively are referred to herein as the "PURCHASED ENTITIES");
WHEREAS, General Mills and Diageo desire to combine the businesses of
General Mills with the food business (other than the fast food business) of
Diageo through (a) the merger (the "MERGER") of Merger Sub with and into
Pillsbury, with Pillsbury as the surviving corporation in the Merger as a wholly
owned subsidiary of General Mills upon the terms and subject to the conditions
set forth in this Agreement and (b) the purchase by certain indirect
Subsidiaries of General Mills (the "BUYING AFFILIATES") from the Selling
Affiliates of all of the outstanding shares of capital stock or other equity
interests of the Purchased Entities owned by the Selling Affiliates (the
"PURCHASED INTERESTS") and/or the assets and liabilities of the Purchased
Entities, upon the terms and subject to the conditions set forth herein and in
the agreements relating to such purchases (collectively, the "SUBSIDIARY
PURCHASES" and such agreements, collectively, the "SUBSIDIARY PURCHASE
AGREEMENTS");
WHEREAS, it is intended that, for U.S. federal income tax purposes, the
Merger will qualify as a reorganization under Section 368 of the Code and the
Subsidiary Purchases will not so qualify;
WHEREAS, (a) the respective Boards of Directors of Pillsbury and Merger Sub
have each determined that this Agreement is advisable, fair to and in the best
interests of their respective stockholders and have approved and adopted this
Agreement, (b) General Mills, as sole stockholder of Merger Sub, and Gramet
Holdings Corporation (the "PILLSBURY STOCKHOLDER"), as sole stockholder of
Pillsbury, have each approved this Agreement and (c) the respective Boards of
Directors of General Mills and Diageo have each approved this Agreement and the
Subsidiary Purchases; and
WHEREAS, in connection with the closing of the transactions contemplated by
this Agreement, it is contemplated that General Mills, Diageo, the Pillsbury
Stockholder and the Selling Affiliates will enter into a Stockholders Agreement
(the "STOCKHOLDERS AGREEMENT" and collectively with the Subsidiary Purchase
Agreements, the "ANCILLARY AGREEMENTS") in the form set forth as EXHIBIT C to
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
(a) As used in this Agreement the following terms shall have the
following respective meanings:
"ACTION" shall mean any action, suit, arbitration, inquiry, proceeding
or investigation by or before any court, governmental or other regulatory or
administrative agency or commission.
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"ADDITIONAL SHARES" shall mean the shares of General Mills Common Stock,
if any, issued pursuant to Section 2.14 hereof, and the shares of General
Mills Common Stock, if any, issued pursuant to Section 9.4(d)(ii) hereof.
"AFFILIATE" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, such first Person, it
being understood that Diageo and the Continuing Affiliates shall not be
considered to be Affiliates of General Mills and its Subsidiaries after the
Effective Time for purposes of Articles VII and IX. As used in this
definition, "control" (including, with correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"ANNIVERSARY DATE" means the first anniversary of the Effective Time (or
if such date is not a Business Day, the next Business Day).
"BENEFIT ARRANGEMENT" means any employment, severance or similar
contract, plan, policy, fund or arrangement (whether or not written)
providing for compensation, bonus, profit-sharing, stock option, or other
stock-related rights or other forms of incentive or deferred compensation,
perquisites, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
worker's compensation, supplemental unemployment benefits, severance
benefits and post-employment or retirement benefits (including compensation,
pension, health, medical or life insurance or other benefits) that (i) is
not an Employee Plan, (ii) is entered into, participated in, maintained,
administered or contributed to, as the case may be, by any Business Entity
and (iii) covers any U.S. employee or former U.S. employee of any Business
Entity employed in the United States.
"BOOKS AND RECORDS" shall mean all of the books and records primarily
related to the operations of the Business Entities, including, without
limitation, (i) corporate minute books, (ii) books and records relating to
employees, the purchase of materials, supplies and services, research and
development, manufacture and sale of products and services, advertising,
packaging, promotional materials and dealings with customers of the Business
Entities, and (iii) historical and archival data.
"BUSINESS COMBINATION PROPOSAL" shall mean, with respect to any Person,
(i) any merger, consolidation or other business combination as a result of
which the stockholders of such Person prior to such transaction would cease
to hold at least 80% of the voting securities of the entity surviving or
resulting from such transaction (or the ultimate parent entity thereof),
(ii) the acquisition by another Person at least 20% of the outstanding
voting securities of such Person, (iii) the sale, lease, exchange or other
disposition of at least 20% of the assets of such Person and its
Subsidiaries taken as a whole, or (iv) any transaction as a result of which
the directors of such Person immediately prior to such transaction would
cease to represent at least two-thirds of the members of the board of
directors of such Person or the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof).
"BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or
other day on which the commercial banks in New York City or London are
authorized or required by Law to remain closed.
"BUSINESS ENTITIES" shall mean Pillsbury, the Food Subsidiaries and
their respective Subsidiaries.
"BUSINESS INTELLECTUAL PROPERTY RIGHTS" means all material Intellectual
Property Rights owned or licensed and used or held for use by any Business
Entity.
A-2
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"CONTINGENT SHARE VALUE" means the lesser of (i) the amount by which the
Target Price exceeds the Market Value as of the Anniversary Date and
(ii) the Maximum Contingent Share Value.
"CONTINUING AFFILIATE" shall mean any Affiliate of Diageo, other than a
Business Entity.
"CONTROLLED GROUP LIABILITY" means any and all liabilities (i) under
Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412
and 4971 of the Code, (iv) as a result of a failure to comply with the
continuation coverage requirements of Section 601 ET SEQ.of ERISA and
Section 4980B of the Code and (v) under corresponding or similar provisions
of foreign laws or regulations, other than such liabilities that arise
solely out of, or relate solely to, the Employee Arrangements.
"COVERED LOSSES" shall mean any and all losses, liabilities, claims,
fines, deficiencies, damages, obligations, payments (including, without
limitation, those arising out of any settlement, judgment or compromise
relating to any Action), reasonable costs and expenses (including, without
limitation, interest and penalties due and payable with respect thereto and
reasonable attorneys' and accountants' fees and any other reasonable
out-of-pocket expenses incurred in investigating, preparing, defending,
avoiding or settling any Action), including, without limitation, any of the
foregoing arising under, out of or in connection with any Action, order or
consent decree of any Governmental Authority or award of any arbitrator of
any kind, or any law, rule, regulation, contract, commitment or undertaking.
"DGCL" shall mean the Delaware General Corporation Law.
"DIAGEO DIRECTOR" shall mean a member of the Board of Directors of
Diageo or of the Executive Committee of Diageo.
"DIAGEO FINANCIAL ADVISORS" means UBS Warburg and Greenhill & Co. LLC.
"DIAGEO SHAREHOLDERS APPROVAL" shall mean the approval of the
Transactions by the shareholders of Diageo by the Required Diageo Vote.
"DISPOSITION" means a merger, consolidation or other business
combination involving General Mills as a result of which no shares of
General Mills Common Stock shall remain outstanding and the stockholders of
General Mills immediately prior to the merger, consolidation or other
business combination shall not own a majority of the voting power of the
common equity securities received in such merger, consolidation or other
business combination, or a sale, transfer or other disposition of all or
substantially all of the assets of General Mills.
"DISPOSITION VALUE" means the lesser of (i) the Maximum Contingent Share
Value and (ii) the amount, if any, by which the Target Price exceeds the
lesser of (A) where the consideration to be received for each share of
General Mills Common Stock by the holder thereof as a result of such
Disposition is only cash, the amount of such cash per share (calculated as
of the Stockholder Approval Date), or where any of the consideration to be
received for each share of General Mills Common Stock by the holder thereof
as a result of such Disposition (and assuming that such holder did not
exercise any right of appraisal or right of election with respect to such
Disposition) is other than cash, the fair market value of the consideration
to be received for each such share (as determined in good faith by the Board
of Directors of General Mills as of the Stockholder Approval Date) and
(B) the Market Value as of the Stockholder Approval Date.
"EMPLOYEE ARRANGEMENT" means any Benefit Arrangement, Employee Plan or
International Plan.
A-3
"EMPLOYEE PLAN" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA,
(ii) is entered into, participated in, maintained, administered or
contributed to by any Business Entity and (iii) covers any employee or
former employee of any Business Entity.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of
the Code or Section 4001(b)(1) or 4001(a)(14) of ERISA.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"GENERAL MILLS COMMON STOCK" shall mean the Common Stock, par value $.10
per share, of General Mills, and the associated Rights issued pursuant to
the General Mills Rights Agreement.
"GENERAL MILLS FINANCIAL ADVISORS" shall mean Evercore Partners Inc. and
Merrill, Lynch & Co. Incorporated.
"GENERAL MILLS INTELLECTUAL PROPERTY RIGHTS" means all material
Intellectual Property Rights owned or licensed and used or held for use by
General Mills or any of its Subsidiaries.
"GENERAL MILLS RIGHTS AGREEMENT" shall mean the Rights Agreement, dated
as of December 11, 1995, between General Mills and Norwest Bank Minnesota,
as Rights Agent.
"GENERAL MILLS SHARES HELD" means the number of shares of General Mills
Common Stock issued to the Pillsbury Stockholder or the Selling Affiliates
pursuant to this Agreement or the Subsidiary Purchase Agreements, as the
case may be, and continued to be held by the Pillsbury Stockholder or the
Selling Affiliates or their Permitted Transferees as of the Anniversary Date
or the Disposition, as the case may be.
"GENERAL MILLS STOCKHOLDERS APPROVAL" shall mean the approval of the
General Mills Share Issuance and the Charter Amendment by the stockholders
of General Mills by the Required General Mills Votes.
"GOVERNMENTAL AUTHORITY" shall mean any United States federal, state or
local, or any foreign, government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade
name, mask work, invention, trade secret, copyright, know-how or proprietary
information contained on any website, processes, formulae, products,
technologies, discoveries, apparatus, Internet domain names, trade dress and
general intangibles of like nature (together with goodwill), customer lists,
confidential information, licenses, software, databases and compilations
including any and all collections of data and all documentation thereof
(including any registrations or applications for registration of any of the
foregoing) or any other similar type of proprietary intellectual property
right.
"INTERNATIONAL PLAN" means any employment, severance or similar
contract, plan, policy, fund or arrangement (whether or not written)
providing for compensation, bonus, profit-sharing, stock option, or other
stock-related rights or other forms of incentive or deferred compensation,
perquisites, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
worker's compensation, supplemental unemployment benefits, severance
benefits and post-employment or retirement benefits (including compensation,
pension, health, medical or life insurance or other benefits) that (i) is
not an Employee Plan or a Benefit Arrangement, (ii) is entered into,
participated in, maintained, administered or contributed
A-4
to by any Business Entity and (iii) covers any employee or former employee
of any Business Entity.
"KNOWLEDGE" of any Person shall mean the actual knowledge of such
Person's executive officers, without the conduct by any such Person of any
independent investigation with respect to the facts or matters specified.
"LAW" shall mean any United States federal, state or local, or any
foreign, order, writ, injunction, judgment, award, decree, statute, law,
rule or regulation.
"LIEN" shall mean any imperfection of title, easement, encroachment,
security interest, pledge, mortgage, lien (including, without limitation,
environmental and tax liens), charge, encumbrance, proxy, voting trust or
voting agreement.
"MARKET VALUE" shall mean, as of any date, the average of the daily high
and low sales prices per share of General Mills Common Stock during the
regular trading sessions on the NYSE for each of the 20 full trading days
immediately preceding (but not including) such date.
"MAXIMUM CONTINGENT SHARE VALUE" means $4.55.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
Section 3(37) of ERISA.
"NYSE" shall mean the New York Stock Exchange, Inc.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED LIENS" shall mean all Liens (i) which are reflected or
reserved against in the Business Balance Sheet (up to the amounts so
reflected or reserved against), (ii) which arise out of Taxes or general or
special assessments not in default and payable without penalty or interest
or the validity of which is being contested in good faith by appropriate
proceedings, (iii) of carriers, warehousemen, mechanics, materialmen and
other similar persons or otherwise imposed by law incurred in the ordinary
course of business for sums not yet delinquent or being contested in good
faith, (iv) which relate to deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, (v) which do not materially impair the use of the
asset subject thereof for the purposes for which currently used, and
(vi) in the case of the Business Real Property, (A) easements,
quasi-easements, licenses, covenants, rights-of-way, rights of re-entry or
other similar restrictions that would be shown by a current title report or
other similar report or listing, (B) any conditions that may be shown by a
current survey or physical inspection and (C) zoning, building, subdivision
or other similar requirements or restrictions, in the case of each of the
agreements, conditions, restrictions or other matters referenced in this
clause (vi) which do not materially impair the use, utility or value of the
applicable property affected or encumbered thereby for the purposes for
which currently used.
"PERMITTED TRANSFEREE" shall mean Diageo or any direct or indirect
wholly owned subsidiary of Diageo, in each case which becomes bound to the
Stockholders Agreement.
"PERSON" shall mean any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"PILLSBURY COMMON STOCK" shall mean the shares of common stock, par
value $1.00 per share, of Pillsbury.
"PILLSBURY PURCHASE PRICE SHARES" shall mean the number of Purchase
Price Shares allocated to the Merger as determined in accordance with
Section 5.8(a).
"PURCHASE PRICE SHARES" shall mean 141 million shares of General Mills
Common Stock.
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"SEC" shall mean the United States Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING AFFILIATES" shall mean the entities listed on EXHIBIT D.
"STOCKHOLDER APPROVAL DATE" means the date stockholders of General Mills
approve a Disposition.
"SUBSIDIARY" shall mean, with respect to any Person, any other entity of
which securities or other ownership interests having ordinary power to elect
a majority of the board of directors or other persons performing similar
functions are at any time directly or indirectly owned by such Person.
"SUBSIDIARY PURCHASE PRICE SHARES" shall mean the Purchase Price Shares
other than the Pillsbury Purchase Price Shares.
"TARGET PRICE" means $42.55.
"TITLE IV PLAN" means a plan subject to Title IV of ERISA other than any
Multiemployer Plan.
"U.K. GAAP" shall mean United Kingdom generally accepted accounting
principles.
"U.S. GAAP" shall mean United States generally accepted accounting
principles.
"WITHDRAWAL LIABILITY" means liability to or with respect to a
Multiemployer Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan, as those terms are defined in Part I of Subtitle E of
Title IV or ERISA.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
- ---- ----------
Acquisition Proposal........................................ 5.9(a)
Adjusted Closing Date Operating Working Capital
Calculation............................................... 2.14(c)
Adjustment Payment Date..................................... 2.14(d)
ADSP........................................................ 7.4
Agreement................................................... Preamble
Ancillary Agreements........................................ Recitals
Business.................................................... 3.5(b)
Business Balance Sheet...................................... 3.3(a)
Business Financial Statements............................... 3.3(a)
Business Material Contracts................................. 3.13
Business Real Property...................................... 3.5
Buying Affiliates........................................... Recitals
Certificate of Merger....................................... 2.3
Charter Amendment........................................... 4.1(b)
Closing..................................................... 2.1
Closing Date................................................ 2.1
Closing Date Operating Working Capital Calculation.......... 2.14(a)
COBRA coverage.............................................. 6.1(g)
Confidentiality Agreement................................... 5.1(b)
Controlling Party........................................... 7.8(c)
Determination............................................... 7.4
Diageo...................................................... Preamble
Diageo Circular............................................. 5.10(c)
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TERM SECTION
- ---- ----------
Article
Diageo Disclosure Schedule.................................. III
Diageo Group................................................ 7.13
Diageo Indemnified Parties.................................. 9.3(a)
Diageo Indemnifying Parties................................. 9.2(a)
Diageo Insurance Policies................................... 5.16(b)
Diageo Plan................................................. 6.1(l)
Diageo Representatives...................................... 5.9(a)
Diageo Shareholders Meeting................................. 5.11
Diageo Tax Indemnitees...................................... 7.13
Diageo Tax Indemnitors...................................... 7.13
EC.......................................................... 8.1(c)
Effective Time.............................................. 2.3
Employees................................................... 6.1(a)
Environmental Laws.......................................... 3.18(a)
Escrow Agent................................................ 2.13(a)
Escrow Agreement............................................ 2.13(a)
Escrow Fund................................................. 2.13(a)
FD&C Act.................................................... 3.21(a)
Food Subsidiaries........................................... Recitals
General Mills............................................... Preamble
General Mills Balance Sheet................................. 4.4
General Mills Disclosure Schedule........................... Article IV
General Mills Financial Statements.......................... 4.3(b)
General Mills Group......................................... 7.13
General Mills Indemnified Parties........................... 9.2(a)
General Mills Indemnifying Parties.......................... 9.3(a)
General Mills Material Adverse Effect....................... 4.1(a)
General Mills Material Contracts............................ 4.13
General Mills Proxy Statement............................... 5.10(a)
General Mills Representatives............................... 5.9(b)
General Mills SEC Reports................................... 4.3(a)
General Mills Share Issuance................................ 4.1(a)
General Mills Significant Subsidiaries...................... 4.2(b)
General Mills Stockholders Meeting.......................... 5.11
General Mills Tax Indemnitees............................... 7.13
General Mills Tax Indemnitors............................... 7.13
Governmental Antitrust Authority............................ 5.2(e)
Insurance Claims............................................ 5.16(b)
Joint Instruction........................................... 2.13(a)
Licenses.................................................... 3.9(a)
Merger...................................................... Recitals
Merger Sub.................................................. Recitals
Neutral Auditors............................................ 2.14(c)
Non-Controlled Foreign Entities............................. Recitals
Non-controlling Party....................................... 7.8(c)
Notice of Claim............................................. 9.4
Operating Working Capital................................... 2.14(a)
Pillsbury................................................... Preamble
Pillsbury Material Adverse Effect........................... 3.1(a)
Pillsbury Stockholder....................................... Recitals
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TERM SECTION
- ---- ----------
Post-Closing Period......................................... 7.13
Pre-Closing Period.......................................... 7.13
Products.................................................... 3.21(a)
Purchased Entities.......................................... Recitals
Purchased Interests......................................... Recitals
Purchase Price.............................................. 2.10
Required Diageo Vote........................................ 3.17
Required General Mills Votes................................ 4.17
Resolution Period........................................... 2.14(b)
Returns..................................................... 7.13
Rights...................................................... 4.2(a)
Stockholders Agreement...................................... Recitals
Straddle Period............................................. 7.7(c)
Straddle Period Return...................................... 7.7(c)
Subsidiary Purchase Agreements.............................. Recitals
Subsidiary Purchases........................................ Recitals
Substantially All Action.................................... 7.2(e)
Surviving Corporation....................................... 2.2
Tax......................................................... 7.13
Tax Claim................................................... 7.13
Tax Indemnitee.............................................. 7.13
Tax Proceeding.............................................. 7.8(b)
Tax Returns................................................. 7.13
Taxing Authority............................................ 7.13
Termination Date............................................ 10.1(b)
Transactions................................................ 3.1(b)
U.S. Corporation............................................ 3.1(a)
2000 Financial Statements................................... 5.14(a)
338 Election................................................ 7.4
338 Election Allocations.................................... 7.4
338 Election Subsidiaries................................... 7.4
ARTICLE II
THE MERGER; CLOSING
Section 2.1. TIME AND PLACE OF CLOSING. The closing of the Merger (the
"CLOSING") shall take place (a) at 10:00 a.m., New York City time, at the
offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New
York 10019, as promptly as practicable (but no later than the fifth Business
Day) following the date on which the last to be satisfied or waived of the
conditions set forth in Article VIII (other than those conditions that by their
nature cannot be satisfied until the Closing Date, but subject to the
satisfaction or, where permitted, waiver of those conditions) shall be satisfied
or waived in accordance with this Agreement or (b) at such other place, time
and/or date as General Mills and Diageo shall agree (the date of the Closing,
the "CLOSING DATE").
Section 2.2. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Section 251 of the DGCL, Merger
Sub shall be merged with and into Pillsbury at the Effective Time. Following the
Merger, the separate corporate existence of Merger Sub shall cease and Pillsbury
shall continue as the surviving corporation (the "SURVIVING CORPORATION").
Section 2.3. EFFECTIVE TIME. Upon the Closing, Merger Sub and Pillsbury
shall (a) file with the Secretary of State of the State of Delaware a
certificate of merger (the "CERTIFICATE OF MERGER") in such
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form as is required by and executed in accordance with the relevant provisions
of the DGCL and (b) make all other filings or recordings required under the
DGCL. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State or at such subsequent
time as General Mills and Diageo shall agree and as shall be specified in the
Certificate of Merger (the date and time the Merger becomes effective being the
"EFFECTIVE TIME").
Section 2.4. EFFECTS OF THE MERGER. At and after the Effective Time, the
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of Pillsbury and Merger Sub
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of Pillsbury and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 2.5. CERTIFICATE OF INCORPORATION. The certificate of
incorporation of Pillsbury, as in effect immediately prior to the Effective
Time, shall be the certificate of incorporation of the Surviving Corporation,
until thereafter changed or amended as provided therein or by applicable law.
Section 2.6. BY-LAWS. The by-laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the by-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
Section 2.7. OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The officers
of Pillsbury as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Merger Sub as of the
Effective Time shall become the directors of the Surviving Corporation, which
individuals will serve as directors of the Surviving Corporation until the
earlier of their resignation or removal or otherwise ceasing to be a director or
until their respective successors are duly elected and qualified.
Section 2.8. EFFECT ON CAPITAL STOCK. (a) At the Effective Time, by virtue
of the Merger and without any action on the part of Diageo or the Pillsbury
Stockholder, all of the shares of Pillsbury Common Stock issued and outstanding
immediately prior to the Effective Time, and all rights in respect thereof,
shall forthwith cease to exist and shall collectively be converted into the
right to receive the Pillsbury Purchase Price Shares.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of General Mills, each share of common stock of Merger
Sub issued and outstanding immediately prior to the Effective Time, and all
rights in respect thereof, shall forthwith cease to exist and be converted
into one fully paid and nonassessable share of common stock of the Surviving
Corporation, which shall constitute the only outstanding shares of capital
stock of the Surviving Corporation.
Section 2.9. SUBSIDIARY PURCHASES. At the Closing, each of the Subsidiary
Purchases will be consummated.
Section 2.10. AGGREGATE CONSIDERATION. The aggregate consideration paid to
the Pillsbury Stockholder pursuant to this Agreement in connection with the
Merger and to the Selling Affiliates for the Subsidiary Purchases shall consist
of (a) the Purchase Price Shares and (b) the Additional Shares, if any, issued
pursuant to Section 2.14 or 9.4(d)(ii) (collectively, the "PURCHASE PRICE"),
subject to any adjustment to the Purchase Price pursuant to Section 2.13, 2.14
or 9.4(d)(i).
Section 2.11. DELIVERIES BY DIAGEO AND THE SELLING AFFILIATES. At the
Closing, Diageo shall, or shall cause the Pillsbury Stockholder or one or more
of the Selling Affiliates to, as the case may be, deliver the following to
General Mills or, in the case of paragraph (a) below, the applicable Buying
Affiliate:
(a) certificates or notarial assignment deed for, or such other
instruments evidencing ownership under applicable law of, the Purchased
Interests, which constitute and will constitute as
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of the Closing, 100% of the issued and outstanding shares of capital stock
or other equity interests of the Purchased Entities owned by the Selling
Affiliates, in each case with appropriate stock powers or other instruments
of transfer and requisite tax stamps attached and properly signed (or in the
event any of the Subsidiary Purchases is in the form of an acquisition of
assets and liabilities, such documentation as may be necessary to reflect
the transfer of such assets and liabilities to the applicable Buying
Affiliate);
(b) all Books and Records in the possession of Diageo or any Continuing
Affiliate, except as otherwise provided by Law;
(c) the certificate required to be delivered by Diageo and Pillsbury
pursuant to Section 8.2(d);
(d) counterparts of the Stockholders Agreement duly executed by Diageo,
the Pillsbury Stockholder and each of the Selling Affiliates;
(e) certificates of the Secretary or an Assistant Secretary of Diageo,
Pillsbury, the Pillsbury Stockholder and the Selling Affiliates, dated the
Closing Date, (i) as to the incumbency and signatures of the officers or
representatives of Diageo and Pillsbury executing this Agreement and of
Diageo, the Pillsbury Stockholder and the Selling Affiliates executing the
Stockholders Agreement and of the Selling Affiliates executing the
Subsidiary Purchase Agreements, together with evidence of incumbency of such
Secretary or Assistant Secretary, and (ii) certifying attached resolutions
of the respective Board of Directors of Diageo, Pillsbury, the Pillsbury
Stockholder and the Selling Affiliates that authorize the execution,
delivery and performance of this Agreement and the Ancillary Agreements, as
the case may be;
(f) resignations, effective as of the Effective Time, of those directors
of the Food Subsidiaries as General Mills may request; and
(g) such other documents, instruments and certificates as General Mills
may reasonably request in connection with the transactions contemplated by
this Agreement.
Section 2.12. DELIVERIES BY GENERAL MILLS AND THE BUYING AFFILIATES. At
the Closing, General Mills shall deliver to Diageo, and, in the case of
paragraph (b) below, shall cause each Buying Affiliate to deliver to the
applicable Selling Affiliate:
(a) a certificate for the Pillsbury Purchase Price Shares (which shares,
when delivered, will be duly authorized, validly issued, fully paid and
non-assessable), in definitive form, registered in the name of the Pillsbury
Stockholder, bearing a legend or legends referencing restrictions under the
Securities Act on transfer of the Pillsbury Purchase Price Shares and any
legends required by the Stockholders Agreement;
(b) certificates for the Subsidiary Purchase Price Shares (which shares,
when delivered, will be duly authorized, validly issued, fully paid and
non-assessable), in definitive form, registered in the names of the Selling
Affiliates in each case for the number of Subsidiary Purchase Price Shares
as determined in accordance with Section 5.8(a), bearing a legend or legends
referencing restrictions under the Securities Act on transfer of the
Subsidiary Purchase Price Shares and any legends required by the
Stockholders Agreement;
(c) the certificate required to be delivered by General Mills pursuant
to Section 8.3(c);
(d) a duly executed counterpart of the Stockholders Agreement executed
by General Mills;
(e) certificates of the Secretary or an Assistant Secretary of General
Mills, Merger Sub and the Buying Affiliates, dated the Closing Date, (i) as
to the incumbency and signatures of the officers or representatives of
General Mills and Merger Sub executing this Agreement and of General Mills
executing the Stockholders Agreement and of the officers or representatives
of General Mills and the Buying Affiliates executing the Subsidiary Purchase
Agreements, together
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with evidence of the incumbency of such Secretary or Assistant Secretary,
and (ii) certifying attached resolutions of the respective Boards of
Directors of General Mills, Merger Sub and the Buying Affiliates, which
authorize and approve the execution, delivery and performance of this
Agreement and the Ancillary Agreements, as the case may be; and
(f) such other documents, instruments and certificates as Diageo may
reasonably request in connection with the transactions contemplated by this
Agreement.
Section 2.13. CONTINGENT PURCHASE PRICE ADJUSTMENT. (a) Immediately upon
consummation of the Merger, Diageo shall cause Pillsbury Stockholder to deliver
to a bank or financial institution in the United States mutually acceptable to
General Mills and Diageo, as escrow agent (the "ESCROW AGENT"), $642 million in
cash, by wire transfer of immediately available funds to be held by the Escrow
Agent pursuant to a customary escrow agreement (the "ESCROW AGREEMENT"), in form
and substance mutually acceptable to General Mills, Diageo and Pillsbury
Stockholder. If mutually agreed by General Mills and Diageo, in lieu of delivery
to the Escrow Agent of $642 million in cash, Diageo may cause Pillsbury
Stockholder to deliver to the Escrow Agent $642 million of investments mutually
selected by General Mills and Pillsbury Stockholder. In the event Pillsbury
Stockholder delivers cash to the Escrow Agent, the Escrow Agent shall invest
such funds as mutually directed by General Mills and Pillsbury Stockholder. The
funds or investments delivered to the Escrow Agent, together with any interest
or other proceeds with respect thereto, shall be the "ESCROW FUND." The Escrow
Fund shall be released upon the giving of a joint instruction (the "JOINT
INSTRUCTION") by General Mills and Pillsbury Stockholder pursuant to
paragraph (b) or (c) below. All costs and expenses relating to the Escrow
Agreement, including the fees and expenses of the Escrow Agent, shall be borne
equally by General Mills and Pillsbury Stockholder.
(b) Unless the stockholders of General Mills have approved a Disposition
prior to the Anniversary Date, General Mills and Pillsbury Stockholder shall
(and Diageo shall cause Pillsbury Stockholder to) give the Joint Instruction
to the Escrow Agent on the Anniversary Date, instructing the payout of the
Escrow Fund as follows. The Joint Instruction pursuant to this
paragraph (b) shall instruct the Escrow Agent to pay to General Mills from
the Escrow Fund, on or as promptly as practicable following the Anniversary
Date, an amount, if any, equal to the total amount of the Escrow Fund less
an amount, if any, equal to the product of (i) the number of General Mills
Shares Held multiplied by (ii) the Contingent Share Value. The Joint
Instruction pursuant to this paragraph (b) shall further instruct the Escrow
Agent to return to Pillsbury Stockholder the remainder of the Escrow Fund,
if any, promptly following payment of the amount, if any, set forth above to
General Mills.
(c) In the event the stockholders of General Mills approve a Disposition
prior to the Anniversary Date, General Mills and Pillsbury Stockholder shall
(and Diageo shall cause Pillsbury Stockholder to) give the Joint Instruction
to the Escrow Agent no later than the date of the Disposition, instructing
the payout of the Escrow Fund as follows. The Joint Instruction pursuant to
this paragraph (c) shall instruct the Escrow Agent to pay to General Mills
from the Escrow Fund, on or as promptly as practicable following the date of
the Disposition, an amount, if any, equal to the total amount of the Escrow
Fund less an amount, if any, equal to the product of (i) the number of
General Mills Shares Held multiplied by (ii) the Disposition Value. The
Joint Instruction pursuant to this paragraph (c) shall further instruct the
Escrow Agent to return to Pillsbury Stockholder the remainder of the Escrow
Fund, if any, promptly following payment of the amount, if any, set forth
above to General Mills.
(d) The number of shares of General Mills Common Stock or type of
property or securities issuable in connection with the transactions
contemplated by this Agreement and the Subsidiary Purchase Agreements, the
Contingent Share Value, the Maximum Contingent Share Value, the Disposition
Value, the Target Price, the General Mills Shares Held and the calculation
of Market
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Value shall be appropriately and equitably adjusted to reflect (i) the
payment of any extraordinary distribution or dividend on shares of General
Mills Common Stock (other than regular quarterly cash dividends), (ii) any
stock split, stock dividend or combination of such shares or (iii) any
consolidation, merger or other event which results in the conversion or
exchange of such shares.
(e) All calculations and determinations pursuant to this Section 2.13
shall be mutually agreed upon by Diageo and General Mills in good faith, and
shall be final and binding upon all of the parties to this Agreement and on
the Pillsbury Stockholder. General Mills and Diageo agree to treat Pillsbury
Stockholder as the owner of the Escrow Fund for U.S. federal income Tax
purposes until the Escrow Fund is disbursed pursuant to the terms hereof and
the Escrow Agreement, except to the extent otherwise required pursuant to a
Determination.
Section 2.14. OPERATING WORKING CAPITAL PURCHASE PRICE ADJUSTMENT. (a) As
soon as practicable, but in no event later than 90 days following the Closing
Date, General Mills shall prepare a calculation of the Operating Working Capital
of the Business Entities as of the Closing Date (the "CLOSING DATE OPERATING
WORKING CAPITAL CALCULATION"). For this purpose "OPERATING WORKING CAPITAL"
shall mean the Operating Working Capital of the Business Entities determined as
reflected in the line entitled "CR15297 Operating Working Capital" on the
balance sheet report (in management format) attached hereto as Schedule 2.14.
The Closing Date Operating Working Capital Calculation shall be prepared in the
same manner, consistent with past practice, and based on the same items, as the
Operating Working Capital of the Business Entities has historically been
prepared. Between the date hereof and the Closing Date, the Business Entities
shall, and Diageo shall cause the Business Entities to, manage Operating Working
Capital in the ordinary course of business and consistent with past practice,
and shall not take any action for the purpose of changing the calculation of
Operating Working Capital.
(b) General Mills shall deliver a copy of the Closing Date Operating
Working Capital Calculation to Diageo promptly after it has been prepared.
After receipt of the Closing Date Operating Working Capital Calculation,
Diageo shall have 60 days to review the Closing Date Operating Working
Capital Calculation, together with the workpapers used in the preparation
thereof. Diageo and its authorized representatives shall have full access
during normal business hours to all relevant books and records and employees
of the Business Entities to the extent required to complete their review of
the Closing Date Operating Working Capital Calculation; PROVIDED, HOWEVER,
that such access shall not unreasonably disrupt the personnel and operations
of the Business Entities. Unless Diageo delivers written notice to General
Mills on or prior to the 60th day after Diageo's receipt of the Closing Date
Operating Working Capital Calculation specifying in reasonable detail all
disputed items and the basis therefor, Diageo shall be deemed to have
accepted and agreed to the Closing Date Operating Working Capital
Calculation. If Diageo so notifies General Mills of its objection to the
Closing Date Operating Working Capital Calculation, General Mills and Diageo
shall, within 30 days following such notice (the "RESOLUTION PERIOD"),
attempt to resolve their differences and any resolution by them as to any
disputed amounts shall be final, binding and conclusive.
(c) If at the conclusion of the Resolution Period amounts shall remain
in dispute, then all amounts remaining in dispute shall be submitted to a
firm of nationally recognized independent public accountants (the "NEUTRAL
AUDITORS") selected by Diageo and General Mills within 10 days after the
expiration of the Resolution Period. If Diageo and General Mills are unable
to agree on the Neutral Auditors, then Diageo and General Mills shall each
have the right to request the American Arbitration Association to appoint
the Neutral Auditors who shall not have had a material business relationship
with Diageo, General Mills or any of their respective Affiliates within the
past two years. The parties hereto agree to execute, if requested by the
Neutral Auditors, a reasonable engagement letter. All fees and expenses
relating to the work, if any, to be performed by the Neutral Auditors shall
be borne equally by Diageo and General Mills. The Neutral Auditors shall act
as an arbitrator to determine only those issues still in dispute. The
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Neutral Auditors' determination shall be made within 30 days of their
selection, shall be set forth in a written statement delivered to Diageo and
General Mills and shall be final, binding and conclusive. The term "ADJUSTED
CLOSING DATE OPERATING WORKING CAPITAL CALCULATION", as used herein, shall
mean the definitive Closing Date Operating Working Capital Calculation
agreed or deemed to have been agreed to by Diageo and General Mills in
accordance with Section 2.14(b) or the definitive Closing Date Operating
Working Capital Calculation resulting from the determinations made by the
Neutral Auditors in accordance with this Section 2.14(c) (in addition to
those items theretofore agreed to by Diageo and General Mills).
(d) The Purchase Price shall be reduced dollar for dollar by the amount,
if any, by which Operating Working Capital shown on the Adjusted Closing
Date Operating Working Capital Calculation is less than $100 million or
increased dollar for dollar by the amount, if any, by which Operating
Working Capital shown on the Adjusted Closing Date Operating Working Capital
Calculation is greater than $300 million, PROVIDED, HOWEVER, that if the
Closing Date is between October 15 and November 15, inclusive, the
$300 million threshold shall be increased to $400 million, and if the
Closing Date is between March 15 and April 15, inclusive, the $100 million
threshold shall be reduced to zero; PROVIDED, FURTHER, that if there is a
sale, divestiture or disposition of any plants, assets or businesses
consummated prior to the Closing pursuant to Section 5.2, Diageo and General
Mills shall mutually agree on an appropriate adjustment of the
aforementioned thresholds to reflect such sale, divestiture or disposition.
For the avoidance of doubt, in the event that the Operating Working Capital
shown on the Adjusted Closing Date Operating Working Capital Calculation is
not greater or less than the applicable threshold, no adjustment to the
Purchase Price shall be made pursuant to this Section 2.14.
(e) Any reduction in the Purchase Price made pursuant to
Section 2.14(d) shall be paid by Diageo, by wire transfer in immediately
available funds, to an account or accounts specified by General Mills,
within five Business Days after the Adjusted Closing Date Operating Working
Capital Calculation is agreed upon or deemed to have been agreed upon by
General Mills and Diageo or the written statement of the Neutral Auditors
setting forth their determination regarding any remaining disputed items is
delivered to General Mills and Diageo (such fifth Business Day, the
"ADJUSTMENT PAYMENT DATE"), and shall bear interest from (and including) the
Closing Date through (and including) the date of payment at the publicly
announced prime interest rate of Citibank, N.A. in effect from time to time
for unsecured short-term commercial loans. Any increase in the Purchase
Price made pursuant to Section 2.14(d) shall be paid by General Mills by
delivery to the Pillsbury Stockholder on the Adjustment Payment Date of a
number of shares of General Mills Common Stock equal to (i) the amount of
the increase (which shall bear interest from (and including) the Closing
Date through (and including) the date of payment at the publicly announced
prime interest rate of Citibank, N.A. in effect from time to time for
unsecured short-term commercial loans) divided by (ii) the Market Value on
the Adjustment Payment Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DIAGEO AND PILLSBURY
Except as set forth in the corresponding sections or subsections of the
disclosure schedule delivered to General Mills by Diageo on or prior to the date
hereof (the "DIAGEO DISCLOSURE SCHEDULE"), each of Diageo and Pillsbury hereby
represents and warrants to General Mills and Merger Sub as follows:
Section 3.1. INCORPORATION; AUTHORIZATION; ETC. (a) Each Business Entity
is duly organized and validly existing and, with respect to those corporations
organized under the laws of one of the states of the United States of America (a
"U.S. CORPORATION"), in good standing, under the laws of the
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jurisdiction of its organization. Each of the Business Entities (i) has the
requisite corporate or similar power and authority to own its properties and
assets and to carry on its business as it is now being conducted and (ii) with
respect to each U.S. Corporation, is in good standing and is duly qualified to
transact business in each jurisdiction in which the nature of property owned or
leased by it or the conduct of its business requires it to be so qualified,
except where the failure to be so organized or in good standing or to be duly
qualified to transact business, or to have such power and authority, would not,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the business, assets, liabilities, condition
(financial or otherwise) or results of operations of the Business Entities,
taken as a whole (a "PILLSBURY MATERIAL ADVERSE EFFECT"). Diageo is a public
limited company duly incorporated and validly existing under the laws of England
and Wales.
(b) Each of Diageo and Pillsbury has the requisite corporate or similar
power to execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. Each of
Diageo, the Pillsbury Stockholder and the Selling Affiliates has the
requisite corporate or similar power and authority to execute the
Stockholders Agreement and to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery
by Diageo and Pillsbury of this Agreement, the performance by Diageo and
Pillsbury of their obligations hereunder and the consummation by Diageo and
Pillsbury of the transactions contemplated hereby have been duly and validly
authorized by the respective Boards of Directors of Diageo and Pillsbury
and, except for the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware and except for obtaining the approval of
the shareholders of Diageo of the disposition of the Business Entities
contemplated hereby (the "TRANSACTIONS") by the Required Diageo Vote, no
other corporate proceedings on the part of Diageo or Pillsbury, their
respective Boards of Directors or shareholders are necessary therefor.
(c) The execution, delivery and performance of this Agreement and the
Ancillary Agreements will not (i) violate any provision of Diageo's, the
Pillsbury Stockholder's, any Selling Affiliate's or any Business Entity's
respective certificate of incorporation or by-laws (or equivalent
organizational documents), (ii) violate any provision of, or be an event
that is (or with the passage of time will result in) a violation of, or
result in the acceleration of or entitle any party to accelerate or exercise
(whether after the giving of notice or lapse of time or both) any obligation
or right under, or result in the imposition of any Lien upon or the creation
of a security interest in any of the Purchased Interests, or any Business
Entity's assets or properties pursuant to, any Lien, agreement, instrument,
order, arbitration award, judgment or decree to which Diageo, any Continuing
Affiliate or any Business Entity is a party or by which any of them is
bound, or (iii) violate or conflict with any other restriction of any kind
or character to which Diageo, any Continuing Affiliate or any Business
Entity is subject, that, in the case of clauses (ii) or (iii) would,
individually or in the aggregate, have or reasonably be expected to have a
Pillsbury Material Adverse Effect or prevent the Merger and the Subsidiary
Purchases from occurring prior to the Termination Date. This Agreement has
been duly executed and delivered by Diageo and Pillsbury, and, assuming the
due execution hereof by General Mills and Merger Sub, this Agreement
constitutes the legal, valid and binding obligations of Diageo and
Pillsbury, enforceable against Diageo and Pillsbury in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
liquidation, dissolution, moratorium or other similar laws relating to or
affecting the rights of creditors generally and to the effect of the
application of general principles of equity (regardless of whether
considered in proceedings at law or in equity). At the Closing, each of the
Ancillary Agreements to which Diageo, the Pillsbury Stockholder or a Selling
Affiliate is or will be a party will be duly executed and delivered by
Diageo, the Pillsbury Stockholder and such Selling Affiliates, as
applicable, and, assuming the due execution and delivery thereof by the
other parties thereto, at the Closing will constitute the legal, valid and
binding obligations of Diageo, the Pillsbury Stockholder and such Selling
Affiliates, enforceable against Diageo, the Pillsbury
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Stockholder and such Selling Affiliates in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization,
liquidation, dissolution, moratorium or other similar laws relating to or
affecting the rights of creditors generally and to the effect of the
application of general principles of equity (regardless of whether
considered in proceedings at law or in equity). Diageo has delivered to
General Mills a true and correct copy of the certificate of incorporation
and by-laws, each as amended to date, of Pillsbury.
Section 3.2. CAPITALIZATION; STRUCTURE. (a) The authorized capital stock
of Pillsbury consists of 1,000 shares of Pillsbury Common Stock. As of the date
hereof, one share of Pillsbury Common Stock is outstanding, which share is
validly issued, fully paid and nonassessable, and free of preemptive rights and
owned by the Pillsbury Stockholder free and clear of all Liens. Section 3.2(a)
of the Diageo Disclosure Schedule sets forth the name of each Subsidiary of
Pillsbury, its jurisdiction of incorporation or organization, the number of
outstanding shares of its capital stock or other equity interests of each class
and the name of and number of shares owned by each holder of any such shares of
capital stock or other equity interests. Except as set forth in Section 3.2 of
the Diageo Disclosure Schedule, all of the outstanding shares of capital stock
or other equity interests of each of Pillsbury's Subsidiaries have been validly
issued, and are fully paid and nonassessable and free of preemptive rights.
(b) Section 3.2(b)(i) of the Diageo Disclosure Schedule sets forth the
name of each Purchased Entity, its jurisdiction of incorporation or
organization, the number of outstanding shares of its capital stock or other
equity interests of each class and the name and number of shares owned by
each holder of any such shares of capital stock or other equity interests.
Except as set forth in Section 3.2 of the Diageo Disclosure Schedule, all of
the outstanding shares of capital stock or other equity interests of the
material Purchased Entities have been validly issued, and are fully paid and
nonassessable, are free of preemptive rights, and are owned directly by the
Selling Affiliate as set forth on Section 3.2(b)(ii) of the Diageo
Disclosure Schedule, free and clear of all Liens. Section 3.2(b)(ii) of the
Diageo Disclosure Schedule sets forth the name of each Subsidiary of any
Purchased Entity, its jurisdiction of incorporation or organization, the
number of outstanding shares of its capital stock or other equity interests
of each class and the name and number of shares owned by each holder of any
such shares of capital stock or other equity interests. Except as set forth
in Section 3.2(b)(ii) of the Diageo Disclosure Schedule, all of the
outstanding shares of capital stock of the material Subsidiaries of the
Purchased Entities have been validly issued, and are fully paid and
nonassessable and are owned directly or indirectly by the Selling Affiliate
as set forth on Section 3.2(b)(ii) of the Diageo Disclosure Schedule, free
and clear of all Liens. Upon consummation of the Subsidiary Purchases at the
Closing as contemplated by this Agreement, the Selling Affiliates will
deliver to the Buying Affiliates good and valid title to all of the
Purchased Interests.
(c) There are no outstanding options, warrants or other rights of any
kind to acquire, or obligations to issue, shares of capital stock of any
class of, or other equity interests in, any Business Entity. None of the
Business Entities owns any equity interest, directly or indirectly, in any
Person other than the Subsidiaries of Pillsbury or of the Purchased
Entities. There are no outstanding obligations of any Business Entity
(i) to repurchase, redeem or otherwise acquire any shares of capital stock
or other equity interests in any Business Entity or (ii) to grant preemptive
or antidilutive rights with respect to any such shares or interests.
Section 3.3. FINANCIAL STATEMENTS. (a) Attached hereto as Exhibit E are
true and complete copies of the unaudited consolidated statements of income,
balance sheets and statements of cash flows of the Business Entities as of and
for the nine months ended June 30, 1998, as of and for the twelve months ended
June 30, 1999, and as of and for the six months ended December 31, 1999
(collectively, the "BUSINESS FINANCIAL STATEMENTS"). The Business Financial
Statements present fairly in all material respects the consolidated financial
position and results of operations and cash flows of the Business Entities for
the respective periods or as of the respective dates set forth therein, in each
case in
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accordance with U.K. GAAP applied on a consistent basis throughout the periods
involved (except as otherwise indicated therein and except for changes resulting
from normal and recurring year-end adjustments). The Business Financial
Statements have been prepared from and in all material respects in accordance
with the books and records of the Business Entities. The balance sheet as of
December 31, 1999 included in the Business Financial Statements is referred to
herein as the "BUSINESS BALANCE SHEET."
(b) The 2000 Financial Statements (including, in each case, any notes
thereto), when delivered to General Mills pursuant to Section 5.14(a) and as
of the Closing Date, (i) will present fairly in all material respects the
combined financial position and results of operations and cash flows of the
Business Entities for the respective periods or as of the respective dates
set forth therein, in each case in accordance with U.S. GAAP applied on a
consistent basis throughout the periods involved (except as otherwise
indicated therein and except, in the case of interim periods, for changes
resulting from normal and recurring year-end adjustments), and (ii) will
have been prepared from and in all material respects in accordance with the
books and records of the Business Entities.
Section 3.4. NO UNDISCLOSED LIABILITIES. Except for liabilities which are
reflected or reserved against in the Business Balance Sheet or as set forth in
Section 3.4 of the Diageo Disclosure Schedule, none of the Business Entities has
any liabilities or obligations that would be required to be reflected on a
balance sheet prepared in accordance with U.K. GAAP or U.S. GAAP, except for
(a) liabilities or obligations arising in the ordinary course of business
consistent with past practice since December 31, 1999, which would not,
individually or in the aggregate, have or reasonably be expected to have a
Pillsbury Material Adverse Effect and (b) with respect to liabilities or
obligations that would be required to be reflected on a balance sheet prepared
in accordance with U.S. GAAP, deferred income taxes, pension, and
postretirement/employment liabilities.
Section 3.5. PROPERTIES; SUFFICIENCY. (a) With the exception of properties
disposed of since December 31, 1999 in the ordinary course of business, a
Business Entity has good title to, or holds by valid and existing lease or
license, free and clear of all Liens other than Permitted Liens, each piece of
real and personal property capitalized on or included in the Business Balance
Sheet and each piece of real and personal property acquired by any Business
Entity since the date of the Business Balance Sheet that would, had it been
acquired prior to such date, be capitalized on or included in the Business
Balance Sheet, except where the failure to have such title or hold such lease or
license would not, individually or in the aggregate, have or reasonably be
expected to have a Pillsbury Material Adverse Effect. Section 3.5 of the Diageo
Disclosure Schedule sets forth a list of all the material real property owned or
leased by the Business Entities (the "BUSINESS REAL PROPERTY"). Diageo has made
available correct and complete copies of all material leases and subleases
(including all material amendments, modifications and side letters thereto, and
all notices of default and other material notices thereunder) relating to the
Business Real Property to which any of the Business Entities is a party, of
which all material leases and subleases are identified in Section 3.5 of the
Diageo Disclosure Schedule, it being understood that for purposes of this
sentence, "material" shall mean any lease or sublease with total future payments
in excess of $5,000,000. There are no pending or, to Diageo's and Pillsbury's
knowledge, threatened condemnation proceedings relating to any of the material
Business Real Property. Except as disclosed in Section 3.5 of the Diageo
Disclosure Schedule, none of the material properties owned or leased by any
Business Entity or by Diageo or any of the Continuing Affiliates is shared by
any Business Entity, on the one hand, and the other businesses, divisions or
Subsidiaries of Diageo or any Continuing Affiliate, on the other hand.
(b) The assets of the Business Entities and Non-Controlled Foreign
Entities constitute all of the assets necessary in all material respects to
own and operate the existing food business (other than the fast food
business) of Diageo (including Pillsbury North America, International, and
Food Service) (collectively, the "BUSINESS"), as reflected in the Business
Financial Statements, in the
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manner currently being conducted. The Business Entities collectively own or
lease, or otherwise have good and valid rights to, all material assets,
properties and other rights related to the Business, except as would not,
individually or in the aggregate, have or reasonably be expected to have a
Pillsbury Material Adverse Effect.
Section 3.6. ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, there
has been no (a) change or development in or effect on the business or businesses
of the Business Entities that has had, or would reasonably be expected to have,
a Pillsbury Material Adverse Effect or (b) action taken by any Business Entity
prior to the date hereof which, if taken from the date hereof through the
Closing, would violate any of the provisions of subsections (i), (ii), (iii),
(iv), (v), (xii)(A) and (xvii) of Section 5.4(a), provided that for the purposes
of this clause (b), the reference in Section 5.4(a)(v)(A) to "a commitment
period of one year or less" shall be deemed to be of no consequence for purposes
of this Section 3.6 and the reference in Section 5.4(a)(v)(B) to "Pillsbury's
2001 Capital Expenditure Plan" shall be deemed to refer to "Pillsbury's 2000
Capital Expenditure Plan."
Section 3.7. LITIGATION; ORDERS. There are no lawsuits, actions,
administrative or arbitration or other proceedings or governmental
investigations pending or, to Diageo's or Pillsbury's knowledge, threatened
against any Business Entity that would, individually or in the aggregate, have
or reasonably be expected to have a Pillsbury Material Adverse Effect or prevent
the Merger and the Subsidiary Purchases from occurring prior to the Termination
Date. There are no judgments or outstanding orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency, or
by arbitration) against any Business Entity or any of their respective
properties or businesses that would, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect or prevent
the Merger and the Subsidiary Purchases from occurring prior to the Termination
Date.
Section 3.8. INTELLECTUAL PROPERTY. The Business Entities own, or are
validly licensed or otherwise have the right to use, all Business Intellectual
Property Rights used in the conduct of their businesses, except as would not,
individually or in the aggregate, have or reasonably be expected to have a
Pillsbury Material Adverse Effect. No Business Intellectual Property Right is
subject to any outstanding judgment, injunction, order, decree or agreement
restricting the use thereof by the Business Entities or restricting the
licensing thereof by the Business Entities to any Person, except for any
judgment, injunction, order, decree or agreement which would not, individually
or in the aggregate, have or reasonably be expected to have a Pillsbury Material
Adverse Effect. No Business Entity is infringing on any other Person's
Intellectual Property Rights and to the knowledge of Diageo and Pillsbury no
Person is infringing on any Business Intellectual Property Rights, except, in
either case, as would not, individually or in the aggregate, have or reasonably
be expected to have a Pillsbury Material Adverse Effect. Except for such matters
as would not have or reasonably be expected to have a Pillsbury Material Adverse
Effect: (i) no Business Entity is a defendant in any action, suit, investigation
or proceeding relating to, or otherwise was notified of, any alleged claim of
infringement of any Intellectual Property Right and (ii) the Business Entities
have no outstanding claim or suit for any continuing infringement by any other
Person of any Business Intellectual Property Rights. Section 3.8 of the Diageo
Disclosure Schedule sets forth a list of all United States and foreign patents
and patent applications, trademark registrations and applications therefor,
registered copyrights and applications therefor and trade names of any of the
Business Entities that are material to the Business.
Section 3.9. LICENSES, APPROVALS, OTHER AUTHORIZATIONS, CONSENTS, REPORTS,
ETC. (a) All governmental licenses, permits, franchises and other
authorizations of any Governmental Authority ("LICENSES") possessed by or
granted to any of the Business Entities are in full force and effect, except for
those whose failure to be in full force and effect would not, individually or in
the aggregate, have or reasonably be expected to have a Pillsbury Material
Adverse Effect. No proceeding is pending or, to Diageo's or Pillsbury's
knowledge, threatened seeking the revocation or limitation of any such License
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which revocation or limitation would, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect.
(b) Section 3.9(b) of the Diageo Disclosure Schedule contains a list of
all registrations, filings, applications, notices, consents, approvals,
orders, qualifications and waivers required to be made, filed, given or
obtained by any of Diageo, the Pillsbury Stockholder, any Seller Affiliate
or any Business Entity with, to or from any Persons or Governmental
Authorities in connection with the consummation of the Merger or the
Subsidiary Purchases, except for those with respect to which the failure to
make, file, give or obtain would not, individually or in the aggregate, have
or reasonably be expected to have a Pillsbury Material Adverse Effect.
Section 3.10. LABOR MATTERS. Section 3.10 of the Diageo Disclosure
Schedule sets forth a list of all agreements with labor unions or associations
representing employees of any of the Business Entities that are material to the
Business. Except as set forth in Section 3.10 of the Diageo Disclosure Schedule,
none of the Business Entities is involved in or, to Diageo's or Pillsbury's
knowledge, threatened with any work stoppage, labor dispute, arbitration,
lawsuit or administrative proceeding relating to labor matters involving the
employees of any Business Entity (excluding routine workers' compensation
claims) that would, individually or in the aggregate, have or reasonably be
expected to have a Pillsbury Material Adverse Effect.
Section 3.11. COMPLIANCE WITH LAWS. The conduct of the business or
businesses of each of the Business Entities complies with all Laws applicable
thereto, except for those violations of Law which would not, individually or in
the aggregate, have or reasonably be expected to have a Pillsbury Material
Adverse Effect; it being understood that nothing set forth in this Section 3.11
is intended to address any compliance issue that is the subject of any other
representation or warranty set forth in Sections 3.9, 3.18, 3.19 or 3.21, or in
Article VII.
Section 3.12. INSURANCE. Each of the Business Entities is covered by valid
and currently effective insurance policies issued for the benefit of the
Business Entities that are customary for companies of similar size in the
industry and locale in which the Business Entities, as the case may be, operate.
Section 3.13. MATERIAL CONTRACTS. As of the date hereof, except as set
forth in Section 3.13 of the Diageo Disclosure Schedule, none of the Business
Entities is a party to or bound by any (a) employment or consulting agreement
with an individual requiring payments of base compensation in excess of $250,000
per year; (b) distributor agreement which is not terminable on one year's (or
less) notice; (c) material joint venture or similar contract or agreement;
(d) contract which is terminable by the other party or parties thereto upon a
change of control of any of the Business Entities, other than such contracts the
termination of which would not, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect;
(e) contract or agreement that materially limits or purports to materially limit
the ability of any of the Business Entities or any Affiliates of a Business
Entity to compete in any material line of business or in any material geographic
area; (f) any material contract or agreement between or among one or more
Business Entities on the one hand and Diageo or any Continuing Affiliate or any
officer or director of any of the Business Entities on the other hand; or
(g) other contract, agreement or arrangement, entered into other than in the
ordinary course of business, involving an estimated total future payment or
payments in excess of $1,000,000. The contracts required to be so listed are
referred to herein as "BUSINESS MATERIAL CONTRACTS." With respect to all
Business Material Contracts, (i) none of the Business Entities, Diageo or any
Continuing Affiliate, nor, to Diageo's or Pillsbury's knowledge, any other party
to any such Business Material Contract is in breach thereof or default
thereunder, and (ii) there does not exist under any provision thereof, any event
that, with the giving of notice or the lapse of time or both, would constitute
such a breach or default, except for such breaches, defaults and events which in
the case of clauses (i) and (ii) would not, individually or in the aggregate,
have or reasonably be expected to have a Pillsbury Material Adverse Effect.
Diageo and Pillsbury have made available to General Mills true and correct
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copies of all Business Material Contracts. Section 3.13 of the Diageo Disclosure
Schedule lists, as of the date hereof, each note, mortgage, indenture and other
obligation and agreement and other instrument for or relating to any lending or
borrowing (including assumed or guaranteed debt) of $10,000,000 or more effected
by any Business Entity or to which any properties or assets of any of the
Business Entities are subject.
Section 3.14. BROKERS, FINDERS, ETC. Except for the services of the Diageo
Financial Advisors, neither Diageo nor any of its Subsidiaries has employed, or
is subject to any valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated by this Agreement
who might be entitled to a fee or commission in connection with such
transactions.
Section 3.15. OPINION OF DIAGEO FINANCIAL ADVISOR. The Board of Directors
of Diageo has received consent as of the date hereof from each of the Diageo
Financial Advisors to the inclusion of their respective names in any documents
delivered to the shareholders of Diageo in connection with the transactions
contemplated by this Agreement.
Section 3.16. BOARD APPROVAL. The Board of Directors of Diageo, by
resolutions duly adopted by unanimous vote at a meeting duly called and held and
not subsequently rescinded or modified in any way, has duly (a) determined that
the Transactions are fair to and in the best interests of Diageo and its
shareholders, (b) approved this Agreement and (c) determined to recommend to the
shareholders of Diageo that such shareholders approve the Transactions.
Section 3.17. REQUIRED VOTE. The affirmative vote of the holders of a
majority of the outstanding common shares of Diageo is the only vote of the
holders of any class of capital stock of Diageo necessary to approve the
transactions contemplated by this Agreement (the "Required Diageo Vote").
Section 3.18. ENVIRONMENTAL COMPLIANCE. (a) Each Business Entity has
obtained all permits, licenses and other authorizations which are required with
respect to the operation of the Business Entities as presently conducted under
federal, state and local laws and regulations relating to pollution or
protection of the environment, including laws relating to emissions, discharges,
releases or threatened releases or discharges of Air Pollutants, Hazardous
Substances, Oils, Pollutants or Contaminants (as such terms are currently
defined at 42 U.S.C. Section 7602 and in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5) into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Air Pollutants, Hazardous Substances, Oils, Pollutants
or Contaminants (the "ENVIRONMENTAL LAWS"), except for the failure to have
obtained such permits, licenses and other authorizations as would not,
individually or in the aggregate, have or reasonably be expected to have a
Pillsbury Material Adverse Effect.
(b) Each Business Entity as presently conducted is in compliance with
all terms and conditions of the permits, licenses and authorizations
required by the Environmental Laws, and is also in compliance with all other
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except for such noncompliance which
would not, individually or in the aggregate, have or reasonably be expected
to have a Pillsbury Material Adverse Effect. There is no civil, criminal or
administrative action, suit, demand, notice of violation, investigation
known to Diageo or Pillsbury, proceeding, notice or demand letter pending
relating to the property or business of any Business Entity or, to the
knowledge of Diageo and Pillsbury, threatened against the business or
property of any Business Entity under Environmental Laws or any code, plan,
order, or decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, that would, individually or in
the aggregate, have or reasonably be expected to have a Pillsbury Material
Adverse Effect.
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(c) Except as would not, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect, to the
knowledge of Diageo and Pillsbury none of the Business Entities nor any
other Person has buried, released, dumped or disposed of any Hazardous
Substances, Oils, Pollutants or Contaminants in quantities requiring
investigation or cleanup under Environmental Laws in each case which have
been produced by, or resulting from, any business, commercial or industrial
activities, operations, or processes, on or beneath, the property of any
Business Entity, including, to the knowledge of Diageo and Pillsbury,
properties formerly owned by any Business Entity for which any Business
Entity has retained any material liability.
(d) Except as would not, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect, no
cleanup has occurred at any property currently owned or operated by any
Business Entity, which would result or reasonably be expected to result in
the assertion or creation of a material Lien on such property by any
Governmental Authority with respect thereto, nor has any such assertion of a
material Lien been made by any Governmental Authority with respect thereto.
(e) Except as would not, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect, none of
the Business Entities has received any notice from any Governmental
Authority or private or public entity or individual requesting information
pursuant to Environmental Laws in connection with or advising it that it is
in non-compliance with applicable Environmental Laws, or responsible for, or
potentially responsible for, costs with respect to a release, a threatened
release or clean-up of Air Pollutants, Hazardous Substances, Oils,
Pollutants, or Contaminants generated, stored, treated, disposed of or
transported by any Business Entity, and no Business Entity has entered into
any agreement for the clean-up of any Hazardous Substances, Oils, Pollutants
or Contaminants.
(f) Notwithstanding any other representation and warranty in this
Article III, the representations and warranties contained in this
Section 3.18 constitute the sole representations and warranties of Pillsbury
or Diageo with respect to any Environmental Law, environmental permit or any
Air Pollutants, Hazardous Substances, Oils, Pollutants or Contaminants.
Section 3.19. EMPLOYEE BENEFIT PLANS. (a) Diageo has made available to
General Mills copies of each material Employee Plan (and, if applicable, related
trust agreements) and all amendments thereto together with the most recent
annual report (Form 5500 including, if applicable, Schedule B thereto, summary
plan description and any material modifications thereto, annual financial report
and actuarial valuation report prepared in connection with any such Employee
Plan and all trust agreements, insurance contracts and other funding vehicles
relating thereto. Section 3.19(a) of the Diageo Disclosure Schedule identifies
each such Employee Plan that is (i) a Multiemployer Plan, (ii) a Title IV Plan,
(iii) maintained in connection with any trust described in Section 501(c)(9) of
the Code or (iv) is funded through a welfare benefit fund within the meaning of
Section 419 of the Code.
(b) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code and each trust created under any such Plan that
is intended to be exempt from tax under Section 501(a) of the Code has
received a favorable determination letter from the IRS. Diageo has made
available to General Mills the most recent determination letter of the
Internal Revenue Service relating to each such Employee Plan. Each Employee
Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules
and regulations, including ERISA and the Code, except where the failure to
be in compliance would not, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect.
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(c) Diageo has made available to General Mills copies (or if there is no
written plan document, any existing written descriptions) of each material
Benefit Arrangement (and, if applicable, related trust agreements) and all
amendments thereto. Each such Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed
by any and all applicable statutes, orders, rules and regulations and has
been maintained in good standing with applicable regulatory authorities,
except where the failure to be in compliance or to maintain good standing
would not, individually or in the aggregate, have or reasonably be expected
to have a Pillsbury Material Adverse Effect.
(d) Each International Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and
all applicable statutes, orders, rules and regulations (including any
special provisions relating to qualified plans where such Plan was intended
so to qualify) and has been maintained in good standing with applicable
regulatory authorities, except where the failure to be in compliance or to
maintain good standing would not, individually or in the aggregate, have or
reasonably be expected to have a Pillsbury Material Adverse Effect. There
has been no amendment to, written interpretation of or announcement (whether
or not written) by Pillsbury or any of its Subsidiaries relating to, or
change in employee participation or coverage under, any International Plan
that would increase materially the expense of maintaining such International
Plan above the level of expense incurred in respect thereof for the most
recent fiscal year ended prior to the date hereof. Each such International
Plan that is intended to be funded and/or book-reserved is fully funded
and/or book-reserved, as appropriate, based upon reasonable actuarial
assumptions.
(e) Diageo's Disclosure Schedule contains a complete list of all
material Employee Plans and material Benefit Arrangements. Except as
specifically provided in the foregoing documents made available to General
Mills, and except as set forth in Section 5.4 of the Diageo Disclosure
Schedule, no amendments to any Employee Plan or Benefit Arrangement have
been adopted or approved nor has any Business Entity undertaken to make any
such amendments or to adopt or approve any new Employee Plan or Benefit
Arrangement, except as would not materially increase the obligations of any
Business Entity under such amendment or new Employee Arrangement.
(f) With respect to each Title IV Plan, except as would not,
individually or in the aggregate, have or reasonably be expected to have a
Pillsbury Material Adverse Effect: (i) there does not exist any accumulated
funding deficiency within the meaning of Code Section 412 or Section 302 of
ERISA, whether or not waived; (ii) no reportable event within the meaning of
Section 4043(c) of ERISA for which the 30-day notice requirement has not
been waived has occurred, and the consummation of the transactions
contemplated by this Agreement will not result in the occurrence of any such
reportable event; (iii) all premiums to the PBGC have been timely paid in
full; (iv) no material liability (other than for premiums to the PBGC) under
Title IV of ERISA has been or is expected to be incurred by any of the
Business Entities; (v) the actuarial present value of the accumulated plan
benefits under such Title IV Plan (whether or not vested) as of the close of
its most recent plan year did not exceed the fair market value of the assets
allocable thereto, and there are no facts or circumstances that would
materially change the funded status of any such Title IV Plan since the
close of such plan year; and (vi) the PBGC has not instituted proceedings to
terminate any such Title IV Plan and, to Diageo's knowledge, no condition
exists that presents a risk that such proceedings will be instituted or
which would constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any such
Title IV Plan.
(g) None of the Business Entities nor any of their respective ERISA
Affiliates has incurred any material Withdrawal Liability that has not been
satisfied in full. With respect to each Employee Plan that is a
Multiemployer Plan and except as would not, individually or in the
aggregate, have or reasonably be expected to have a Pillsbury Material
Adverse Effect: (i) if any of
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the Business Entities or any of their respective ERISA Affiliates were to
experience a withdrawal or partial withdrawal from such plan, no material
Withdrawal Liability would be incurred; and (ii) none of the Business
Entities, nor any of their respective ERISA Affiliates has received any
notification, nor does any of them have knowledge, that any such Employee
Plan is in reorganization, has been terminated, is insolvent, or may
reasonably be expected to be in reorganization, to be insolvent, or to be
terminated.
(h) Diageo's Disclosure Schedule sets forth: (i) each Employee
Arrangement under which the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby could (either alone or
in conjunction with any other event such as termination of employment)
result in, cause the accelerated vesting, funding or delivery of, or
increase the amount or value of, any payment or benefit to any employee,
officer or director of any Business Entity, or for which any Business Entity
could be liable in an amount which would be material, or would limit the
right of any of the Business Entities to amend, merge, terminate or receive
a reversion of assets from any Employee Arrangement or related trust; and
(ii) estimates of the aggregate dollar amounts payable by the Business
Entities pursuant to or with respect to bonuses and other incentive
compensation in connection with or as a result of the consummation of the
transactions contemplated hereby.
(i) There are no pending or, to Pillsbury's knowledge, threatened claims
(other than claims for benefits in the ordinary course), investigations,
lawsuits or arbitrations which have been asserted or instituted against the
Employee Arrangements, any fiduciaries thereof with respect to their duties
to such Employee Arrangements or the assets of any of the trusts under any
of such Employee Arrangements which would reasonably be expected to result
in any liability of any Business Entity to the PBGC, the Department of
Treasury, the Department of Labor, or any other U.S. or foreign governmental
authority, or to any of such Employee Arrangements, any participant in any
such Employee Arrangement, or any other party, except as would not,
individually or in the aggregate, have or reasonably be expected to have a
Pillsbury Material Adverse Effect. Without limiting the generality of the
foregoing, none of the Business Entities has any actual or contingent
liability under any such Employee Arrangement or under any applicable law or
regulation for pay or benefits incurred as a result of corporate
restructuring, downsizing, layoffs or similar events that has not been fully
satisfied or adequately reserved for in the audited consolidated financial
statements (including the related notes) and unaudited consolidated
financial statements (including the related notes) of the Business Entities,
except as would not, individually or in the aggregate, have or reasonably be
expected to have a Pillsbury Material Adverse Effect.
Section 3.20. ACQUISITION OF SHARES FOR INVESTMENT. Diageo, the Pillsbury
Stockholder and the Selling Affiliates have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of their acquisition of the Purchase Price Shares and the Additional
Shares, if any, and have been provided access to personnel and books of General
Mills and its Subsidiaries for purposes of making their evaluation. Diageo, the
Pillsbury Stockholder and the Selling Affiliates are acquiring the Purchase
Price Shares and the Additional Shares, if any, for investment and not with a
view toward any distribution thereof, or with any present intention of
distributing such shares. Diageo, the Pillsbury Stockholder and the Selling
Affiliates agree that the Purchase Price Shares and the Additional Shares, if
any, may not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under the Securities Act, except
pursuant to an exemption from such registration available under the Securities
Act.
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Section 3.21. PRODUCTS. Except as would not result in out-of-pocket costs
and expenses to the Business Entities exceeding $1,500,000 in the aggregate, net
of recovery or reimbursement from insurers or other third parties, since
December 31, 1998:
(a) no shipment or other delivery of products made by any of the
Business Entities prior to the date hereof (the "PRODUCTS") is:
(i) "adulterated" or "misbranded" within the meaning of Section 342
or Section 343, respectively, of the Federal Food, Drug and Cosmetic Act,
as amended (the "FD&C ACT");
(ii) an article which may not be introduced into interstate commerce
under the provisions of Section 344 of the FD&C Act; or
(iii) "adulterated" or "misbranded" within the meaning of any
applicable material pure food law of any state in effect on the date
hereof;
(b) there have been no recalls or withdrawals related to the Products;
and
(c) there have been no tampering incidents relating to the Products.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GENERAL MILLS AND MERGER SUB
Except as set forth in the corresponding sections or subsections of the
disclosure schedule delivered to Diageo by General Mills on or prior to the date
hereof (the "GENERAL MILLS DISCLOSURE SCHEDULE"), each of General Mills and
Merger Sub hereby represents and warrants to Diageo and Pillsbury as follows:
Section 4.1. INCORPORATION; AUTHORIZATION; ETC. (a) Each of General Mills
and each of its Subsidiaries is duly organized and validly existing and, with
respect to each U.S. Corporation, in good standing, under the laws of the
jurisdiction of its organization. Each of General Mills and each of its
Subsidiaries (i) has the requisite corporate or similar power and authority to
own its properties and assets and to carry on its business as it is now being
conducted and (ii) with respect to each U.S. Corporation, is in good standing
and is duly qualified to transact business in each jurisdiction in which the
nature of property owned or leased by it or the conduct of its business requires
it to be so qualified, except where the failure to be so organized or in good
standing or to be duly qualified to transact business, or to have such power and
authority, would not, individually or in the aggregate, have or reasonably be
expected to have a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise) or results of operations of General Mills and
its Subsidiaries, taken as a whole (a "GENERAL MILLS MATERIAL ADVERSE EFFECT").
(b) General Mills and Merger Sub have the requisite corporate power to
execute and deliver this Agreement and to perform their obligations
hereunder and to consummate the transactions contemplated hereby. General
Mills has the requisite corporate power and authority to execute the
Stockholders Agreement and to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery
by General Mills and Merger Sub of this Agreement, the performance by
General Mills and Merger Sub of their obligations hereunder and the
consummation by General Mills and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of General Mills and Merger Sub and, except for the
filing of the Certificate of Merger with the Secretary of State of the State
of Delaware and the filing with such Secretary of Articles of Amendment to
General Mills' certificate of incorporation to reflect the Charter
Amendment, and except for obtaining the approval by the stockholders of
General Mills of (i) an amendment to the Restated Certificate of
Incorporation of General Mills, as amended, to eliminate Article V thereof
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(the "CHARTER AMENDMENT") and (ii) the issuance of the Purchase Price Shares
and the Additional Shares, if any, pursuant to this Agreement (the "GENERAL
MILLS SHARE ISSUANCE") by the Required General Mills Votes, no other
corporate proceedings on the part of General Mills or Merger Sub, their
respective Boards of Directors or stockholders are necessary therefor.
(c) The execution, delivery and performance of this Agreement and the
Ancillary Agreements will not (i) subject to effecting the Charter
Amendment, violate any provision of General Mills' or any of its
Subsidiaries' respective certificate of incorporation or by-laws (or
equivalent organizational documents instruments), (ii) violate any provision
of, or be an event that is (or with the passage of time will result in) a
violation of, or result in the acceleration of or entitle any party to
accelerate or exercise (whether after the giving of notice or lapse of time
or both) any obligation or right under, or result in the imposition of any
Lien upon or the creation of a security interest in any shares of capital
stock of General Mills or its Subsidiaries or any of General Mills' or any
of its Subsidiaries' assets or properties pursuant to, any Lien, agreement,
instrument, order, arbitration award, judgment or decree to which General
Mills or any of its Subsidiaries is a party or by which any of them is
bound, or (iii) violate or conflict with any other restriction of any kind
or character to which General Mills or any of its Subsidiaries is subject,
that, in the case of clauses (ii) or (iii) would, individually or in the
aggregate, have or reasonably be expected to have a General Mills Material
Adverse Effect or prevent the Merger and the Subsidiary Purchases from
occurring prior to the Termination Date. This Agreement has been duly
executed and delivered by General Mills and Merger Sub, and, assuming the
due execution hereof by Diageo and Pillsbury, this Agreement constitutes the
legal, valid and binding obligations of General Mills and Merger Sub,
enforceable against General Mills and Merger Sub in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
liquidation, dissolution, moratorium or other similar laws relating to or
affecting the rights of creditors generally and to the effect of the
application of general principles of equity (regardless of whether
considered in proceedings at law or in equity). At the Closing, each of the
Ancillary Agreements to which General Mills or a Buying Affiliate is a party
will be duly executed and delivered by General Mills and such Buying
Affiliates, as applicable, and, assuming the due execution and delivery
thereof by the other parties thereto, at the Closing will constitute the
legal, valid and binding obligations of General Mills and such Buying
Affiliates, enforceable against General Mills and such Buying Affiliates in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, liquidation, dissolution, moratorium or other similar laws
relating to or affecting the rights of creditors generally and to the effect
of the application of general principles of equity (regardless of whether
considered in proceedings at law or in equity). General Mills has delivered
to Diageo true and correct copies of the certificate of incorporation and
by-laws, as amended to date, of General Mills.
Section 4.2. CAPITALIZATION; STRUCTURE. (a) As of May 28, 2000, the
authorized capital stock of General Mills consisted of (i) one billion shares of
General Mills Common Stock, of which 285,422,376 were issued and outstanding and
122,884,288 were held in the treasury of General Mills, and (ii) five million
shares of Cumulative Preference Stock, par value $.10 per share, of which none
were outstanding and 2,000,000 have been designated Series B Participating
Cumulative Preference Stock and reserved for issuance upon exercise of the
rights (the "RIGHTS") distributed to the holders of shares of General Mills
Common Stock pursuant to the General Mills Rights Agreement. Since May 28, 2000
to the date of this Agreement, there have been no issuances of shares of the
capital stock of General Mills other than issuances of shares (and the related
Rights) pursuant to options or rights outstanding as of May 28, 2000 or granted
since such time under General Mills' stock-based incentive plans in the ordinary
course of business. All of the issued and outstanding shares of capital stock of
General Mills are duly authorized, validly issued, fully paid and non-assessable
and free of preemptive rights.
(b) The General Mills Disclosure Schedule sets forth a list of all of
the Subsidiaries of General Mills as of the date of this Agreement that are
Significant Subsidiaries within the meaning
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of Rule 1-02 of Regulation S-X under the Exchange Act (the "GENERAL MILLS
SIGNIFICANT SUBSIDIARIES"). All of the outstanding shares of capital stock
or other equity interests of each of the General Mills Significant
Subsidiaries have been validly issued, and are fully paid and nonassessable
and free of preemptive rights, and are owned directly or indirectly by
General Mills, free and clear of all Liens. Except as set forth in the
General Mills SEC Reports, neither General Mills nor any of its Subsidiaries
directly or indirectly owns any equity interest in any Person, other than
the Subsidiaries of General Mills, that is or would be expected to be
material to General Mills and its Subsidiaries taken as a whole. Except for
(i) the Rights (ii) options and other stock-based awards covering up to
59,210,825 shares of General Mills Common Stock outstanding on May 28, 2000
and (iii) stock options granted in the ordinary course in June 2000 pursuant
to General Mills' annual grant of stock options, as of the date hereof there
are no outstanding options, warrants or other rights of any kind to acquire
from General Mills or any of its Subsidiaries, or obligations of General
Mills or its Subsidiaries to issue, shares of capital stock of any class of,
or other equity interests in, General Mills.
(c) All of the Pillsbury Purchase Price Shares, when issued in the
Merger pursuant to this Agreement, all of the Subsidiary Purchase Price
Shares, when delivered by the Buying Affiliates to the Selling Affiliates
pursuant to this Agreement and the Subsidiary Purchase Agreements, and all
of the Additional Shares, if any, delivered pursuant hereto will, at such
times, be duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights.
Section 4.3. FINANCIAL STATEMENTS. (a) General Mills has filed all forms,
reports and documents (including all Exhibits, Schedules and Annexes thereto)
required to be filed by it with the SEC since January 1, 1999, including any
amendments or supplements thereto (collectively, the "GENERAL MILLS SEC
REPORTS"). As of their respective dates, none of the General Mills SEC Reports
(and, if amended or superseded by a filing prior to the date of this Agreement
or the Closing Date, then on the date of such filing) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes and schedules,
contained in the General Mills SEC Reports (or incorporated therein by
reference) (the "GENERAL MILLS FINANCIAL STATEMENTS") fairly present in all
material respects the consolidated financial position and results of
operations and cash flows of General Mills and its Subsidiaries for the
respective periods or as of the respective dates set forth therein, in each
case in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved (except as otherwise indicated therein and except, in
the case of unaudited General Mills Financial Statements, for changes
resulting from normal and recurring year-end adjustments).
Section 4.4. NO UNDISCLOSED LIABILITIES. Except as disclosed in the
General Mills SEC Reports filed prior to the date hereof, and except for
liabilities which are reflected or reserved against in the unaudited
consolidated balance sheet of General Mills and its Subsidiaries as of
February 27, 2000 included in the General Mills SEC Reports (the "GENERAL MILLS
BALANCE SHEET"), none of General Mills and its Subsidiaries has any liabilities
or obligations that would be required to be reflected on a consolidated balance
sheet of General Mills and its Subsidiaries or in the footnotes thereto prepared
in accordance with U.S. GAAP, except for liabilities or obligations arising in
the ordinary course of business consistent with past practice since
February 27, 2000, which would not, individually or in the aggregate, have or
reasonably be expected to have a General Mills Material Adverse Effect.
Section 4.5. PROPERTIES. With the exception of properties disposed of
since the date of the General Mills Balance Sheet in the ordinary course of
business and except as set forth in the General Mills SEC Reports filed prior to
the date hereof, General Mills and its Subsidiaries have good title to, or hold
by valid and existing lease or license, free and clear of all Liens other than
Permitted Liens,
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each piece of real and personal property capitalized on or included in the
General Mills Balance Sheet and each piece of real and personal property
acquired by General Mills or any of its Subsidiaries since the date of the
General Mills Balance Sheet that would, had it been acquired prior to such date,
be capitalized on or included in the General Mills Balance Sheet, except where
the failure to have such title or hold such lease or license would not have or
reasonably be expected to have a General Mills Material Adverse Effect.
Section 4.6. ABSENCE OF CERTAIN CHANGES. Except in connection with this
Agreement or the Subsidiary Purchase Agreements or as set forth in the General
Mills SEC Reports filed prior to the date hereof, since the date of the General
Mills Balance Sheet, there has been no (a) change or development in, or effect
which has had, or would reasonably be expected to have, a General Mills Material
Adverse Effect or (b) action taken by General Mills or any of its Subsidiaries
prior to the date hereof which, if taken from the date hereof through the
Closing, would violate any of the provisions of subsections (i), (ii), (iii),
(iv) or (v) of Section 5.4(b).
Section 4.7. LITIGATION; ORDERS. Except as set forth in the General Mills
SEC Reports filed prior to the date hereof, there are no lawsuits, actions,
administrative or arbitration or other proceedings or governmental
investigations pending or, to General Mills' knowledge, threatened against
General Mills or any of its Subsidiaries that would, individually or in the
aggregate, have or reasonably be expected to have a General Mills Material
Adverse Effect or prevent the Merger and the Subsidiary Purchases from occurring
prior to the Termination Date. There are no judgments or outstanding orders,
injunctions, decrees, stipulations or awards (whether rendered by a court or
administrative agency, or by arbitration) against General Mills or any of its
Subsidiaries or any of their respective properties or businesses that would,
individually or in the aggregate, have or reasonably be expected to have a
General Mills Material Adverse Effect or prevent the Merger and the Subsidiary
Purchases from occurring prior to the Termination Date.
Section 4.8. INTELLECTUAL PROPERTY. General Mills and its Subsidiaries
own, or are validly licensed or otherwise have the right to use, all General
Mills Intellectual Property Rights used in the conduct of their businesses,
except as would not, individually or in the aggregate, have or reasonably be
expected to have a General Mills Material Adverse Effect. No General Mills
Intellectual Property Right is subject to any outstanding judgment, injunction,
order, decree or agreement restricting the use thereof by General Mills or any
of its Subsidiaries or restricting the licensing thereof by General Mills and
its Subsidiaries to any Person, except for any judgment, injunction, order,
decree or agreement which would not, individually or in the aggregate, have or
reasonably be expected to have a General Mills Material Adverse Effect. Neither
General Mills nor any of its Subsidiaries is infringing on any other Person's
Intellectual Property Rights and to the knowledge of General Mills no Person is
infringing on any General Mills Intellectual Property Rights, except, in either
case, as would not, individually or in the aggregate, have or reasonably be
expected to have a General Mills Material Adverse Effect. Except for such
matters as would not, individually or in the aggregate, have or reasonably be
expected to have a General Mills Material Adverse Effect (i) neither General
Mills nor any of its Subsidiaries is a defendant in any action, suit,
investigation or proceeding relating to, or otherwise was notified of, any
alleged claim of infringement of any Intellectual Property Right and
(ii) General Mills and its Subsidiaries have no outstanding claim or suit for
any continuing infringement by any other Person of any General Mills
Intellectual Property Rights.
Section 4.9. LICENSES, APPROVALS, OTHER AUTHORIZATIONS, CONSENTS, REPORTS,
ETC. (a) Except as set forth in the General Mills SEC Reports filed prior to
the date of this Agreement, all Licenses of General Mills and its Subsidiaries
are in full force and effect except for those whose failure to be in full force
and effect would not, individually or in the aggregate, have or reasonably be
expected to have a General Mills Material Adverse Effect. No proceeding is
pending or, to General Mills' knowledge, threatened seeking the revocation or
limitation of any such License which revocation or limitation
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would, individually or in the aggregate, have or reasonably be expected to have
a General Mills Material Adverse Effect.
(b) Section 4.9 (b) of the General Mills Disclosure Schedule contains a
list of all registrations, filings, applications, notices, consents,
approvals, orders, qualifications and waivers required to be made, filed,
given or obtained by General Mills or any of its Subsidiaries with, to or
from any Persons or Governmental Authorities in connection with the
consummation of the Merger or the Subsidiary Purchases, except for those
with respect to which the failure to make, file, give or obtain would not,
individually or in the aggregate, have or reasonably be expected to have a
General Mills Material Adverse Effect.
Section 4.10. LABOR MATTERS. Neither General Mills nor any of its
Subsidiaries is involved in or, to General Mills' knowledge, threatened with any
work stoppage, labor dispute, arbitration, lawsuit or administrative proceeding
relating to labor matters involving the employees of General Mills or any of its
Subsidiaries (excluding routine workers' compensation claims) that would,
individually or in the aggregate, have or reasonably be expected to have a
General Mills Material Adverse Effect.
Section 4.11. COMPLIANCE WITH LAWS. Except as set forth in the General
Mills SEC Reports filed prior to the date hereof, the conduct of the businesses
of General Mills and its Subsidiaries complies with all Laws applicable thereto,
except for those violations of Law which would not, individually or in the
aggregate, have or reasonably be expected to have a General Mills Material
Adverse Effect; it being understood that nothing set forth in this Section 4.11
is intended to address any compliance issue that is the subject of any other
representation or warranty set forth in Section 4.9 or in Article VII.
Section 4.12. INSURANCE. General Mills and its Subsidiaries are covered by
valid and currently effective insurance policies issued in favor of General
Mills and its Subsidiaries that are customary for companies of similar size in
the industry and locale in which General Mills and its Subsidiaries, as the case
may be, operate.
Section 4.13. MATERIAL CONTRACTS. As of the date hereof, except as set
forth in the General Mills SEC Reports filed prior to the date hereof or as set
forth on Section 4.13 of the General Mills Disclosure Schedule (such exceptions,
the "GENERAL MILLS MATERIAL CONTRACTS"), neither General Mills nor any of its
Subsidiaries is a party to or bound by any (a) "material contract" (as such term
is defined in Item 601(b)(10) of Regulation S-K of the SEC) or (b) contract or
agreement that materially limits or purports to materially limit the ability of
any of General Mills or any of its Affiliates to compete in any line of business
or in any geographic area. With respect to all General Mills Material Contracts,
(i) neither General Mills nor any of its Subsidiaries nor, to General Mills'
knowledge, any other party to any such General Mills Material Contract is in
breach thereof or default thereunder, and (ii) there does not exist under any
provision thereof, any event that, with the giving of notice or the lapse of
time or both, would constitute such a breach or default, except for such
breaches, defaults and events which in the case of clauses (i) and (ii) would
not, individually or in the aggregate, have or reasonably be expected to have a
General Mills Material Adverse Effect. General Mills has made available to
Diageo and Pillsbury true and correct copies of all General Mills Material
Contracts.
Section 4.14. BROKERS, FINDERS, ETC. Except for the services of the
General Mills Financial Advisors, neither General Mills nor any of its
Subsidiaries has employed, or is subject to any valid claim of, any broker,
finder, consultant or other intermediary in connection with the transactions
contemplated by this Agreement who might be entitled to a fee or commission in
connection with such transactions.
Section 4.15. OPINIONS OF GENERAL MILLS FINANCIAL ADVISORS. The Board of
Directors of General Mills has received the opinions of each of the General
Mills Financial Advisors, each dated the date of this Agreement, to the effect
that the consideration to be paid by General Mills and the Buying Affiliates
pursuant to this Agreement and the Subsidiary Purchase Agreements is fair from a
financial
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point of view to General Mills, each of which opinions contains the consent of
the applicable General Mills Financial Advisor to the inclusion in full of the
text of such opinion in any document delivered to the stockholders of General
Mills in connection with the transactions contemplated by this Agreement.
Section 4.16. BOARD APPROVAL; RIGHTS PLAN. (a) The Board of Directors of
General Mills, by resolutions duly adopted by unanimous vote at a meeting duly
called and held and not subsequently rescinded or modified in any way, has duly
(i) determined that the transactions contemplated by this Agreement are fair to
and in the best interests of General Mills and its stockholders, (ii) approved
this Agreement and (iii) determined to recommend to the stockholders of General
Mills that such stockholders approve the Charter Amendment and the General Mills
Share Issuance.
(b) The Board of Directors of General Mills has taken or will take prior
to the Closing the requisite action such that neither Diageo nor any of its
Affiliates shall become an "Acquiring Person," and no "Share Acquisition
Date" or "Distribution Date" (as such terms are defined in the General Mills
Rights Agreement) will occur, solely by reason of the approval, execution or
delivery of this Agreement, the Ancillary Agreements or the consummation of
the transactions contemplated hereby and thereby.
Section 4.17. REQUIRED VOTE. The affirmative vote of (a) a majority of the
votes cast by the holders of the outstanding shares of General Mills Common
Stock, provided that the total vote cast represents over 50% in interest of all
shares of General Mills Common Stock entitled to vote, is the only vote of the
holders of any class of capital stock of General Mills necessary to approve the
General Mills Share Issuance, and (b) the holders of 51% of the issued and
outstanding shares of General Mills Common Stock is the only vote of the holders
of any class of capital stock of General Mills necessary to approve the Charter
Amendment (together, the "REQUIRED GENERAL MILLS VOTES").
Section 4.18. ANTITAKEOVER STATUTE. General Mills has taken or will take
prior to the Closing all action necessary to exempt the Merger and this
Agreement and the transactions contemplated hereby from the provisions of
Section 203 of the DGCL.
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.1. INVESTIGATION OF BUSINESS; ACCESS TO PROPERTIES AND
RECORDS. (a) From the date hereof through the Closing, Pillsbury and Diageo
shall, and shall cause their respective Subsidiaries to, afford to General Mills
and General Mills' accountants, counsel and other representatives reasonable
access during regular business hours, upon reasonable advance notice, to the
offices, plants, properties, books and records and to employees of the Business
Entities and, to the extent related to the Business, Diageo and its other
Subsidiaries, and their agents and consultants, subject to any applicable Laws
and compliance with any policies of the Business Entities with respect to plant
visits, in order that General Mills may make reasonable investigations of the
affairs of the Business and the Business Entities.
(b) From the date hereof through the Closing, General Mills shall, and
shall cause its Subsidiaries to, afford to Diageo and Diageo's accountants,
counsel and other representatives reasonable access during regular business
hours, upon reasonable advance notice, to the offices, plants, properties,
books and records and to employees of General Mills and its Subsidiaries,
and their agents and consultants, subject to any applicable Laws and
compliance with any policies of General Mills and its Subsidiaries with
respect to plant visits, in order that Diageo may make reasonable
investigations of the affairs of General Mills and its Subsidiaries.
(c) Any information provided to General Mills or Diageo or their
respective representatives pursuant to this Agreement shall be subject to
the terms of the Confidentiality Agreement dated April 6, 2000 between
Diageo and General Mills (the "CONFIDENTIALITY AGREEMENT").
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(d) Following the Closing, Diageo shall, and shall cause the Continuing
Affiliates to, afford to General Mills and General Mills' accountants,
counsel and other representatives reasonable access during regular business
hours, upon reasonable advance notice, to any books and records retained by
Diageo or the Continuing Affiliates that relate in part to the operations of
the Business Entities (but that do not relate primarily to the operations of
the Business Entities and are therefore not Books and Records that must be
delivered to General Mills and its Subsidiaries), but such access need be
given only with respect to the portion of such books and records as are
related to the operations of the Business Entities. Upon General Mills'
request, Diageo shall, and shall cause the Continuing Affiliates to, provide
General Mills with copies of the portions of such books and records that
relate to the operations of the Business Entities.
(e) Following the Closing, General Mills shall, and shall cause its
Subsidiaries to, (i) retain, for a period of six years following the
Closing, all Books and Records in the possession of the Business Entities as
of the Closing or delivered pursuant to this Agreement and (ii) afford to
Diageo and Diageo's accountants, counsel and other representatives
reasonable access during regular business hours, upon reasonable advance
notice, to any Books and Records in connection with matters that are the
subject of indemnification under Section 9.2 or otherwise necessary for
Diageo to comply with the terms of this Agreement or any applicable Law.
Section 5.2. FILINGS; OTHER ACTIONS; NOTIFICATION. (a) Each of the parties
hereto shall use (and shall cause their respective Subsidiaries, officers and
directors, and shall use reasonable best efforts to cause their Affiliates,
employees, agents, attorneys, accountants and representatives, to use) their
respective reasonable best efforts as soon as practicable to take or cause to be
taken all action, and to do or cause to be done all things, necessary, proper or
advisable on its part under this Agreement, the Ancillary Agreements and any
applicable Law to consummate and make effective the Merger, the Subsidiary
Purchases and any other transaction contemplated by this Agreement or the
Ancillary Agreements, including (i) preparing and filing with the SEC the
General Mills Proxy Statement and with the U.K. Listing Authority the Diageo
Circular and all necessary amendments or supplements to those filings;
(ii) preparing, providing and filing all documentation and other information to
effect all necessary notices, reports, applications, filings and other
submissions, and to obtain as promptly as is practicable all consents,
approvals, waivers, licenses, permits, authorizations, registrations,
qualifications, decisions, determinations or other permissions or actions
necessary or advisable to be obtained from any Governmental Authority or any
other Person in order to consummate the Merger, the Subsidiary Purchases or any
other transaction contemplated by this Agreement or the Ancillary Agreements;
(iii) provide all such information concerning such party, its Subsidiaries and
its officers, directors, employees, partners and Affiliates as may be necessary
or reasonably requested in connection with any of the foregoing; (iv) avoid the
issuance or entry of, or have vacated or terminated, any decree, order,
injunction, judgment, decision or determination that would, in whole or in part,
restrain, prevent or delay the consummation of the Merger, the Subsidiary
Purchases or any other transaction contemplated by this Agreement or the
Ancillary Agreements; (v) commit to divest and, if divestiture is required prior
to consummation of the Merger, the Subsidiary Purchases or any other transaction
contemplated by this Agreement or the Ancillary Agreements, divest such plants,
assets or businesses of the Business Entities and/or of General Mills (including
entering into customary ancillary agreements on commercially reasonable terms
relating to any such divestiture of such plants, assets or businesses) as may be
required in order to (x) avoid the issuance or entry of any decree, order,
injunction, judgment, decision or determination or the initiation of any
lawsuit, action or proceeding by any Governmental Authority seeking to, in whole
or in part, enjoin, prevent or delay the consummation of the Merger, the
Subsidiary Purchases or any other transaction contemplated by this Agreement or
the Ancillary Agreements, or (y) effect the dissolution or termination of, any
injunction, temporary restraining order, or other decree, order, judgment,
decision or determination in any suit, action, inquiry, investigation or
proceeding, that would otherwise have the effect of preventing or delaying, in
whole or in part, the consummation of the Merger, the Subsidiary Purchases or
any other transaction contemplated by this
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Agreement or the Ancillary Agreements; PROVIDED, HOWEVER, that General Mills
shall not be required to offer, take or agree to any actions in connection with,
or agree to, any hold separate order, sale, divestiture or disposition of
plants, assets or businesses that accounted in the aggregate for more than
$650 million in revenues for the fiscal year ended June 30, 1999; and PROVIDED
FURTHER that neither Pillsbury nor Diageo shall, nor shall they cause any of
their Subsidiaries to, divest or dispose of any plants, assets or businesses
pursuant to the obligations of this Section 5.2 without the prior consent of
General Mills, which consent shall not be withheld unreasonably so long as the
proposed divestiture or disposition is within the parameters contemplated by the
immediately preceding proviso.
(b) Subject to applicable Laws relating to the exchange of information,
the parties hereto shall have the right to review in advance, and to the
extent practicable to consult the other parties on, all the information
relating to the Business Entities or General Mills, as the case may be, and
any of their respective Subsidiaries, that appear in any filing made with,
or written materials submitted to, any Governmental Authority or any other
Person in connection with the Merger, the Subsidiary Purchases and any other
transaction contemplated by this Agreement or the Ancillary Agreements. In
exercising the foregoing right, each of the parties hereto shall act
reasonably and as promptly as is practicable.
(c) The parties hereto shall keep the other parties reasonably apprised
of the status of matters relating to completion of the transactions
contemplated hereby, including promptly furnishing the other with copies of
notices or other communications received by such parties or any of their
respective Subsidiaries from any third party and/or any Governmental
Authority with respect to the transactions contemplated by this Agreement.
(d) General Mills and Diageo shall cooperate in obtaining the opinion of
Diageo's tax counsel to satisfy the condition set forth in Section 8.3(d).
(e) Without limiting the generality of the undertakings provided in this
Section 5.2, the parties hereto agree to take or cause to be taken the
following actions: (i) the prompt provision to any and all federal, state,
local or foreign Governmental Authority with jurisdiction over enforcement
of any applicable antitrust laws ("GOVERNMENTAL ANTITRUST AUTHORITY") of
information and documents requested by any Governmental Antitrust Authority
or necessary, proper or advisable to permit consummation of the Merger, the
Subsidiary Purchases or any other transaction contemplated by this Agreement
or the Ancillary Agreements; (ii) subject to the provisos of
Section 5.2(a), the proffer by the parties, or any of them, of their
willingness to sell or otherwise dispose of, or to hold separate and agree
to sell or otherwise dispose of, such plants, assets, categories of assets
or businesses of the Business Entities and/or General Mills or their
respective Subsidiaries (and to enter into agreements with the relevant
Governmental Antitrust Authority giving effect thereto) if such action
should be reasonably necessary or advisable to avoid the initiation of any
action or proceeding, or the entry or issuance of any decree, order,
injunction, judgment, decision, determination or other action, by any
Governmental Antitrust Authority to delay, restrain, enjoin or otherwise
prohibit, in whole or in part, consummation of the Merger, the Subsidiary
Purchases or any other transaction contemplated by this Agreement or the
Ancillary Agreements; and (iii) subject to the provisos of Section 5.2(a),
use reasonable best efforts to take promptly, in the event that any
permanent or preliminary injunction or other decree, order, judgment,
decision or determination is entered or issued, or becomes reasonably
foreseeable to be entered or issued, in any lawsuit, investigation, inquiry,
action or proceeding that would make consummation, in whole or in part, of
the Merger, the Subsidiary Purchases or any other transaction contemplated
by this Agreement or the Ancillary Agreements unlawful or that would prevent
or delay, in whole or in part, consummation of the Merger, the Subsidiary
Purchases or any other transaction contemplated by this Agreement or the
Ancillary Agreements, any and all steps (including the taking of any appeal,
the posting of any bond or the taking of the steps contemplated by
clause (ii) of this paragraph) necessary to vacate, modify or suspend such
injunction, decree, order, judgment,
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decision or determination so as to permit such consummation on a schedule as
close as possible to that contemplated by this Agreement and the Ancillary
Agreements; PROVIDED, HOWEVER, that the obligations of this Section 5.2 may
be modified or amended by written agreement signed by the respective duly
authorized representatives of the parties hereto. The parties agree that
none of the steps or actions required to be taken pursuant to this
Section 5.2 shall be considered a Pillsbury Material Adverse Effect or
General Mills Material Adverse Effect.
Section 5.3. FURTHER ASSURANCES. The parties hereto agree that, from time
to time, whether before, at or after the Closing Date, each of them will execute
and deliver such further instruments of conveyance and transfer and take such
other actions as may be necessary to carry out the purposes and intents of this
Agreement. Without limiting the generality of the foregoing, the parties hereto
agree that:
(a) Between the date hereof and the Closing, they will use their
reasonable best efforts to ensure that the Business Entities hold all of the
assets and liabilities of the Business and no other assets or liabilities.
(b) Following the Closing, to the extent any assets or rights of the
Business have been retained by Diageo and the Continuing Affiliates, Diageo
shall and shall cause the Continuing Affiliates to use their respective
reasonable best efforts to convey such assets or rights to the Business
Entities as promptly as practicable (and pending such conveyance to provide
the Business Entities with the benefit of such assets).
(c) To the extent any real property or other assets or facilities, or
any rights or services, are shared or used jointly by the Business, on the
one hand, and the businesses of Diageo and its Subsidiaries other than the
Business, on the other hand, the parties will use their reasonable best
efforts to reach equitable arrangements under which such real property,
assets, facilities, rights and services will cease to be shared at or prior
to the Closing. To the extent this is not possible, the parties will
mutually agree in good faith on reasonable transition arrangements that will
allow such sharing to cease as soon as practicable following the Closing
(except to the extent the parties agree on longer term sharing arrangements,
which shall be agreed on an arm's-length basis).
Section 5.4. CONDUCT OF BUSINESS. (a) CONDUCT OF THE BUSINESS ENTITIES.
Pillsbury agrees, as to itself and its Subsidiaries, and Diageo agrees, as to
each of the Business Entities, that, from the date hereof until the Effective
Time, except as set forth in Section 5.4 of the Diageo Disclosure Schedule, as
expressly contemplated by this Agreement (including (i) actions taken pursuant
to Section 5.2, (ii) transactions (as to which Diageo has provided General Mills
reasonable notice and opportunity to consult with Diageo in advance of
consummation) incident to the Subsidiary Purchases, which transactions are not
detrimental to General Mills or any of its Subsidiaries or Affiliates or to any
of the Business Entities, or (iii) as required by applicable Law), or as
otherwise agreed to in writing by General Mills, the Business of the Business
Entities shall be conducted in the ordinary and usual course and, to the extent
consistent therewith (and subject to the restrictions set forth in this
Section 5.4(a)), the Business Entities will use all reasonable best efforts to
preserve and maintain existing relations and goodwill with employees, customers,
brokers, suppliers and other Persons with which the Business Entities as a group
have significant business relations. Without limiting the foregoing, Pillsbury
agrees, as to itself and its Subsidiaries, and Diageo agrees, as to each of the
Business Entities, that, from the date hereof until the Effective Time, except
as set forth in Section 5.4 of the Diageo Disclosure Schedule, as expressly
contemplated by this Agreement (including (i) actions taken pursuant to
Section 5.2, (ii) transactions (as to which Diageo has provided General Mills
reasonable notice and opportunity to consult with Diageo in advance of
consummation) incident to the Subsidiary Purchases, which transactions are not
detrimental to General Mills or any of its Subsidiaries or Affiliates or to any
of the Business Entities or (iii) as required by applicable Law), or as
otherwise agreed to in writing by General Mills, Pillsbury shall not and shall
cause its Subsidiaries not to, and
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Diageo shall cause each of the Business Entities not to, directly or indirectly
do, or commit to do, any of the following:
(i) except for dividends or distributions paid between the date
of this Agreement and the Closing Date to fund estimated income Tax
liabilities of the Business Entities, which liabilities arise in
connection with the net income of the Business Entities prior to the
Closing Date, and except as otherwise provided in Section 5.15,
declare or pay any dividend or other distribution with respect to any
share of its capital stock other than dividends and other
distributions paid by any Business Entity to its parent corporation
if such parent is another Business Entity wholly owned, directly or
indirectly, by Pillsbury or a Food Subsidiary and other than
dividends and other distributions paid by a Food Subsidiary in the
ordinary course of business consistent with past practice;
(ii) repurchase, redeem or otherwise acquire any shares of
capital stock or other securities of, or other ownership interests
in, any of the Business Entities;
(iii) issue, deliver, pledge, encumber or sell any shares of
capital stock of or other equity interests in any Business Entity, or
any securities convertible into any such shares of capital stock or
other equity interests, or any rights, warrants or options to acquire
any such shares of capital stock or other equity interests;
(iv) amend its Certificate of Incorporation or By-Laws or other
comparable organizational documents or amend any terms of the
outstanding securities of any Business Entity;
(v) merge or consolidate with any other Person, make any
investment in any other Person, including any joint venture, or
acquire the stock or assets or rights of any other Person other than
(A) in each case in the ordinary course of business consistent with
past practice with a commitment period of one year or less, purchases
of finished product, raw materials, property, plant and equipment,
services and items used or consumed in the manufacturing process,
(B) capital expenditures made pursuant to Pillsbury's 2001 Capital
Expenditure Program, a copy of which has been provided to General
Mills (provided that promptly following the date hereof, and in any
event no later than 30 days after such date, Diageo and General Mills
shall cause their respective responsible executives to meet and
reasonably reprioritize such 2001 Capital Expenditure Plan, and
thereafter this clause 5.4(a)(v)(B) shall apply to such reprioritized
plan), or (C) other transactions not described in (A) or (B) that are
in the ordinary course and not individually in excess of $5 million;
(vi) sell, lease, license or otherwise dispose of any Business Entity
or any assets, securities, rights or property of any Business Entity
other than (A) sales of inventory and equipment in the ordinary course of
business consistent with past practice or (B) transactions that are in
the ordinary course and not individually in excess of $5 million;
(vii) except as set forth in Section 5.15, incur any indebtedness for
borrowed money, guarantee any such indebtedness, enter into any new or
amend existing facilities relating to indebtedness, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities or guarantee any debt securities;
(viii) except as required under any collective bargaining agreement
or in the ordinary course of business consistent with past practice,
enter into or adopt any new, or amend or terminate any existing, Employee
Arrangement (including any trust or other funding arrangement), other
than as required by law, except that, in order to retain a current
employee or recruit a new employee, in each case consistent with past
practice, a Business Entity may amend or enter into Employee Arrangements
with individual employees who are
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not executive officers who earn $100,000 or more or directors, in each
case, of a Business Entity if such amendment or new arrangement will not
materially increase the obligations of the Business Entities;
(ix) except (A) as permitted under paragraph (viii) of this
Section 5.4(a) or in Article VI of this Agreement (B) to the extent
required under any collective bargaining agreement or by written
employment agreements existing on the date of this Agreement, make any
new grants or awards to, vest, accelerate or otherwise modify any grant,
benefit or awards made to, or increase the compensation payable or to
become payable to its officers, directors or employees or pay any
severance or bonus not otherwise due to its officers, directors or
employees, except for increases in compensation or new individual grants,
awards, severance payments or bonus payments that are not part of any
plan or program, in the ordinary course of business consistent with past
practice to employees (who are not executive officers or directors of any
Business Entity) that, in any event, do not result in aggregate increases
in such compensation by more than 2% over the compensation in effect on
the date of this Agreement (or, outside the United States, by more than
2% over the local rate of inflation or not in accord with the current
financial plan for each respective country);
(x) renew any collective bargaining agreement or enter into any new
collective bargaining agreement, if such renewed or new collective
bargaining agreement would materially increase the costs and/or
obligations imposed on the Business Entities thereunder (net of inflation
in the case of agreements outside the United States);
(xi) contribute any material amount to any trust or other arrangement
funding any Employee Arrangement, except to the extent required by the
existing terms of such Employee Arrangement, trust or other funding
arrangement, by any collective bargaining agreement, by any written
employment agreement existing on the date of this Agreement, or by
applicable law;
(xii) (A) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (B) enter into any agreement or exercise any
discretion providing for acceleration of payment or performance as a
result of a change of control of any Business Entity;
(xiii) renew or enter into any non-compete, exclusivity or similar
agreement that would restrict or limit, in any material respect, the
operations of the Business Entities, taken as a whole, or, after the
Effective Time, of General Mills or its Subsidiaries, taken as a whole,
other than license and distribution arrangements with franchisees in the
ordinary course of business consistent with past practice;
(xiv) (A) modify in any material respect, amend in any material
respect or terminate any Business Material Contract set forth in
subsection (d) or (g) of Section 3.13 or (B) enter into any Business
Material Contract of the type set forth in subsection (d) or (g) of
Section 3.13 or, except in the ordinary course, any other Business
Material Contract;
(xv) renew, enter into, amend or waive any material right under
(A) any contract with or loan to any Affiliate of a Business Entity
(other than another Business Entity), except with respect to certain
employment matters as permitted under other covenants contained herein,
(B) any distribution agreement that is not terminable without penalty on
one years notice, other than any distribution agreement which involves or
would be expected to involve monthly sales not in excess of $7.5 million
and which is otherwise in the ordinary course of business consistent with
past practice, (C) any brokerage arrangement that is not terminable on
ninety days notice or less or (D) any joint venture agreement;
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(xvi) settle or compromise any material litigation, or waive, release
or assign any material claims, including with respect to any Business
Intellectual Property Rights;
(xvii) adopt any change, other than as required by applicable
generally accepted accounting principles, in its accounting policies,
procedures or practices;
(xviii) sell, license, lease or otherwise dispose of any Business
Intellectual Property or any brand or line of business;
(xix) make any change in any method of accounting for Tax purposes,
make any Tax election that is inconsistent with past practice or file any
Tax Return other than in a manner consistent with past practice;
(xx) other than in the ordinary course of business, consistent with
past practice, take any action (A) to build inventory levels at the trade
or factory level or (B) to permit factory inventory levels to fall below
reasonably expected requirements;
(xxi) fail to maintain advertising spending and support, trade
incentives and broker incentives in the ordinary course of business,
consistent with past practice over the past two fiscal years; or
(xxii) agree or commit to do any of the foregoing.
(b) CONDUCT BY GENERAL MILLS. General Mills agrees that from the date
hereof until the Effective Time, except as set forth in Section 5.4 of the
General Mills Disclosure Schedule, as expressly contemplated by this
Agreement (including actions taken pursuant to Section 5.2 or as required by
applicable Law), or as otherwise agreed to in writing by Diageo, the
business of General Mills and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith (and
subject to the restrictions set forth in this Section 5.4(b)), General Mills
and its Subsidiaries will use all reasonable best efforts to preserve and
maintain existing relations and goodwill with employees, customers, brokers,
suppliers and other Persons with which General Mills and its Subsidiaries as
a group have significant business relations. Without limiting the foregoing,
General Mills agrees, as to itself and its Subsidiaries, that, from the date
hereof until the Effective Time, except as set forth in Section 5.4 of the
General Mills Disclosure Schedule, as expressly contemplated by this
Agreement (including actions taken pursuant to Section 5.2 or as required by
applicable Law), or as otherwise agreed to in writing by Diageo, General
Mills shall not and shall cause its Subsidiaries not to, directly or
indirectly do, or commit to do, any of the following:
(i) in the case of General Mills only, amend or otherwise change
its Certificate of Incorporation or By-Laws (other than the Charter
Amendment), or amend, modify or terminate the General Mills Rights
Agreement except as provided in Section 4.16;
(ii) in the case of General Mills only, (A) declare, set aside,
make or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to any of its capital
stock (other than regular quarterly dividends consistent with past
practices, including any increases consistent with past practice),
(B) split, combine or reclassify its outstanding shares of capital
stock, or (C) repurchase, redeem or otherwise acquire, except in
connection with any employee benefit plans or arrangements and except
pursuant to General Mills' ongoing stock repurchase program or
hedging activities, or permit any of its Subsidiaries to purchase or
otherwise acquire, any shares of General Mills' capital stock or any
securities convertible into or exchangeable or exercisable for any
shares of General Mills' capital stock;
(iii) in the case of General Mills only, adopt a plan of complete
or partial liquidation or dissolution;
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(iv) in the case of General Mills only, issue, sell, pledge,
dispose of or encumber any shares of, or securities convertible into
or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any
class or other equity interests, other than (A) issuable pursuant to
any employee option or benefit plan or arrangement, (B) issued in
connection with any merger, consolidation or acquisition permitted by
clause (v) below, (C) issued in other issuances that do not, in the
aggregate, represent more than 5% of the outstanding General Mills
Common Stock and (D) in connection with General Mills' hedging
activities;
(v) acquire by merger, consolidation or acquisition of stock or
assets (from any Person other than General Mills or a Subsidiary of
General Mills) any corporation, partnership or other business
organization or division thereof if (A) the aggregate consideration
is in excess of $100 million for any individual transaction or
$300 million for all such transactions or (B) such acquisition would
be reasonably likely to prevent the Merger and the Subsidiary
Purchases from occurring prior to the Termination Date; or
(vi) agree or commit to do any of the foregoing.
(c) CERTAIN JOINT VENTURES AND FRANCHISES. With respect to the joint
ventures set forth in Section 5.4(c) of the Diageo Disclosure Schedule,
within 45 days of the date hereof, General Mills and Diageo will discuss and
mutually agree on a strategic plan for such joint ventures and thereafter
will cooperate reasonably to implement such plan. With respect to the
franchises described in Section 5.4 of the Diageo Disclosure Schedule,
Diageo will pre-review with General Mills all new franchisees (but shall not
be required to pre-review with General Mills new shops with existing
franchisees).
Section 5.5. PUBLIC ANNOUNCEMENTS. Subject to their respective legal
obligations (including requirements of stock exchanges and other similar
regulatory bodies), General Mills and Diageo will consult with each other before
issuing, or permitting any agent or Affiliate to issue (and will use reasonable
best efforts to agree upon the text of), any press releases or otherwise making
or permitting any agent or Affiliate to make, any public statements with respect
to this Agreement and the transactions contemplated hereby.
Section 5.6. INTERCOMPANY ACCOUNTS; GUARANTIES. (a) Except as otherwise
provided in Section 5.15, (i) prior to the Effective Time, no Business Entity
shall repay (A) any indebtedness or other payable owing to Diageo or any
Continuing Affiliate or (B) any other indebtedness except as required by the
terms thereof and (ii) effective as of the Effective Time, all intercompany
receivables, payables, loans and investments then existing between Diageo or any
Continuing Affiliate, on the one hand, and the Business Entities, on the other
hand, shall be settled by way of capital contribution (with respect to
intercompany payables or loans due to Diageo or any Continuing Affiliate) or by
way of dividend in kind (with respect to receivables of any Business Entity owed
by Diageo or any Continuing Affiliate).
(b) General Mills shall use its reasonable best efforts to cause itself
or one or more of its Affiliates to be substituted in all respects for
Diageo or any Continuing Affiliate, effective as of the Closing, in respect
of all obligations of Diageo and any Continuing Affiliate under each of the
material guaranties, bonding arrangements, letters of credit and letters of
comfort given by Diageo or any of its Continuing Affiliates for the benefit
of the Business Entities, which material guaranties, performance bonds,
letters of credit and letters of comfort are set forth in Schedule 5.6 of
the Diageo Disclosure Schedule. Diageo shall use its reasonable best efforts
to cause itself or one or more of the Continuing Affiliates to be
substituted in all respects for any Business Entity, effective as of the
Closing, in respect of all obligations of any Business Entity under each
material guaranty, bonding arrangement, letter of credit and letter of
comfort given by any of the Business Entities for the benefit of Diageo or
any of the Continuing Affiliates and not related to the Business.
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Section 5.7. SUBSIDIARY PURCHASE AGREEMENTS. As soon as reasonably
practicable following the execution hereof, (a) Diageo will cause the Selling
Affiliates to execute and deliver duly executed counterparts to the Subsidiary
Purchase Agreements and (b) General Mills will notify Diageo of the identity of
each of the Buying Affiliates and will cause each such Buying Affiliate to
execute and deliver duly executed counterparts to the Subsidiary Purchase
Agreements. Subject to the provisions of Section 5.8(b), the Subsidiary Purchase
Agreements will be based on (and reflect the substantive terms contained in) the
model form of stock purchase agreement attached hereto as Exhibit B, subject to
such revisions that are mutually agreed to by Diageo and General Mills as
necessary or appropriate to reflect the laws, regulations and other requirements
of any jurisdiction in which the applicable Purchased Entity, Selling Affiliate
or Buying Affiliate is incorporated or organized.
Section 5.8. ALLOCATION; STRUCTURE OF SUBSIDIARY PURCHASES. (a) Promptly
following the date of this Agreement, Diageo and General Mills shall mutually
agree to a reasonable allocation of the Purchase Price Shares amongst the Merger
and each of the Subsidiary Purchases.
(b) General Mills and Diageo shall cooperate to determine whether the
Subsidiary Purchases shall be consummated as stock purchases, acquisitions
of assets and liabilities or alternative structures and shall consummate
such acquisitions pursuant to the terms hereof according to such mutually
agreed structures; PROVIDED that, unless otherwise agreed, the Subsidiary
Purchases shall be consummated pursuant to the Subsidiary Purchase
Agreements. The parties will agree on the final structure of the Subsidiary
Purchases based on compliance with the laws, rules and regulations of the
applicable local jurisdictions, tax efficiency and any other relevant
considerations; PROVIDED that the economic terms of such Subsidiary
Purchases shall be consistent with this Agreement and the model form of
Subsidiary Purchase Agreement attached hereto as Exhibit B.
Section 5.9. NO SOLICITATION. (a) Neither Diageo nor any of its
Subsidiaries nor any of the officers and directors of any of them shall, and
Diageo shall direct and use its reasonable best efforts to cause its and its
Subsidiaries' employees, agents and representatives, including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries
(Diageo, its Subsidiaries and their respective officers, directors, employees,
agents and representatives being the "DIAGEO REPRESENTATIVES") not to, directly
or indirectly through another Person, (i) solicit, initiate or encourage or
otherwise facilitate any inquiries (including by way of furnishing any
non-public information or otherwise) or the making of any inquiry, proposal or
offer from any Person which constitutes an Acquisition Proposal (or would
reasonably be expected to lead to an Acquisition Proposal) or (ii) participate
in any discussions or negotiations regarding an Acquisition Proposal. For
purposes of this Agreement, "ACQUISITION PROPOSAL" means any direct or indirect
inquiry, proposal or offer (or any improvement, restatement, amendment, renewal
or reiteration thereof) relating to any direct or indirect acquisition or
purchase of any capital stock of or other equity interest in, or any significant
portion of the businesses of, any of the Business Entities or a merger,
consolidation or other business combination transaction involving the Business
Entities or a sale of any significant portion of the assets of the Business
Entities, other than the transactions contemplated by this Agreement or as
permitted by Section 5.4(a) or requested by General Mills in connection with any
actions taken pursuant to Section 5.2.
(b) Neither General Mills nor any of its Subsidiaries nor any of the
officers and directors of any of them shall, and General Mills shall direct
and use its reasonable best efforts to cause its and its Subsidiaries'
employees, agents and representatives, including any investment banker,
attorney or accountant retained by it or any of its Subsidiaries (General
Mills, its Subsidiaries and their respective officers, directors, employees,
agents and representatives being the "GENERAL MILLS REPRESENTATIVES") not
to, directly or indirectly through another Person, (i) solicit, initiate or
encourage or otherwise facilitate any inquiries (including by way of
furnishing any non-public information or otherwise) or the making of any
inquiry, proposal or offer from any Person which
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constitutes a Business Combination Proposal with respect to General Mills
(or would reasonably be expected to lead to such a Business Combination
Proposal) or (ii) participate in any discussions or negotiations regarding a
Business Combination Proposal with respect to General Mills.
(c) In addition to the obligations of Diageo and General Mills set
forth in paragraphs (a) and (b), respectively, of this Section 5.9, Diageo
or General Mills, as the case may be, shall promptly (but in any event
within one Business Day) notify the other orally and in writing of any
Acquisition Proposal or any inquiry regarding the making of any Acquisition
Proposal or, with respect to General Mills, any Business Combination
Proposal or any inquiry regarding the making of any Business Combination
Proposal, indicating, in connection with such notice, the name of the Person
making such Acquisition Proposal or Business Combination Proposal or inquiry
and the terms and conditions of any such Acquisition Proposal or Business
Combination Proposal or inquiry. Each of Diageo and General Mills agrees
that it shall take the necessary steps promptly to inform its Subsidiaries
and the Diageo Representatives and General Mills Representatives,
respectively, of the obligations undertaken by it in this Section 5.9.
Section 5.10. PROXY STATEMENT; DIAGEO CIRCULAR. (a) Each of General Mills
and Diageo shall cooperate and promptly prepare and General Mills shall file as
promptly as practical a preliminary form of the proxy statement to be sent to
General Mills stockholders in connection with the General Mills Stockholders
Meeting (the "GENERAL MILLS PROXY STATEMENT"). General Mills and Diageo (with
respect to information supplied by it or its Affiliates) will cause the General
Mills Proxy Statement to comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
thereunder. Each of General Mills and Diageo shall use its respective reasonable
best efforts to have the General Mills Proxy Statement cleared by the SEC as
promptly as practicable after such filing. General Mills will advise Diageo,
promptly after it receives notice thereof, of any request by the SEC for
amendment of the General Mills Proxy Statement or comments thereon.
(b) General Mills and Diageo each agrees, as to itself and its
Affiliates, that none of the information supplied or to be supplied by it or
its Affiliates for inclusion or incorporation by reference in the General
Mills Proxy Statement, and any amendment or supplement thereto will, at the
date of mailing to stockholders and at the time or times of the General
Mills Stockholders Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time
prior to the date of the General Mills Stockholders Meeting any information
relating to General Mills or Diageo, or any of their respective Affiliates,
officers or directors, should be discovered by General Mills or Diageo which
should be set forth in an amendment or supplement to the General Mills Proxy
Statement, so that such document would not include any misstatement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party and, to the
extent required by applicable law, an appropriate amendment or supplement
describing such information shall be filed promptly with the SEC and, to the
extent required by law, disseminated to the General Mills stockholders.
(c) Each of General Mills and Diageo shall cooperate and promptly
prepare and Diageo shall file as promptly as practicable with the U.K.
Listing Authority a circular to be sent to Diageo shareholders in connection
with the Diageo Shareholders Meeting (the "DIAGEO CIRCULAR"), containing
(i) a notice convening the Diageo Shareholders Meeting, (ii) such other
information (if any) as may be required by the U.K. Listing Authority and
the U.K. Listing Rules and (iii) such other information as Diageo and
General Mills shall agree to include therein. Diageo and General Mills each
agrees, as to itself and its Subsidiaries, that the Diageo Circular and any
supplements thereto and any other circulars or documents issued to Diageo
shareholders, will contain all
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particulars relating to Diageo and General Mills and their respective
Subsidiaries required to comply in all material respects with all United
Kingdom statutory and other legal provisions and all such information
contained in such documents will be substantially in accordance with the
facts and will not omit anything material likely to affect the import of
such information.
(d) Each of General Mills and Diageo will use its reasonable best
efforts to cause the General Mills Proxy Statement and the Diageo Circular,
respectively, to be mailed to its stockholders or shareholders as promptly
as practicable after the date hereof.
Section 5.11. STOCKHOLDER MEETINGS; BOARD RECOMMENDATIONS. General Mills
will take all action necessary to convene a meeting of the stockholders of
General Mills at which the stockholders of General Mills shall consider approval
of the General Mills Share Issuance and the Charter Amendment (the "GENERAL
MILLS STOCKHOLDERS MEETING") as promptly as practicable after the General Mills
Proxy Statement has been cleared by the SEC. Diageo will take all action
necessary to convene an extraordinary general meeting of Diageo shareholders at
which resolutions will be proposed to approve the Transactions (the "DIAGEO
SHAREHOLDERS MEETING") as promptly as practicable after the Diageo Circular is
cleared by the U.K. Listing Authority; PROVIDED that Diageo shall not be
required to hold the Diageo Shareholders Meeting earlier than September 8, 2000.
Subject to fiduciary obligations and the requirements of applicable law, the
Board of Directors of each of General Mills and Diageo shall recommend to its
respective stockholders and shareholders the approval of the matters to be
submitted to its stockholders or shareholders at the General Mills Stockholders
Meeting and the Diageo Shareholders Meeting, respectively, which recommendations
shall be set forth in the General Mills Proxy Statement and the Diageo Circular,
respectively, and shall use reasonable best efforts to solicit such approval.
The General Mills Stockholders Meeting and the Diageo Shareholders Meeting will
be held regardless of any failure to make such recommendation or any change in
such recommendation.
Section 5.12. GENERAL MILLS BOARD OF DIRECTORS. At or prior to the
Effective Time, General Mills' Board of Directors will take such action as may
be necessary to elect Paul S. Walsh and John M.J. Keenan to the Board of
Directors of General Mills effective as of the Effective Time (and, in the event
Mr. Walsh or Mr. Keenan shall at the Effective Time be unable or unwilling to
serve in such capacity, another individual in his stead mutually agreed upon by
Diageo and General Mills from amongst a pool of the Diageo Directors, provided
that Diageo and General Mills shall be entitled, should they agree, to select an
individual not from amongst such pool).
Section 5.13. STOCK EXCHANGE LISTING. General Mills shall use its
reasonable best efforts to cause the shares of General Mills Common Stock to be
issued in the Merger and delivered pursuant to the Subsidiary Purchase
Agreements to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Closing Date.
Section 5.14. DELIVERY OF FINANCIAL STATEMENTS AND OTHER
INFORMATION. (a) As promptly as practicable following the execution of this
Agreement (but in any event no later than August 14, 2000), Diageo shall deliver
to General Mills true and complete copies of the audited combined financial
statements of the Business Entities containing balance sheets as of June 30,
1999 and June 30, 2000, and statements of operations and of cash flows for each
of the three fiscal years in the three-year period ended June 30, 2000, in each
case prepared in accordance with U.S. GAAP (the "2000 FINANCIAL STATEMENTS").
Diageo shall also deliver to General Mills as promptly as practicable such other
financial statements or information relating to the Business Entities as General
Mills may reasonably request in connection with the preparation of the General
Mills Proxy Statement.
(b) As promptly as practicable following execution of this Agreement,
Diageo shall deliver to General Mills true and correct copies of the
certificate of incorporation and by-laws (or equivalent organizational
documents), each as amended to date, of each of the Business Entities other
than Pillsbury.
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Section 5.15. CLOSING DATE INDEBTEDNESS. (a) Prior to the Effective Time,
Diageo and General Mills shall agree in good faith on, and cooperate to
implement, a plan for the incurrence (and prepayment) by Pillsbury of new
third-party indebtedness in an amount equal to (i) $5.142 billion less (ii) the
amount of aggregate outstanding indebtedness of the Business Entities as of the
Closing Date (other than intercompany indebtedness owing to Diageo or one or
more Continuing Affiliates, all of which intercompany indebtedness will be
repaid and/or contributed to capital pursuant to paragraph (b) of this
Section 5.15 and Section 5.6(a)). Pillsbury shall not enter into any new debt
facilities or otherwise incur any indebtedness pursuant to this Section 5.15(a)
without General Mills' consent to the amount and terms thereof, which consent
will not be unreasonably withheld.
(b) Immediately prior to the Effective Time, Pillsbury will pay to
Pillsbury Stockholder and/or another Continuing Affiliate all of the
proceeds of the new third-party indebtedness incurred pursuant to
paragraph (a) of this Section 5.15, either as a dividend or as a repayment
of intercompany loans or payables, or a combination of dividend and
repayment. Any intercompany loans or payables not repaid pursuant to this
paragraph (b) will be contributed to capital at the Effective Time as
contemplated by Section 5.6(a).
Section 5.16. INSURANCE. (a) From the date hereof to the Effective Time,
Diageo and General Mills will cooperate reasonably to develop and implement a
transition plan with respect to insurance coverage for the Business Entities,
with the goal of ensuring continuing insurance coverage and transfer at the
Effective Time of the responsibility for risk management relating to the
Business Entities from Diageo to General Mills (subject to the remaining
provisions of this Section 5.16).
(b) From and after the Effective Time, Diageo shall use its reasonable
efforts, subject to the terms of the Diageo Insurance Policies, to retain
the right to make claims and receive recoveries, subject to
Section 5.16(f), for the benefit of the Business Entities, as well as for
the benefit of Diageo and the Continuing Affiliates, under any insurance
policies maintained at any time prior to the Closing by Diageo or a
Continuing Affiliate or the predecessors of any of them that provide
coverage on an "occurrence" rather than a "claims made" basis (collectively,
the "DIAGEO INSURANCE POLICIES"), covering any loss, liability, claim,
damage or expense relating to the assets, business, operations, conduct,
products and employees (including former employees) of any of the Business
Entities and their respective predecessors (in each case, in so far as they
cover or otherwise relate to the Business or otherwise relate to losses,
liabilities, claims, damages or expenses as to which any of the Business
Entities could have responsibility) that relates to or arises out of
occurrences prior to or at the Closing (an "INSURANCE CLAIM").
(c) General Mills or the applicable Business Entity will pay, incur and
bear all amounts relating to any self-retention or deductible and any gaps
in or limits on coverage applicable to an Insurance Claim asserted at any
time with respect to the applicable Diageo Insurance Policy and the coverage
available with respect to any Insurance Claim shall be the actual coverage
available under such Dover Insurance Policy at the time the Insurance Claim
is made, taking into account the effect of any prior claim payments on any
self-retention or deductible or in causing any gap or limits on coverage
under the terms of such Diageo Insurance Policy, whether or not the
applicable Diageo Insurance Policy solely covers claims of the Business
Entities or covers claims of both Diageo and the Continuing Affiliates on
the one hand, and the Business Entities on the other hand. In the event that
any legal action, arbitration, negotiation or other proceedings are required
for coverage to be asserted against any insurer in connection with the
Diageo Insurance Policies or for an Insurance Claim to be perfected, in each
case on behalf of any of the Business Entities, (i) General Mills shall, to
the extent possible, do so at its own expense or at the expense of the
applicable Business Entity or (ii) if General Mills is not permitted to
assert coverage or perfect an Insurance Claim, Diageo or one of the
Continuing Affiliates shall do so, and, in either event, General Mills or
the applicable Business Entity shall reimburse Diageo and the Continuing
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Affiliates for any reasonable costs and expenses that they may incur because
of such action (other than the incurrence of normal internal administrative
expenses).
(d) Each of Diageo, General Mills and the Business Entities shall use
its reasonable best efforts (i) to cooperate fully and to cause its
Affiliates to cooperate fully with the others in submitting good faith
Insurance Claims on behalf of the Business Entities under the Diageo
Insurance Policies and (ii) to pay promptly over to General Mills (or, at
General Mills' request, to the applicable Business Entities) any and all
amounts received by Diageo or the Continuing Affiliates under the Diageo
Insurance Policies with respect to Insurance Claims.
(e) Diageo and the Continuing Affiliates shall retain custody of the
Diageo Insurance Policies and any and all service contracts, claim
settlements and all other insurance records relating thereto; and General
Mills and the Business Entities shall have access to and the right to make
copies of all such documents and records upon reasonable request to Diageo
or the Continuing Affiliates.
(f) Nothing contained herein to the contrary shall prohibit Diageo from
managing its risk management program with respect to post-Closing periods,
including without limitation the cancellation or reduction of the amount or
scope of insurance coverage with respect to post-Closing periods, in a
manner consistent with their business judgment as applied to the operations
of Diageo and the Continuing Affiliates. Nothing contained in this
Section 5.16 shall affect the indemnification rights or obligations of the
parties pursuant to this Agreement.
ARTICLE VI
EMPLOYEE BENEFITS MATTERS
Section 6.1. EMPLOYEE BENEFITS MATTERS.
(A) CONTINUED BENEFITS. For one year following the Closing, General
Mills shall continue to provide all current U.S. employees of the Business
Entities employed as of the Closing Date who continue to be employed
following the Closing Date (the "EMPLOYEES") with base compensation no less
than the base compensation in effect for such Employee immediately prior to
the Closing. The term "Employees" shall not include any employees or former
employees of the Business Entities who prior to the Closing Date have
retired, or have otherwise terminated employment. For one year following the
Closing, General Mills shall maintain employee benefit plans, programs,
policies and arrangements which provide benefits that are no less favorable
in the aggregate than those provided under the applicable employee benefit
plans, programs, policies and arrangements of the Business Entities in
effect on the Closing Date or, at the election of General Mills, shall be
provided employee benefit plans, programs, policies and arrangements which
provide benefits that are no less favorable in the aggregate than those
provided to similarly situated employees of General Mills and its
Affiliates; PROVIDED, HOWEVER, that the requirements of this paragraph shall
not apply to Employees who are covered by a collective bargaining agreement.
(B) SEVERANCE AND RETENTION. Notwithstanding the foregoing, (i) for a
period of one year from the Closing Date, General Mills will provide or will
cause to be provided severance pay and benefits to eligible Employees (other
than Employees covered by a collective bargaining agreement) that are at
least equal to those that would have been provided to such Employee by the
Minneapolis Salaried Employees Severance Plan or the Executive Severance
Plan, as amended, whichever is applicable, (ii) for a period of one year
following the Closing Date, General Mills shall make reasonable efforts,
which shall not require increases in payments or benefits, to include Diageo
under any release of liability obtained from terminated Employees,
(iii) General Mills shall maintain the July 2000 Completion and Performance
Plan provided to General Mills prior to the date hereof implemented by
Pillsbury prior to the Closing (for the position levels set forth in such
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plan), without amendment or modification that would result in any reduction
of the benefits provided thereunder, and (iv) General Mills shall pay each
retention bonus arising from the Pillsbury March, 2000 reorganization,
pursuant to the terms of such retention program, upon the earlier of its
payment date or the participating Employee's termination of employment by
General Mills (other than a termination of employment for Cause); PROVIDED,
that any payment under (iii) or (iv) above, shall be an offset to a later
payment under (iii) or (iv), as applicable. Nothing in this Agreement shall
require General Mills or its Affiliates to maintain the employment of any
Employee.
(c) COLLECTIVE BARGAINING AGREEMENTS. General Mills agrees to cause
each Business Entity from and after the Closing to comply with the
provisions of all collective bargaining agreements to which such Business
Entity is a party. Between the date hereof and the Closing Date, Pillsbury
shall consult with General Mills with respect to extension, modification,
renewal or renegotiation of any collective bargaining agreement.
(d) SERVICE CREDIT. To the extent permitted by law, Employees shall be
given credit under each employee benefit plan, compensation program, policy
or arrangement (including, but not limited to, pension, severance, vacation,
health and welfare, incentive bonus and equity-based plans) of General Mills
or any of its Affiliates in which the Employees are eligible to participate
for all service with any Business Entity or its Affiliates (to the extent
such credit was given by the Business Entity's applicable employee benefit
plan, program, policy or arrangement) for purposes of participation,
eligibility and vesting, and for benefit accrual for liabilities assumed
under Section 6.1(l). The provisions in this paragraph (d) shall not be
required with respect to Employees who are covered by a collective
bargaining agreement.
(e) EMPLOYEE BENEFIT TRANSITION. General Mills shall waive
pre-existing condition requirements, evidence of insurability provisions,
waiting period requirements or any similar provisions for any Employees
under any medical, dental, disability or life insurance plan maintained or
sponsored by or contributed to by General Mills for such individuals after
the Closing Date, other than pre-existing conditions and evidence of
insurability that would have been applicable under the Employee
Arrangements. General Mills shall also apply towards any deductible
requirements and out-of-pocket maximum limits under such plans any amounts
paid (or accrued) by each Employee under the Business Entity's comparable
benefit plans during the calendar year in which the Closing occurs. The
provisions in this paragraph (e) shall not be required with respect to
Employees who are covered by a collective bargaining agreement
(f) VACATION. As of the Closing Date, General Mills will assume all
obligations to Employees for any vacation entitlement and vacation pay
entitlement as of the Closing Date to the extent reflected on the Closing
Date Operating Working Capital Calculation.
(g) COBRA. General Mills will be responsible for satisfying
obligations under Section 601 ET SEQ. of ERISA and Section 4980B of the Code
("COBRA COVERAGE") and any applicable similar state laws, to provide
continuation coverage to or with respect to any Employee in accordance with
law with respect to any "qualifying event," PROVIDED, that Diageo shall
remain responsible for COBRA coverage with respect to any employee of a
Business Entity who had a qualifying event prior to Closing under a welfare
plan not sponsored by a Business Entity.
(h) NO THIRD-PARTY BENEFICIARY RIGHTS. Nothing in this Agreement,
express or implied, shall create a third-party beneficiary relationship or
otherwise confer any benefit, entitlement, or right upon any person or
entity other than the parties hereto, including any right to employment or
continued employment for any specified period, of any nature or kind
whatsoever. Nothing in this Agreement shall cause duplicate benefits to be
paid or provided to or with respect to any employee under any employee
benefit policies, plans, arrangements, programs, practices, or agreements.
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(i) PLANS NOT SPONSORED BY BUSINESS ENTITIES. Except as provided in
Section 6.1(l), Diageo (and its Affiliates other than the Business Entities)
shall be responsible for all benefits and liabilities under any Employee
Arrangement that is not sponsored by a Business Entity (each, a "DIAGEO
PLAN"). Diageo shall take all actions necessary and appropriate to ensure
that as of the Closing Date, except as provided in Section 6.1(j) below, all
Employees shall cease to accrue benefits under Diageo Plans and the Business
Entities shall withdraw from participation in any Diageo Plans. Except as
provided in Section 6.1(j) below, Diageo shall vest, as of the Closing Date,
all equity awards held by employees of the Business Entities, and shall be
responsible for honoring such equity awards.
(j) TSR PLAN. Until such time as all such payments or benefits have
been provided, Diageo shall maintain the Diageo Long Term Incentive Plan,
also known as the Total Shareholder Return Plan (and shall provide or cause
to be provided in a timely manner all payments due with respect to 1998 and
1999 grants made thereunder) for Employees who provide services to Pillsbury
and its Affiliates following the Closing (as if they were continuing to
provide services for Diageo and its Affiliates (other than the Business
Entities)) and who participated in such plans immediately prior to the
Closing upon the terms provided in such plans, which terms shall be no less
favorable than those applicable to other employees of Diageo or its
Affiliates. General Mills and the Business Entities shall not be responsible
for any payments or benefits under the Total Shareholder Return Plan.
(k) CONTROLLED GROUP LIABILITY. Diageo shall indemnify and hold
General Mills and the Business Entities harmless from any and all Controlled
Group Liability (the occurrence of which is unrelated to the Business
Entities).
(l) ASSET TRANSFERS. At the election of General Mills, on a
plan-by-plan basis, to the extent permitted by local law, General Mills will
assume responsibility for pension liabilities for active participants
employed by the Business Entities as of the Closing Date (subject to
appropriate adjustment to reflect payments made following the Closing Date)
under pension plans and arrangements that are Diageo Plans and Diageo will
transfer or cause its applicable pension fund to transfer to General Mills'
pension fund corresponding assets to cover such liabilities on a projected
obligation basis based upon specified actuarial methods and assumptions
mutually agreed upon by actuaries for Diageo and General Mills in accordance
with local Law and practice; PROVIDED, that such transfer shall not be
required for any unfunded plan, to the extent such liabilities were
reflected on the Closing Date Operating Working Capital Calculation. If such
actuaries cannot agree, such methods and assumptions shall be reasonable
both individually and in the aggregate as determined by a mutually agreed
upon third party actuary whose expenses shall be split by the parties. Where
required, the parties hereto will use reasonable efforts to obtain any
necessary consents to such transfer of assets and liabilities. Such
transfers shall occur as soon as practicable following the Closing Date. To
the extent permitted by Law and the terms of such contracts, Diageo shall
transfer to General Mills or the relevant Business Entity the assets and
insurance contracts, if any, used to fund liabilities under health, life and
accident insurance plans sponsored by the Business Entities.
(m) INTERNATIONAL PLAN DISCLOSURE. With respect to material
International Plans, Diageo shall deliver to General Mills within 45 days
following the date hereof, a list of each such plan, and a copy of the
relevant plan document and trust agreement, the latest financial report and
actuarial report, and insurance contracts and other funding vehicles, if
applicable.
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ARTICLE VII
TAX MATTERS
Section 7.1. TAX REPRESENTATIONS OF DIAGEO. Each of Diageo and Pillsbury
hereby represents and warrants to General Mills and Merger Sub as follows:
(a) The Business Entities have duly filed or caused to be filed (or had
filed on their behalf) all material federal, state, local and foreign Tax
Returns (including, but not limited to, those filed on a consolidated,
combined or unitary basis) required to have been filed by (or on behalf of)
any of them. All of the foregoing Tax Returns are true and correct in all
material respects, and the Business Entities have, within the time and
manner prescribed by applicable law, paid all material Taxes required to be
paid in respect of the periods covered by such Tax Returns or otherwise due
to any Taxing Authority other than any Taxes the validity of which is being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves in accordance with U. S. GAAP have been provided. Except
as set forth in Section 7.1(a) of the Diageo Disclosure Schedule, none of
the Business Entities has requested or filed any document having the effect
of causing any extension of time within which to file any material Tax
Returns in respect of any fiscal year which have not since been filed.
Except as set forth in Section 7.1(a) of the Diageo Disclosure Schedule, no
deficiencies for any material Tax have been proposed, asserted or assessed
in writing, in each case, by any Taxing Authority, against any of the
Business Entities. Except as set forth in Section 7.1(a) of the Diageo
Disclosure Schedule, none of the Business Entities is the subject of any
currently ongoing material Tax audit. Except as set forth in Section 7.1(a)
of the Diageo Disclosure Schedule, there are no pending requests for waivers
of the time to assess any material Tax, other than those made in the
ordinary course and for which payment has been made. Except as set forth in
Section 7.1(a) of the Diageo Disclosure Schedule, none of the Business
Entities has waived any statute of limitations in respect of material Taxes
or agreed to any extension of time with respect to a material Tax assessment
or deficiency. There are no material liens with respect to Taxes upon any of
the properties or assets, real or personal, tangible or intangible of any of
the Business Entities (other than liens for Taxes not yet due). No material
claim has ever been made in writing by a Taxing Authority in a jurisdiction
where a Business Entity does not file Tax Returns that such Business Entity
is or may be subject to taxation by that jurisdiction. None of the Business
Entities has filed an election under Section 341(f) of the Code to be
treated as a "consenting corporation" within the meaning of such Code
Section.
(b) The Business Entities have withheld and paid or have caused to be
withheld and paid all material Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party.
(c) None of the Business Entities has constituted either a
"distributing corporation" or a "controlled corporation" within the meaning
of Section 355(a)(1)(A) of the Code in a distribution of stock intended to
qualify for tax-free treatment under Section 355 of the Code (i) in the two
years prior to the date of this Agreement (or will constitute such a
corporation in the two years prior to the Closing Date) or (ii) in a
distribution which otherwise constitutes part of a "plan" or "series of
related transactions" within the meaning of Section 355(e) of the Code in
conjunction with the Merger.
Section 7.2. GENERAL MILLS REORGANIZATION-RELATED REPRESENTATIONS. Each of
General Mills and Merger Sub hereby represents and warrants to Diageo and
Pillsbury as follows:
(a) Following the Merger, General Mills, or a member of its qualified
group of corporations (as defined in Treasury Regulation
Section 1.368-1(d)(4)(ii)), will continue the historic business of Pillsbury
or will use a significant portion of Pillsbury's historic business assets in
a business. For purposes of this representation, General Mills and such
members (i) shall be deemed to own that
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portion of the assets of a partnership reflecting their interest therein and
(ii) shall be treated as conducting the business of a partnership of which
they are members, provided that (x) they own in the aggregate at least a
33 1/3% interest in the partnership or (y) they own in the aggregate at
least a 20% interest in such partnership and perform active and substantial
managerial functions with respect thereto.
(b) General Mills has no plan or intention to cause Pillsbury to issue
additional shares of its stock that would result in General Mills not having
"control" of Pillsbury. For purposes of this Section 7.2(b), "control" of a
corporation means the ownership of stock possessing at least 80 percent of
the total combined voting power of all classes of stock entitled to vote and
at least 80 percent of the total number of shares of all other classes of
stock of such corporation.
(c) Merger Sub was formed by General Mills for purposes of consummating
the Merger, will have nominal assets at the time of the Merger, has no
liabilities and will have no liabilities at the time of the Merger (other
than pursuant to this Agreement), and will not transfer to Pillsbury any
assets subject to liabilities. Merger Sub has not conducted and will not
conduct any business activities or other operations of any kind prior to the
consummation of the Merger, other than the issuance of its stock to General
Mills.
(d) General Mills has no plan or intention to liquidate Pillsbury, to
merge Pillsbury with or into another corporation (other than merging Merger
Sub into Pillsbury in the Merger), or to sell or otherwise dispose of the
stock of Pillsbury except for transfers of stock described in Code
Section 368(a)(2)(C) or Treasury Regulation Section 1.368-2(k)(2).
(e) General Mills shall not cause Pillsbury to take any Substantially
All Action. A "Substantially All Action" is a distribution by Pillsbury of
assets to a shareholder, the incurrence of indebtedness by Pillsbury (other
than any refinancing of indebtedness that exists at the time of the Merger)
or the repayment of Pillsbury indebtedness that exists at the time of the
Merger (other than any refinancing of such indebtedness), which
distribution, incurrence or repayment (i) occurs after the Merger and prior
to the one year anniversary thereof and (ii) (A) causes Pillsbury to fail to
hold at least 90 percent of the fair market value of its net assets held
immediately prior to the Merger, (B) causes Pillsbury to fail to hold at
least 70 percent of the fair market value of its gross assets held
immediately prior to the Merger, (C) causes Pillsbury to fail to hold at
least 90 percent of the fair market value of Merger Sub's net assets held
immediately prior to the Merger or (D) causes Pillsbury to fail to hold at
least 70 percent of the fair market value of Merger Sub's gross assets held
immediately prior to the Merger. For purposes of this representation,
amounts paid by Pillsbury or Merger Sub to shareholders who receive cash or
other property, amounts used by Pillsbury or Merger Sub to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by Pillsbury or Merger Sub in connection
with the Merger will be included (to the extent that General Mills has
knowledge thereof) as assets of Pillsbury or Merger Sub, respectively, held
immediately prior to the Merger, and shares of General Mills Common Stock
issued in the Merger will not be so included.
Section 7.3. TAX INDEMNIFICATION. (a) From and after the Closing Date, the
Diageo Tax Indemnitors shall pay or cause to be paid, and jointly and severally
shall indemnify each General Mills Tax Indemnitee and protect, save and hold
each General Mills Tax Indemnitee harmless from and against the following Taxes:
(i) Any Tax imposed upon or relating to Diageo or any of the
Continuing Affiliates for any period, including any such Tax for which
any of the Business Entities (or any Non-Controlled Foreign Entity or
Subsidiary thereof) may be liable (w) under Section 1.1502-6 of the
Treasury Regulations (or any similar provision of state, local or foreign
law), (x) as a transferee or successor, (y) by contract or
(z) otherwise;
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(ii) Any Tax imposed upon or relating to any of the Business
Entities for any Pre-Closing Period; and
(iii) Any Tax imposed upon, relating to or resulting from (x) the
Merger or the provisions of Section 2.13 or 2.14 hereof (except, in each
case, to the extent set forth in Section 7.3(b)(ii) below), (y) any of
the Subsidiary Purchases or (z) any restructuring undertaken in
contemplation of the Merger or any of the Subsidiary Purchases.
(b) From and after the Closing Date, the General Mills Tax Indemnitors
shall pay or cause to be paid, and jointly and severally shall indemnify
each Diageo Tax Indemnitee and protect, save and hold each Diageo Tax
Indemnitee harmless from and against the following Taxes:
(i) Any Tax imposed upon or relating to any of the Business Entities
for any Post-Closing Period; and
(ii) Any Tax imposed upon the Pillsbury Stockholder on the Merger
that would not have arisen but for a breach by General Mills of any of
the representations set forth in Section 7.2.
(c) Except as otherwise provided in Section 7.7, payment in full of any
amount due to a Tax Indemnitee under this Section 7.3 shall be made to the
affected Tax Indemnitee in immediately available funds at least two Business
Days before the date payment of the Taxes to which such payment relates is
due.
Section 7.4. SECTION 338(G) ELECTIONS FOR PURCHASED ENTITIES. General
Mills may, at its option, cause a timely and irrevocable election (a "338
ELECTION") under Section 338(g) of the Code (and any corresponding provisions of
state or local Tax law) to be made with respect to any or all of the Purchased
Entities or any of their respective Subsidiaries which, in each case, is not, as
of the date hereof, owned directly or indirectly, by a U.S. corporation (the
"338 ELECTION SUBSIDIARIES"). If General Mills causes such elections to be made,
each of General Mills and Diageo shall, and shall cause their respective
Subsidiaries and Affiliates to, (i) treat the 338 Elections as valid, (ii) file
all Tax Returns in a manner consistent with such 338 Elections and the 338
Election Allocations (as defined below) and (iii) take no position contrary
thereto, except to the extent required pursuant to a determination (as defined
in Section 1313(a) of the Code or any similar state or local Tax provision) (a
"DETERMINATION"). With respect to each 338 Election, General Mills shall prepare
and submit to Diageo for Diageo's consent and agreement (i) the aggregate deemed
sale price (as defined in Treasury Regulation Section 1.338-4T) (the "ADSP") and
(ii) the allocation of the ADSP among the assets of each of the 338 Election
Subsidiaries (collectively, the "338 ELECTION ALLOCATIONS"). The 338 Election
Allocations shall be reasonable and shall be determined in accordance with
Section 338 of the Code and the applicable Treasury Regulations thereunder.
Diageo shall provide General Mills such assistance as General Mills may
reasonably request in connection with the preparation of any form or document
required to effect a valid and timely 338 Election. Diageo shall not be
responsible for any failure of an attempted 338 Election to be valid, except to
the extent that such failure results from a failure by Diageo to comply with its
obligations under this Section 7.4.
Section 7.5. ALLOCATION OF CERTAIN TAXES. (a) If any of the Business
Entities is permitted but not required under applicable state, local or foreign
income Tax laws to treat the Closing Date as the last day of a taxable period,
then the parties shall cause such Business Entity to treat that day as the last
day of a taxable period.
(b) In the case of Taxes arising in a taxable period of any of the
Business Entities that includes but does not end on the Closing Date, except
as provided in Section 7.5(c), the allocation of such Taxes between the
Pre-Closing Period and the Post-Closing Period shall be made on the basis of
an interim closing of the books as of the end of the Closing Date. For
purposes of this Article VII, (i) any Tax on gain or income resulting from
the triggering into income of deferred intercompany transactions under
Section 1.1502-13 of the Treasury Regulations or excess loss
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accounts under Section 1.1502-19 of the Treasury Regulations that occurs as
a result of the Merger shall be considered to be attributable to the
Pre-Closing Period and (ii) each partnership or "flowthrough" entity in
which any of the Business Entities holds an interest shall be treated as if
its taxable year ended at the close of business on the Closing Date and
Taxes attributable to the income and gain of such entities through the close
of business on the Closing Date (as determined in a reasonably practicable
manner) shall be considered to be attributable to the Pre-Closing Period.
(c) In the case of (i) franchise Taxes based on capitalization, debt or
shares of stock authorized, issued or outstanding and (ii) ad valorem Taxes,
in either case attributable to a Straddle Period (as defined below), the
portion of such Taxes attributable to the Pre-Closing Period shall be the
amount of such Taxes for the entire taxable period, multiplied by a fraction
the numerator of which is the number of calendar days in such taxable period
ending on and including the Closing Date and the denominator of which is the
entire number of calendar days in such taxable period, and the balance of
such Taxes shall be attributable to the Post-Closing Period; PROVIDED,
HOWEVER, that if any property, asset or other right of any of the Business
Entities is sold or otherwise transferred prior to the Closing Date, then ad
valorem Taxes pertaining to such property, asset or other right shall be
attributed entirely to the Pre-Closing Period.
Section 7.6. CARRYOVERS, REFUNDS AND RELATED MATTERS. (a) Any refund or
credit of Taxes (including any interest thereon) that relates to any of the
Business Entities and that is a refund or credit of Taxes with respect to a
Pre-Closing Period shall be the property of Diageo or its designee and shall be
retained by Diageo or its designee (or promptly reimbursed to Diageo or such
designee by the Business Entity if any such refund or credit (or interest
thereon) is received by General Mills, a Business Entity or any of their
respective Subsidiaries or Affiliates); PROVIDED, HOWEVER, that any refund,
credit or other benefit actually received or realized in cash by Diageo, any
Continuing Affiliate or any Business Entity with respect to a Pre-Closing Period
that results from, and would not have resulted but for, the carryback of any Tax
attribute of General Mills, any Business Entity or any of their respective
Subsidiaries or Affiliates arising in a Post-Closing Period (to the extent that
such carryback does not preclude or delay utilization of a Diageo Group Tax
attribute or Business Entity Pre-Closing Period Tax attribute) shall be the
property of and retained by the Business Entity (or paid by Diageo to the
Business Entity promptly after actual receipt or realization in cash of such
refund, credit or other benefit by Diageo or any of its Subsidiaries or
Affiliates).
(b) Any refund or credit of Taxes (including any interest thereon) that
relates to any of the Business Entities and that is a refund or credit of
Taxes with respect to a Post-Closing Period shall be the property of General
Mills or the Business Entity and shall be retained by General Mills or the
Business Entity (or promptly paid by Diageo to General Mills or the Business
Entity if any such refund or credit (or interest thereon) is received by
Diageo or any of its Subsidiaries or Affiliates); PROVIDED, HOWEVER, that
any refund, credit or other benefit actually received or realized in cash by
General Mills or any Business Entity with respect to a Post-Closing Period
that results from, and would not have resulted but for, the carryover of any
Business Entity Tax attribute arising in a Pre-Closing Period (to the extent
that such carryover does not preclude or delay utilization of a General
Mills Group Tax attribute or Business Entity Post-Closing Period Tax
attribute) shall be the property of Diageo or its designee and shall be paid
by the Business Entity to Diageo or its designee promptly after actual
receipt or realization in cash of such refund, credit or other benefit by
General Mills or a Business Entity.
(c) In applying Section 7.6(a) and Section 7.6(b), (i) any refund or
credit of Taxes (including any interest thereon) for a Straddle Period (as
defined below) shall be allocated between the Pre-Closing Period and the
Post-Closing Period in accordance with Section 7.5 and (ii) any foreign tax
that is deemed paid by a Business Entity in a taxable period pursuant to
Section 902 of the
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Code shall be considered to be "with respect to" such taxable period,
regardless of when the underlying foreign tax was actually paid or accrued.
(d) In the event of any adjustment of a Pre-Closing Period Tax
deduction or income item of a Business Entity by a Taxing Authority pursuant
to a Determination (or otherwise in a Tax Proceeding), which adjustment
results in a Tax benefit (determined for purposes of this Section 7.6(d)
after taking into account any preclusion or delay in the utilization of any
General Mills Group Tax attribute or any Business Entity Post-Closing Period
Tax attribute) actually received or realized in cash by General Mills or any
Business Entity and such Tax benefit would not have been so received or
realized but for such adjustment, then to the extent such Tax benefit arises
with respect to (the Post-Closing Period portion of) a taxable period of a
Business Entity ending on or prior to the second anniversary of the Closing
Date and would otherwise have been for the account of General Mills
hereunder, the Business Entity shall pay Diageo or its designee the amount
of such Tax benefit promptly after actual receipt or realization in cash of
such Tax benefit by General Mills or the Business Entity.
(e) In the event of any adjustment of a Post-Closing Period Tax
deduction or income item of a Business Entity by a Taxing Authority pursuant
to a Determination (or otherwise in a Tax Proceeding), which adjustment
results in a Tax benefit (determined for purposes of this Section 7.6(e)
after taking into account any preclusion or delay in the utilization of any
Diageo Group Tax attribute or any Business Entity Pre-Closing Period Tax
attribute) actually received or realized in cash by Diageo, any Continuing
Affiliate or any Business Entity and such Tax benefit would not have been so
received or realized but for such adjustment, then to the extent such Tax
benefit arises with respect to the Pre-Closing Period and would otherwise
have been for the account of Diageo hereunder, the Business Entity shall
retain such Tax benefit (or Diageo or its designee shall pay such Business
Entity the amount of such Tax benefit promptly after actual receipt or
realization in cash of such Tax benefit by Diageo or any of its Subsidiaries
or Affiliates).
Section 7.7. PREPARATION AND FILING OF TAX RETURNS. (a) Diageo shall file
or cause to be filed (i) any combined, consolidated or unitary Return that
includes Diageo, the Pillsbury Stockholder or any Continuing Affiliate and
(ii) any other Return of any of the Business Entities for any taxable period
that ends on or before the Closing Date. All such Returns shall be filed in a
manner consistent with past practice, shall not include any change in any method
of accounting and shall not include any Tax election that is inconsistent with
past practice (except for the 338 Elections). Diageo shall, reasonably promptly
after the filing of a Return described in clause (i) or (ii) above, provide
General Mills a copy of such Return (or a copy of a pro forma separate Return in
the case of a Return described in clause (i)). Diageo shall remit to the
relevant Taxing Authority all Taxes shown by such Returns to be due. General
Mills shall cause the Business Entities to furnish information to Diageo in
connection with any such Return, at Diageo's expense, in accordance with the
past procedures, customs and practices of Diageo.
(b) Except to the extent set forth in Section 7.7(a), General Mills
shall file or cause to be filed all Returns of, or that include, any of the
Business Entities.
(c) With respect to any Return of any of the Business Entities for a
taxable period that, with respect to such Business Entity, begins on or
before and ends after the Closing Date (such a Return, a "STRADDLE PERIOD
RETURN" and such a taxable period, a "STRADDLE PERIOD"), General Mills shall
deliver a copy of such Return to Diageo at least 40 Business Days prior to
the due date (giving effect to any extension thereof), accompanied by an
allocation between the Pre-Closing Period and the Post-Closing Period of the
Taxes shown to be due on such Return. Such Return and allocation shall be
final and binding on Diageo, unless, within 10 Business Days after the date
of receipt by Diageo of such Return and allocation, Diageo delivers to
General Mills a written request for changes to such Return or allocation. If
Diageo delivers such a request, then General
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Mills and Diageo shall undertake in good faith to resolve the issues raised
in such request prior to the due date (including any extension thereof) for
filing such Return. If General Mills and Diageo are unable to resolve any
issue within 10 Business Days from the date of receipt by General Mills of
the request for changes, then Diageo and General Mills jointly shall engage
the Neutral Auditors to determine the correct treatment of the item or items
in dispute. Each of Diageo and General Mills shall bear and pay one-half of
the fees and other costs charged by the Neutral Auditors. The determination
of the Neutral Auditors shall be final and binding on the parties hereto.
(d) In the case of each Straddle Period Return, not later than two
Business Days before the due date (including any extension thereof) for
payment of Taxes with respect to such Return, Diageo shall pay to General
Mills or the relevant Business Entity the portion of the Taxes in connection
with such Return for which Diageo is responsible pursuant to Section 7.3.
Section 7.8. TAX CONTESTS. (a) Notices. If any Taxing Authority asserts a
Tax Claim, then the party hereto first receiving notice of such Tax Claim
promptly shall provide written notice thereof to the other party or parties
hereto; PROVIDED, HOWEVER, that the failure of such party to give such prompt
notice shall not relieve the other party of any of its obligations under this
Article VII, except to the extent that the other party is actually prejudiced
thereby. Such notice shall specify in reasonable detail the basis for such Tax
Claim and shall include a copy of the relevant portion of any correspondence
received from the Taxing Authority.
(b) PRE-CLOSING TAXABLE PERIODS. Diageo shall have the right to
control, at its own expense, any audit, examination, contest, litigation or
other proceeding by or against any Taxing Authority (a "TAX PROCEEDING")
(A) in respect of a Business Entity for any taxable period that ends on or
before the Closing Date or (B) involving a challenge to the qualification of
the Merger as a tax-free "reorganization" within the meaning of Code
Section 368; PROVIDED, HOWEVER, that (i) insofar as any such Tax Proceeding
relates to the matters set forth in clause (A) or (B) above, Diageo shall
provide General Mills with a timely and reasonably detailed account of each
stage of such Tax Proceeding and (ii) in the case of any Tax Proceeding
involving a challenge to the qualification of the Merger as a tax-free
"reorganization" within the meaning of Code Section 368 on the basis (in
whole or in part) of the inaccuracy of any of the representations made by
General Mills and Merger Sub in Section 7.2, (I) Diageo shall consult with
General Mills before taking any significant action in connection with such
Tax Proceeding, (II) Diageo shall consult with General Mills and offer
General Mills an opportunity to comment before submitting any written
materials prepared or furnished in connection with such Tax Proceeding,
(III) Diageo shall defend such Tax Proceeding diligently and in good faith
as if it were the only party in interest in connection with such Tax
Proceeding, (IV) General Mills shall be entitled to participate in such Tax
Proceeding and receive copies of any written materials relating to such Tax
Proceeding received from the relevant Taxing Authority or other Governmental
Authority, and (V) Diageo shall not settle, compromise or abandon any such
Tax Proceeding without obtaining the prior written consent, which consent
shall not be unreasonably withheld, of General Mills. Notwithstanding any
other provision, none of the General Mills Tax Indemnitors shall have any
obligation whatsoever pursuant to Section 7.3(b)(ii) arising from a Tax
Proceeding described in clause (B) above, if Diageo fails to comply with the
covenant set forth in clause (i) above in connection with such Tax
Proceeding, fails to consult with General Mills before taking any
significant action in connection with such Tax Proceeding, fails to consult
with General Mills and offer General Mills an opportunity to comment before
submitting any written materials prepared or furnished in connection with
such Tax Proceeding, fails to defend such Tax Proceeding diligently and in
good faith as if Diageo were the only party in interest in connection with
such Tax Proceeding, fails to provide General Mills with an opportunity to
participate in such Tax Proceeding or fails to provide General Mills with
copies of any written materials relating to such Tax Proceeding that are
received from the relevant Taxing
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Authority or other Governmental Authority or if Diageo settles, compromises
or abandons any such Tax Proceeding without obtaining the prior written
consent (except to the extent such consent is unreasonably withheld) of
General Mills.
(c) STRADDLE PERIODS. In the case of a Tax Proceeding for a Straddle
Period of a Business Entity (i) the Controlling Party shall provide the
Non-controlling Party with a timely and reasonably detailed account of each
stage of such Tax Proceeding, (ii) the Controlling Party shall consult with
the Non-controlling Party before taking any significant action in connection
with such Tax Proceeding, (iii) the Controlling Party shall consult with the
Non-controlling Party and offer the Non-controlling Party an opportunity to
comment before submitting any written materials prepared or furnished in
connection with such Tax Proceeding, (iv) the Controlling Party shall defend
such Tax Proceeding diligently and in good faith as if it were the only
party in interest in connection with such Tax Proceeding, (v) the
Non-controlling Party shall be entitled to participate in such Tax
Proceeding if such Tax Proceeding could have an adverse impact on the
Non-controlling Party or any of its affiliated Tax Indemnitees and (vi) the
Controlling Party shall not settle, compromise or abandon any such Tax
Proceeding without obtaining the prior written consent, which consent shall
not be unreasonably withheld, of the Non-controlling Party if such
settlement, compromise or abandonment could have an adverse impact on the
Non-controlling Party or any of its affiliated Tax Indemnitees. "CONTROLLING
PARTY" shall mean whichever of Diageo and General Mills is reasonably
expected to bear the greater Tax liability in connection with a Straddle
Period Tax Proceeding, and "NON-CONTROLLING PARTY" shall mean whichever of
Diageo and General Mills is not the Controlling Party with respect to such
Straddle Period Tax Proceeding.
(d) POST-CLOSING TAXABLE PERIODS. General Mills shall have the right
to control any Tax Proceeding involving any of the Business Entities,
Non-Controlled Foreign Entities or any Subsidiary thereof (other than any
Tax Proceeding which Diageo is entitled to control under Section 7.8(b) or
(c)).
Section 7.9. COOPERATION. Each party hereto shall, and shall cause its
Subsidiaries and Affiliates to, provide to each of the other parties hereto such
cooperation, documentation and information as any of them reasonably may request
in (i) filing any Return, amended Return or claim for refund, (ii) determining a
liability for Taxes or an indemnity obligation under this Article VII or a right
to refund of Taxes, (iii) conducting any Tax Proceeding or (iv) determining an
allocation of Taxes between a Pre-Closing Period and Post-Closing Period. Such
cooperation and information shall include providing copies of all relevant
portions of relevant Returns, together with all relevant portions of relevant
accompanying schedules and relevant work papers, relevant documents relating to
rulings or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property and other information, which
any such party may possess. Each party will retain all Returns, schedules and
work papers, and all material records and other documents relating to Tax
matters, of the Business Entities for their respective Tax periods ending on or
prior to the Closing Date until the later of (x) the expiration of the statute
of limitations for the Tax periods to which the Returns and other documents
relate or (y) eight years following the due date (without extension) for such
Returns. Thereafter, the party holding such Returns or other documents may
dispose of them, PROVIDED that such party shall give to the other party written
notice prior to doing so. Each party shall make its employees reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Each party required to file Returns
pursuant to this Article VII shall bear all costs of filing such Returns.
Section 7.10. TERMINATION OF TAX SHARING AGREEMENTS. Any and all Tax
allocation or sharing agreements or other agreements or arrangements relating to
Tax matters between any of the Business Entities (or Non-Controlled Foreign
Entities or Subsidiaries thereof) on the one hand and Diageo, Pillsbury
Stockholder or any Continuing Affiliate on the other hand shall be terminated
with respect to each of the Business Entities (and the Non-Controlled Foreign
Entities and Subsidiaries thereof) as of
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the day before the Closing Date and, from and after the Closing Date, the
Business Entities (and the Non-Controlled Foreign Entities and Subsidiaries
thereof) shall not have any rights or obligations thereunder for any past or
future period.
Section 7.11. GENERAL MILLS CONSOLIDATED RETURNS. Notwithstanding any
other provision, (a) General Mills shall be entitled to control in all respects,
and neither Diageo, Pillsbury Stockholder nor any Subsidiary or Affiliate of any
of them shall be entitled to participate in, any Tax Proceeding with respect to
any consolidated, combined or unitary Tax Return that includes General Mills or
any other member of the General Mills Group and (b) General Mills and its
Subsidiaries and Affiliates shall not be required to provide any Person with any
consolidated, combined or unitary Tax Return or copy thereof that includes
General Mills or any other member of the General Mills Group (PROVIDED, HOWEVER,
that to the extent that such Tax Returns would be required to be delivered but
for this Section 7.11(b), the Person that would be required to deliver such Tax
Returns shall instead deliver pro forma Tax Returns relating solely to the
Business Entities).
Section 7.12. DIAGEO CONSOLIDATED RETURNS. Notwithstanding any other
provision, (a) except to the extent set forth in Section 7.8, Diageo shall be
entitled to control in all respects, and neither General Mills nor any of its
Subsidiaries or Affiliates shall be entitled to participate in, any Tax
Proceeding with respect to any consolidated, combined or unitary Tax Return that
includes Diageo, Pillsbury Stockholder or any Continuing Affiliate and
(b) Diageo and its Subsidiaries and Affiliates shall not be required to provide
any Person with any consolidated, combined or unitary Tax Return or copy thereof
that includes Diageo, Pillsbury Stockholder or any other Continuing Affiliate
(PROVIDED, HOWEVER, that to the extent that such Tax Returns would be required
to be delivered but for this Section 7.12(b), the Person that would be required
to deliver such Tax Returns shall instead deliver pro forma Tax Returns relating
solely to the Business Entities).
Section 7.13. DEFINITIONS. The following terms shall have the meanings set
forth as follows:
(a) "DIAGEO GROUP" shall mean Diageo and each of its Subsidiaries and
Affiliates, other than the Business Entities.
(b) "DIAGEO TAX INDEMNITEES" means Diageo, the Pillsbury Stockholder and
each of the Continuing Affiliates.
(c) "DIAGEO TAX INDEMNITORS" means Diageo, the Pillsbury Stockholder and
each of the Selling Affiliates.
(d) "GENERAL MILLS GROUP" shall mean General Mills and each of its
Subsidiaries and Affiliates, other than the Business Entities.
(e) "GENERAL MILLS TAX INDEMNITEES" means General Mills and each of its
Subsidiaries and Affiliates, including the Business Entities.
(f) "GENERAL MILLS TAX INDEMNITORS" shall mean General Mills and the
Buying Affiliates.
(g) "POST-CLOSING PERIOD" means any taxable period or portion thereof
beginning, with respect to the Business Entities, after the Closing Date or,
as the context may require, all such periods and portions.
(h) "PRE-CLOSING PERIOD" means any taxable period or portion thereof
ending, with respect to the Business Entities, on or before the Closing Date
or, as the context may require, all such periods and portions.
(i) "RETURNS" or "TAX RETURNS" means any returns, reports or statements
(including any amended returns or information returns) required to be filed
for purposes of a particular Tax.
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(j) "TAX" or "TAXES" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, alternative minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatsoever,
whether disputed or not, together with any interest, penalties, additions to
tax or additional amounts with respect thereto.
(k) "TAX CLAIM" means any claim with respect to Taxes made by any Taxing
Authority that, if pursued successfully, would reasonably be expected to
serve as the basis for a claim for indemnification of a Tax Indemnitee under
this Article VII.
(l) "TAX INDEMNITEE" shall mean a Diageo Tax Indemnitee or a General
Mills Tax Indemnitee.
(m) "TAXING AUTHORITY" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
Section 7.14. SURVIVAL. The representations and warranties of Diageo set
forth in Section 7.1 shall not survive the Effective Time. The representations
and warranties of General Mills set forth in Section 7.2 shall survive the
Effective Time until the expiration of the applicable statute of limitations.
Section 7.15. ADJUSTMENTS. Any indemnification payment hereunder and any
payment made pursuant to Section 2.13 or 2.14 shall be treated for U.S. federal
income Tax purposes as an adjustment to purchase price, except to the extent
otherwise required pursuant to a Determination.
Section 7.16. TAX TRANSACTIONS. From and after the date hereof through the
Closing Date, none of the Business Entities shall enter into any contract,
agreement or other arrangement relating to (i) Tax indemnification, (ii) the
transfer to, or utilization by, a Person of Tax credits, deductions or other
benefits of another Person or (iii) the transfer or assignment to a Person of
income or revenues of another Person. None of the Business Entities shall become
required to include in income any adjustment pursuant to Section 481 of the Code
(or a comparable provision of state, local or foreign Tax law) by reason of a
voluntary change, on or after the date hereof, in accounting method made by or
at the direction of Diageo. From and after the date hereof through the Closing
Date, none of the Business Entities shall become a party to a transaction being
accounted for as an installment obligation under Section 453 of the Code, a
"reportable transaction" within the meaning of Treasury Regulation
Section 1.6011-4T (without regard to the effective date provisions of such
Regulation) or any other transaction pursuant to which income is economically
received in one taxable period and intended to be reported in a later period.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The obligations of
Pillsbury, Merger Sub and General Mills to consummate the Merger shall be
subject to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(a) RECEIPT OF STOCKHOLDER APPROVALS. (i) General Mills shall have
obtained the Required General Mills Votes in connection with the approval of
the General Mills Share Issuance and the Charter Amendment by the
stockholders of General Mills and (ii) Diageo shall have obtained the
Required Diageo Vote in connection with the approval of the Transactions by
the shareholders of Diageo.
(b) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Authority of competent jurisdiction shall be in effect having the
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effect of making the Merger or the Subsidiary Purchases illegal or otherwise
prohibiting consummation of the Merger or the Subsidiary Purchases.
(c) HSR ACT AND EU APPROVAL. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired and the notification of and approval by the
European Commission (the "EC") under EU Council Regulation 4064/89, as
amended, shall have been received, if required.
(d) GOVERNMENTAL AND REGULATORY APPROVALS. Other than the filings
pursuant to the HSR Act and with the EC, all consents, approvals and actions
of, filings with and notices to any Governmental Authority required of
General Mills, Diageo or any of their Subsidiaries to consummate the Merger
and the Subsidiary Purchases and the other transactions contemplated hereby,
the failure of which to be obtained or made would have or would reasonably
be expected to have a Pillsbury Material Adverse Effect or a General Mills
Material Adverse Effect shall have been obtained or made.
(e) NYSE LISTING. The shares of General Mills Common Stock to be
issued in the Merger and delivered pursuant to the Subsidiary Purchases
shall have been approved for listing on the NYSE, subject to official notice
of issuance.
(f) SUBSIDIARY PURCHASES. The Subsidiary Purchases shall be
consummated concurrently with consummation of the Merger.
Section 8.2. ADDITIONAL CONDITIONS TO GENERAL MILLS' AND MERGER SUB'S
OBLIGATIONS. The obligations of General Mills and Merger Sub to consummate the
Merger shall be subject to the satisfaction on or prior to the Closing Date of
all of the following additional conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS OF DIAGEO AND
PILLSBURY. (i) Each of the representations and warranties of Diageo and
Pillsbury set forth in this Agreement that is qualified as to Pillsbury
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of Diageo and Pillsbury set forth in this
Agreement that is not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent in either case that such representations and warranties speak as of
another date) and (ii) each of the representations and warranties of the
Selling Affiliates in the Subsidiary Purchase Agreements shall be true and
correct in all material respects, in each case when made and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent that such representations and warranties speak as of another date).
(b) PERFORMANCE OF OBLIGATIONS OF DIAGEO AND PILLSBURY. Each of Diageo
and Pillsbury shall have performed or complied in all material respects with
all agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) INDEBTEDNESS. The aggregate outstanding indebtedness of the
Business Entities as of the Closing Date (excluding off balance sheet
financing and operating and capitalized finance leases that are reflected in
the profits and losses statement of the Business Entities in the ordinary
course consistent with past practice) shall not exceed $5.142 billion.
(d) CERTIFICATE. General Mills shall have received at the Closing a
certificate dated the Closing Date and validly executed by the chief
executive officer and the chief financial officer of each of Diageo and
Pillsbury to the effect that the conditions specified in paragraphs (a),
(b) and (c) of this Section 8.2 have been satisfied.
(e) DELIVERIES. Diageo or the Selling Affiliates shall have delivered
all the certificates, instruments, agreements and other documents to be
delivered pursuant to Section 2.11.
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Section 8.3. ADDITIONAL CONDITIONS TO PILLSBURY'S OBLIGATION. Pillsbury's
obligation to consummate the Merger shall be subject to the satisfaction on or
prior to the Closing Date of all of the following additional conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS OF GENERAL MILLS AND
MERGER SUB. (i) Each of the representations and warranties of General Mills
and Merger Sub set forth in this Agreement that is qualified as to General
Mills Material Adverse Effect shall be true and correct, and each of the
representations and warranties of General Mills and Merger Sub set forth in
this Agreement that is not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the
extent in either case that such representations and warranties speak as of
another date) and (ii) each of the representations and warranties of the
Buying Affiliates in the Subsidiary Purchase Agreements shall be true and
correct in all material respects, in each case when made and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent that such representations and warranties speak as of another date).
(b) PERFORMANCE OF OBLIGATIONS OF GENERAL MILLS AND MERGER SUB. Each
of General Mills and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required to be performed
by it under this Agreement at or prior to the Closing Date.
(c) CERTIFICATE. Diageo shall have received at the Closing a
certificate dated the Closing Date and validly executed by the chief
executive officer and the chief financial officer of General Mills to the
effect that the conditions specified in paragraphs (a) and (b) of this
Section 8.3 have been satisfied.
(d) TAX OPINION OF DIAGEO'S COUNSEL. Diageo shall have received from
Sullivan & Cromwell, special tax counsel to Diageo, a written opinion dated
as of the Closing Date to the effect that the Merger will qualify as a
"reorganization" within the meaning of Code Section 368. In rendering such
opinion, counsel to Diageo shall be entitled to rely upon information,
representations and assumptions provided by General Mills in an officer's
certificate containing solely the representations set forth in Section 7.2
and by Diageo in an officer's certificate.
(e) DELIVERIES. General Mills or the Buying Affiliates shall have
delivered to Diageo all the certificates, instruments, agreements and other
documents to be delivered pursuant to Section 2.12.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
Section 9.1. SURVIVAL. (a) The representations and warranties of Diageo
and Pillsbury contained in this Agreement shall survive the Effective Time until
the first anniversary of the Effective Time, except the representations and
warranties set forth (i) in Section 3.18 which shall survive the Effective Time
until the second anniversary of the Effective Time and (ii) in Article VII,
whose survival shall be as set forth in Article VII. The representations and
warranties of General Mills and Merger Sub contained in this Agreement shall
survive the Effective Time until the first anniversary of the Effective Time,
except the representations and warranties set forth in Article VII, whose
survival shall be as set forth in Article VII.
(b) The covenants and agreements of the parties hereto contained in this
Agreement which by their terms apply or are to be performed in whole or in
part after the Effective Time and this Article IX shall survive the
Effective Time.
Section 9.2. INDEMNIFICATION BY DIAGEO. (a) Subject to Section 9.5(a)
hereof, from and after the Closing Date, Diageo, the Pillsbury Stockholder and
the Selling Affiliates (the "DIAGEO INDEMNIFYING PARTIES") shall indemnify and
hold harmless General Mills and its Subsidiaries (including the Business
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Entities) and their respective officers, directors and Affiliates (collectively,
the "GENERAL MILLS INDEMNIFIED PARTIES") from and against any and all Covered
Losses suffered by such General Mills Indemnified Parties resulting from or
arising out of (i) any inaccuracy in or breach of any of the representations or
warranties (without giving effect to any materiality qualifiers contained
therein) (A) of Diageo or Pillsbury in this Agreement (other than those set
forth in Article VII hereof, indemnity for which is addressed in Article VII)
and (B) of the Selling Affiliates in the Subsidiary Purchase Agreements, in each
case when made, and, except for representations and warranties that speak of a
specific date or time (which need only be true and correct as of such date and
time), on and as of the Closing Date, (ii) any breach or nonfulfillment of any
covenants or agreements made by Diageo or Pillsbury herein or by the Selling
Affiliates in the Subsidiary Purchase Agreements and (iii) any liability or
obligation of any of the Business Entities arising from or relating to any
business other than the Business.
(b) The General Mills Indemnified Parties shall not be entitled to
assert any indemnification pursuant to clause (i) of Section 9.2(a):
(i) after the second anniversary of the Closing Date, with respect to such
inaccuracies in or breaches of the representations and warranties contained
in Section 3.18 hereof, or (ii) after the first anniversary of the Closing
Date, with respect to all other inaccuracies in or breaches of the
representations and warranties of Diageo or Pillsbury contained in any other
Section hereof or of the Selling Affiliates contained in the Subsidiary
Purchase Agreements; PROVIDED that if on or prior to such first or second
anniversary of the Closing Date, as the case may be, a Notice of Claim shall
have been given to Diageo pursuant to Section 9.4 hereof for such
indemnification, the General Mills Indemnified Parties shall continue to
have the right to be indemnified with respect to such indemnification claim
until such claim for indemnification has been satisfied or otherwise
resolved as provided in this Article IX.
Section 9.3. INDEMNIFICATION BY GENERAL MILLS. (a) Subject to
Section 9.5(b) hereof, from and after the Closing Date, General Mills and the
Buying Affiliates (the "GENERAL MILLS INDEMNIFYING PARTIES") shall indemnify and
hold harmless Diageo and its Subsidiaries (excluding the Business Entities) and
their respective officers, directors and Affiliates (collectively, the "DIAGEO
INDEMNIFIED PARTIES") from and against any and all Covered Losses suffered by
such Diageo Indemnified Parties resulting from or arising out of (i) any
inaccuracy in or breach of any of the representations or warranties (without
giving effect to any materiality qualifiers contained therein) (A) of General
Mills or Merger Sub in this Agreement (other than those set forth in
Article VII hereof, indemnity for which is addressed in Article VII) and (B) of
the Buying Affiliates in the Subsidiary Purchase Agreements, in each case when
made, and, except for representations and warranties that speak of a specific
date or time (which need only be true and correct as of such date and time), on
and as of the Closing Date, (ii) any breach or nonfulfillment of any covenants
or agreements made by General Mills or Merger Sub herein or by the Buying
Affiliates in the Subsidiary Purchase Agreements and (iii) any liability or
obligation of any of the Business Entities other than those for which the Diageo
Indemnified Parties have indemnified the General Mills Indemnified Parties
pursuant to Section 9.2.
(b) The Diageo Indemnified Parties shall not be entitled to assert any
indemnification pursuant to clause (i) of Section 9.3(a) after the first
anniversary of the Closing Date; PROVIDED that if on or prior to such first
anniversary of the Closing Date a Notice of Claim shall have been given to
General Mills pursuant to Section 9.4 hereof for such indemnification, the
Diageo Indemnified Parties shall continue to have the right to be
indemnified with respect to such indemnification claim until such claim for
indemnification has been satisfied or otherwise resolved as provided in this
Article IX
Section 9.4. INDEMNIFICATION PROCEDURES. (a) Upon obtaining knowledge of
any claim or demand which has given rise to, or is expected to give rise to, a
claim for indemnification hereunder, General Mills or Diageo, as the case may
be, shall give written notice ("NOTICE OF CLAIM") of such claim or demand to the
other. The party giving such Notice of Claim shall furnish to the other party in
A-54
reasonable detail such information as the General Mills Indemnified Parties or
the Diageo Indemnified Parties, as the case may be, may have with respect to
such indemnification claim (including copies of any summons, complaint or other
pleading which may have been served on it and any written claim, demand,
invoice, billing or other document evidencing or asserting the same). Subject to
the limitations set forth in Sections 9.2(b) and 9.3(b) hereof, no failure or
delay by General Mills or Diageo in the performance of the foregoing shall
reduce or otherwise affect the obligation of the Diageo Indemnifying Parties or
the General Mills Indemnifying Parties, respectively, to indemnify and hold the
General Mills Indemnified Parties or the Diageo Indemnified Parties,
respectively, harmless, except to the extent that such failure or delay shall
have actually adversely affected the General Mills Indemnifying Parties' or
Diageo Indemnifying Parties', as the case may be, ability to defend against,
settle or satisfy any Covered Losses for which the party seeking indemnification
is entitled to indemnification hereunder.
(b) If the claim or demand set forth in the Notice of Claim given
pursuant to Section 9.4(a) hereof is a claim or demand asserted by a third
party, the party receiving such Notice of Claim shall have 15 days after the
date on which Notice of Claim is given to notify the party giving such
Notice of Claim in writing of its election to defend such third party claim
or demand on behalf of the party seeking indemnification. If the party
receiving such Notice of Claim elects, on behalf of the General Mills
Indemnifying Parties or Diageo Indemnifying Parties, as the case may be, to
defend such third party claim or demand, the party seeking indemnification
shall make available to the indemnifying party and its agents and
representatives all records and other materials which are reasonably
required in the defense of such third party claim or demand and shall
otherwise cooperate with, and assist the indemnifying party in the defense
of, such third party claim or demand, and so long as Diageo or General
Mills, as the case may be, is defending such third party claim in good
faith, the General Mills Indemnified Parties or Diageo Indemnified Parties,
as applicable, shall not pay, settle or compromise such third party claim or
demand. In such case, the General Mills Indemnifying Parties or the Diageo
Indemnifying Parties, as the case may be, may pay, settle or compromise such
third party claim or demand (i) with the written consent of Diageo or
General Mills, on behalf of the Diageo Indemnified Parties or the General
Mills Indemnified Parties, as the case may be, or (ii) without such consent,
so long as such settlement includes (A) an unconditional release of the
Diageo Indemnified Parties or the General Mills Indemnified Parties, as the
case may be, from all liability in respect of such claim or litigation,
(B) does not subject the indemnified parties to any material injunctive
relief or other material equitable remedy, and (C) does not include a
statement or admission of fault, culpability or failure to act by or on
behalf of any indemnified party. If the party receiving such Notice of Claim
elects to defend such third party claim or demand, the General Mills
Indemnified Party or the Diageo Indemnified Party, as the case may be, shall
have the right to participate in the defense of such third party claim or
demand, at such indemnified party's own expense. In the event, however, that
such indemnified party reasonably determines that representation by counsel
to the indemnifying parties of both such indemnifying parties and the
indemnified party could reasonably be expected to present such counsel with
a conflict of interest, then the indemnified party may employ separate
counsel to represent or defend it in any such action or proceeding and the
indemnifying parties will pay the fees and expenses of such counsel;
PROVIDED, that the Diageo Indemnifying Parties or the General Mills
Indemnifying Parties, as the case may be, shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for
the fees and expenses of more than one separate firm of attorneys (in
addition to local counsel) at any time for all General Mills Indemnified
Parties or Diageo Indemnified Parties, as the case may be. If the party
receiving such Notice of Claim does not elect to defend such third party
claim or demand or does not defend such third party claim or demand in good
faith, the General Mills Indemnified Parties or Diageo Indemnified Parties,
as the case may be, shall have the right, in addition to any other right or
remedy they may have hereunder, at the Diageo Indemnifying Parties' or
General Mills
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Indemnifying Parties', as the case may be, expense, to defend such third
party claim or demand; PROVIDED, HOWEVER, that (i) such General Mills
Indemnified Parties or Diageo Indemnified Parties, as the case may be, shall
not have any obligation to participate in the defense of, or defend, any
such third party claim or demand; (ii) such General Mills Indemnified
Parties' or Diageo Indemnified Parties', as the case may be, defense of or
participation in the defense of any such third party claim or demand shall
not in any way diminish or lessen the obligations of the Diageo Indemnifying
Parties or General Mills Indemnifying Parties, as applicable, under the
agreements of indemnification set forth in this Article IX; and (iii) such
General Mills Indemnified Parties or Diageo Indemnified Parties, as the case
may be, may not settle any claim without the consent of Diageo or General
Mills, respectively, on behalf of the Diageo Indemnifying Parties or General
Mills Indemnifying Parties, respectively (which consent shall not be
unreasonably withheld or delayed).
(c) Diageo and General Mills shall cooperate in the defense of any claim
or litigation subject to this Article IX and the records of each shall be
available to the other with respect to such defense.
(d) Except for third party claims being defended in good faith,
(i) Diageo shall satisfy the Diageo Indemnifying Parties' obligations under
this Article IX in respect of a valid claim for indemnification hereunder
which is not contested by Diageo in good faith, at its election, either
(A) in cash or (B) by payment in the form of a number of shares of General
Mills Common Stock equal to (x) the amount of such obligation divided by
(y) Market Value on the date of delivery of such shares, in either case
within 30 days after the date on which Notice of Claim is given and
(ii) General Mills shall satisfy the General Mills Indemnifying Parties'
obligations under this Article IX in respect of a valid claim for
indemnification hereunder which is not contested by General Mills in good
faith within 30 days after the date on which Notice of Claim is given by
payment in the form of a number of shares of General Mills Common Stock
equal to (A) the amount of such obligation divided by (B) the Market Value
on the date of delivery of such shares.
Section 9.5. LIMITATIONS ON INDEMNIFICATION. (a) The Diageo Indemnifying
Parties shall have no liability for indemnification pursuant to clause (i) of
Section 9.2(a) with respect to Covered Losses for which indemnification is
provided thereunder, unless such Covered Losses exceed in the aggregate
$100 million, in which case the Diageo Indemnifying Parties shall be liable for
all such Covered Losses in excess of such amount; PROVIDED, that the Diageo
Indemnifying Parties shall have no liability for such Covered Losses (and such
Covered Losses will not be aggregated for purposes of such $100 million) in
connection with any individual claim or series of related claims unless the
aggregate amount of Covered Losses associated with such claim or series of
related claims exceeds $5 million.
(b) The General Mills Indemnifying Parties shall have no liability for
indemnification pursuant to clause (i) of Section 9.3(a) with respect to
Covered Losses for which indemnification is provided thereunder, unless such
Covered Losses exceed in the aggregate $100 million, in which case the
General Mills Indemnifying Parties shall be liable for all such Covered
Losses in excess of such amount; PROVIDED, that the General Mills
Indemnifying Parties shall have no liability for such Covered Losses (and
such Covered Losses will not be aggregated for purposes of such
$100 million) in connection with any individual claim or any series of
related claims unless the aggregate amount of Covered Losses associated with
such claim or series of related claims exceeds $5 million.
Section 9.6. EXCLUSIVE TAX INDEMNIFICATION. Notwithstanding anything to
the contrary in this Article IX, the above provisions of this Article IX shall
not apply to Tax indemnification matters, which matters shall instead be
governed by Article VII.
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ARTICLE X
TERMINATION
Section 10.1. TERMINATION. This Agreement may be terminated at any time
prior to the Closing by:
(a) General Mills and Diageo by mutual written consent;
(b) either General Mills or Diageo if the Effective Time shall not have
occurred by the close of business on March 31, 2001 (the "TERMINATION
DATE"); provided, however, that the right to terminate this Agreement
pursuant to this Section 10.1(b) shall not be available to (i) General
Mills, if its or Merger Sub's failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date or (ii) Diageo, if
its or Pillsbury's failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before the Termination Date;
(c) either General Mills or Diageo if any Governmental Authority shall
have issued an order, decree or ruling or taken any other action (which such
party shall have used its reasonable best efforts to resist, resolve or
lift, as applicable, in accordance with Section 5.2) permanently
restraining, enjoining or otherwise prohibiting the Merger or the Subsidiary
Purchases, and such order, decree, ruling or other action shall have become
final and nonappealable;
(d) by either General Mills or Diageo if (i) the General Mills
Stockholders Approval shall not have been obtained by reason of the failure
to obtain the Required General Mills Votes in connection with the approval
of the General Mills Share Issuance and the Charter Amendment or (ii) the
Diageo Shareholders Approval shall not have been obtained by reason of the
failure to obtain the Required Diageo Vote in connection with the approval
of the Transactions, in each case upon the taking of such vote(s) at a duly
held meeting of stockholders or shareholders of General Mills or Diageo, as
the case may be, or at any adjournment thereof; or
(e) (i) by General Mills, prior to the Diageo Shareholders Meeting, if
the Board of Directors of Diageo shall have withdrawn or modified in any
manner adverse to General Mills its recommendation that the shareholders of
Diageo approve the Transactions or shall have resolved to take any such
action, or (ii) by Diageo, prior to the General Mills Stockholders Meeting,
if the Board of Directors of General Mills shall have withdrawn or modified
in any manner adverse to Diageo its recommendation that the stockholders of
General Mills approve the General Mills Share Issuance and the Charter
Amendment or shall have resolved to take any such action.
Section 10.2. PROCEDURE AND EFFECT OF TERMINATION. In the event of
termination of this Agreement by either or both of Diageo and General Mills
pursuant to Section 10.1, written notice thereof shall forthwith be given by the
terminating party to the other, and this Agreement shall thereupon terminate and
become void and have no effect, and the transactions contemplated hereby shall
be abandoned without further action by the parties hereto, except that the
provisions of Section 10.3 and Article XI shall survive the termination of this
Agreement; PROVIDED, HOWEVER, that such termination shall not relieve any party
hereto of any liability for any breach of this Agreement.
Section 10.3. TERMINATION FEES. (a) FEE PAYABLE BY GENERAL MILLS. In the
event that this Agreement is terminated by General Mills or Diageo pursuant to
Section 10.1(d)(i), General Mills shall pay to Diageo a termination fee of
$105 million; provided that in the event that at the time of the General Mills
Stockholders Meeting a Business Combination Proposal with respect to General
Mills shall have been publicly announced or otherwise become known to the
stockholders of General Mills generally, the fee payable by General Mills to
Diageo pursuant to this sentence shall be increased to
A-57
$315 million. In the event that this Agreement is terminated by Diageo pursuant
to Section 10.1(e)(ii), General Mills shall pay to Diageo a termination fee of
$315 million.
(b) FEE PAYABLE BY DIAGEO. In the event that this Agreement is
terminated by General Mills or Diageo pursuant to Section 10.1(d)(ii),
Diageo shall pay to General Mills a termination fee of $105 million;
provided that in the event that at the time of the Diageo Shareholders
Meeting an Acquisition Proposal or a Business Combination Proposal with
respect to Diageo shall have been publicly announced or otherwise become
known to the shareholders of Diageo generally, the fee payable by Diageo to
General Mills pursuant to this sentence shall be increased to $315 million.
In the event that General Mills terminates this Agreement pursuant to
Section 10.1(e)(i), Diageo shall pay to General Mills a termination fee of
$315 million.
(c) MAKING OF PAYMENTS. Any payments required to be made by General
Mills or Diageo pursuant to this Section 10.3 shall be made promptly
following the termination of this Agreement, by wire transfer in immediately
available funds, to the account specified by the other party.
ARTICLE XI
MISCELLANEOUS
Section 11.1. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 11.2. GOVERNING LAW; JURISDICTION AND FORUM; WAIVER OF JURY
TRIAL. (a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without reference to the choice of law
principles thereof.
(b) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of any Delaware state or federal court of appropriate
jurisdiction in any Action arising out of or relating to this Agreement or
the Subsidiary Purchase Agreements, and hereby irrevocably agrees that all
claims in respect of such Action may be heard and determined in such
Delaware state or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent it may effectively do so, the
defense of an inconvenient forum to the maintenance of such Action. The
parties further agree, to the extent permitted by applicable Law, that any
final and unappealable judgment against any of them in any Action
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and amount
of such judgment.
(c) To the extent that any party hereto has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with respect to itself or its
property, such party hereby irrevocably waives such immunity in respect of
its obligations with respect to this Agreement.
(d) Each party waives, to the fullest extent permitted by applicable
Law, any right it may have to a trial by jury in respect of any Action
arising out of or relating to this Agreement. Each party certifies that it
has been induced to enter into this Agreement by, among other things, the
mutual waivers and certifications set forth above in this Section 11.2.
Section 11.3. ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements, the Schedules and Exhibits hereto and thereto, and the
Confidentiality Agreement contain the entire agreement between the parties with
respect to the subject matter hereof and there are no agreements,
understandings, representations or warranties between the parties other than
those set forth or referred to herein. Except for Section 7.3, which is intended
to benefit, and to be enforceable by, the General
A-58
Mills Tax Indemnitees and the Diageo Tax Indemnitees, Section 9.2 which is
intended to benefit, and be enforceable by, the General Mills Indemnified
Parties, and Section 9.3 which is intended to benefit, and be enforceable by,
the Diageo Indemnified Parties, this Agreement is not intended to confer upon
any person not a party hereto (and their successors and assigns permitted by
Section 11.6) any rights or remedies hereunder.
Section 11.4. EXPENSES. Except as set forth in this Agreement and the
Subsidiary Purchase Agreements, whether the Merger is or is not consummated, all
legal, investment banking and other costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses. For the avoidance of doubt, any
costs incurred in connection with the Agreement and the transactions
contemplated hereby by Diageo and its Subsidiaries (including Pillsbury, the
Purchased Entities and their respective Subsidiaries) prior to the Closing,
including any arrangements referred to in Section 3.14 with respect to the
Diageo Financial Advisors (including any indemnity obligations to the Diageo
Financial Advisors), shall be deemed incurred by Diageo or one or more of the
Continuing Affiliates, and not by any of the Business Entities.
Section 11.5. NOTICES. All notices hereunder shall be sufficiently given
for all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to Diageo or Pillsbury shall be
addressed to:
Diageo plc
8 Henrietta Place
London England W1M9AG
Attn.: Group General Counsel
Telecopy No.: 011-44207-927-4864
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attn.: Francis J. Aquila, Esq.
Telecopy No.: (212) 558-3588
or at such other address and to the attention of such other person as Diageo may
designate by written notice to General Mills. Notices to General Mills or Merger
Sub shall be addressed to:
General Mills, Inc.
Number One General Mills Blvd.
Minneapolis, Minnesota 55426
Attn.: General Counsel
Telecopy No.: (763) 764-3302
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn.: Steven A. Rosenblum, Esq.
Telecopy No.: (212) 403-2000
A-59
or at such other address and to the attention of such other person as General
Mills may designate by written notice to Diageo.
Section 11.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; PROVIDED, HOWEVER, that no party hereto will assign its rights or
delegate any or all of its obligations under this Agreement without the express
prior written consent of each other party hereto.
Section 11.7. HEADINGS; DEFINITIONS. The section and article headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated. All capitalized terms defined herein are
equally applicable to both the singular and plural forms of such terms. The
terms "hereof", "herein", and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole
(including all of the Exhibits hereto) and not to any particular provision of
this Agreement. The word "including" and words of similar import when used in
this Agreement shall mean "including without limitation" unless the context
otherwise requires or unless otherwise specified. All references in this
Agreement to any period of days shall be deemed to be to the relevant number of
calendar days unless otherwise specified.
Section 11.8. AMENDMENTS AND WAIVERS. This Agreement may not be modified
or amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Any
party hereto may, only by an instrument in writing, waive compliance by another
party hereto with any term or provision of this Agreement on the part of such
other party hereto to be performed or complied with. The waiver by any party
hereto of a breach of any term or provision of this Agreement shall not be
construed as a waiver of any subsequent breach.
Section 11.9. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any party fails to consummate
the transactions contemplated by this Agreement in accordance with the terms of
this Agreement and that the parties shall be entitled to specific performance in
such event, in addition to any other remedy or law or in equity.
A-60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.
GENERAL MILLS, INC.
By: /s/ STEPHEN W. SANGER
-----------------------------------------
Name: Stephen W. Sanger
Title: Chairman and Chief Executive
Officer
GENERAL MILLS NORTH AMERICAN BUSINESSES, INC.
By: /s/ JAMES A. LAWRENCE
-----------------------------------------
Name: James A. Lawrence
Title: Executive Vice President
DIAGEO plc
By: /s/ PAUL S. WALSH
-----------------------------------------
Name: Paul S. Walsh
Title: Group Chief Operating Officer
THE PILLSBURY COMPANY
By: /s/ PAUL S. WALSH
-----------------------------------------
Name: Paul S. Walsh
Title: Chairman of the Board
A-61
APPENDIX B
FORM OF
STOCKHOLDERS AGREEMENT
BY AND AMONG
GENERAL MILLS, INC.,
[LIST DIAGEO SUBS HOLDING SHARES]
AND
DIAGEO PLC
DATED AS OF [ ]
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions......................................... B-1
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company............... B-4
Section 2.2. Representations and Warranties of the Shareholder Group..... B-4
ARTICLE III
STANDSTILL; VOTING; BOARD REPRESENTATION
Section 3.1. Standstill Restrictions..................................... B-4
Section 3.2. Termination of the Standstill Restrictions.................. B-5
Section 3.3. Voting...................................................... B-5
Section 3.4. Board of Directors.......................................... B-5
Section 3.5. Provision of Information.................................... B-7
ARTICLE IV
TRANSFER RESTRICTIONS; LIQUIDITY
Section 4.1. Transfer Restrictions....................................... B-7
Section 4.2. Company Repurchase.......................................... B-8
Section 4.3. Obligation to Dispose of Shareholder Group Shares........... B-9
ARTICLE V
REGISTRATION RIGHTS
Section 5.1. Demand Registrations........................................ B-9
Section 5.2. Piggy-Back Registration..................................... B-11
Section 5.3. Termination of Registration Obligation...................... B-11
Section 5.4. Registration Procedures..................................... B-11
Section 5.5. Registration Expenses....................................... B-15
Section 5.6. Indemnification; Contribution............................... B-16
Section 5.7. Purchase Right.............................................. B-18
ARTICLE VI
EFFECTIVENESS AND TERMINATION
Section 6.1. Effectiveness............................................... B-18
Section 6.2. Termination................................................. B-19
ARTICLE VII
MISCELLANEOUS
Section 7.1. Injunctive Relief........................................... B-19
Section 7.2. Successors and Assigns...................................... B-19
Section 7.3. Amendments; Waiver.......................................... B-19
Section 7.4. Notices..................................................... B-19
Section 7.5. Applicable Law.............................................. B-20
B-i
PAGE
--------
Section 7.6. Headings.................................................... B-20
Section 7.7. Integration................................................. B-20
Section 7.8. Severability................................................ B-20
Section 7.9. Shareholder Group Representative............................ B-20
Section 7.10. Consent to Jurisdiction..................................... B-20
Section 7.11. Counterparts................................................ B-20
B-ii
STOCKHOLDERS AGREEMENT, dated as of [ ] (this "AGREEMENT"), by and
among General Mills, Inc., a Delaware corporation (the "COMPANY"), Diageo plc, a
public limited company incorporated under the laws of England and Wales
("PARENT"), [list Diageo subs holding shares] (Parent and such subsidiaries,
collectively, the "SHAREHOLDER GROUP").
W I T N E S S E T H:
WHEREAS, the Company, Parent, The Pillsbury Company, a Delaware corporation
and an indirect wholly-owned subsidiary of Parent ("PILLSBURY"), and General
Mills North American Businesses, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("MERGER SUB"), have entered into an Agreement and
Plan of Merger, dated as of July 16, 2000 (as it may be amended from time to
time, the "MERGER AGREEMENT"), pursuant to which, among other things, Merger Sub
will merge with and into Pillsbury, with Pillsbury as the surviving corporation,
and shares of Pillsbury held by Gramet Holdings Corporation, the sole
stockholder of Pillsbury, will be converted into shares of Common Stock, par
value $0.10 per share (including the related preferred share purchase rights,
the "Common Stock"), of the Company (the "MERGER");
WHEREAS, the execution of this Agreement is a condition to the obligation of
the parties to consummate the Merger (the "CLOSING"); and
WHEREAS, the Company, certain subsidiaries of the Company, and certain
subsidiaries of Parent have entered into Subsidiary Purchase Agreements,
pursuant to which, among other things, certain subsidiaries of the Company will
acquire shares and/or assets of certain subsidiaries of Parent and certain other
entities in which Parent and its affiliates own equity interests, in exchange
for shares of Common Stock (collectively, the "SUBSIDIARY PURCHASE AGREEMENTS");
WHEREAS, the Company and the Shareholder Group desire to establish in this
Agreement certain terms and conditions concerning the acquisition and
disposition of the shares of Common Stock issued to the Shareholder Group
pursuant to the Merger Agreement and the Subsidiary Purchase Agreements, and
related provisions concerning the Shareholder Group's relationship with and
investment in the Company following the Closing;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS. In addition to other terms defined
elsewhere in this Agreement, as used in this Agreement, the following terms
shall have the meanings ascribed to them below:
"AFFILIATE" shall mean, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person. As used in
this definition, "control" (including, with correlative meanings, "controlled
by" and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"AGREEMENT" shall have the meaning assigned to such term in the preamble
hereto.
"BENEFICIALLY OWN" shall mean, with respect to any securities, having
"beneficial ownership" of such securities for purposes of Rule 13d-3 or 13d-5
under the Exchange Act as in effect on the date hereof, and "Beneficial
Ownership" shall have the corresponding meaning.
"BLACKOUT PERIOD" shall have the meaning assigned in Section 5.1(b).
"BOARD" shall mean the Board of Directors of the Company in office at the
applicable time.
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"BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or other
day on which the commercial banks in New York City or London are authorized or
required by law to remain closed.
"CLAIMS" shall have the meaning assigned in Section 5.6(a).
"CLOSING" shall have the meaning assigned in the recitals hereto.
"COMMON STOCK" shall have the meaning assigned in the recitals hereto.
"COMPANY" shall have the meaning assigned in the preamble hereto.
"COMPANY RIGHTS PLAN" shall mean the Rights Agreement, dated as of
December 11, 1995, between the Company and Norwest Bank Minnesota, as Rights
Agent, as it may be amended from time to time.
"DEMAND REGISTRATION" shall have the meaning assigned in Section 5.1(a).
"DEMAND REQUEST" shall have the meaning assigned in Section 5.1(a).
"DEMAND SHARES" shall have the meaning assigned in Section 5.1(a).
"DIRECTOR" shall mean any member of the Board.
"EFFECTIVE PERIOD" shall have the meaning assigned in Section 5.4(a)(iii).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"MARKET VALUE" shall mean, as of any date, the average of the daily high and
low sales prices per share of Common Stock during the regular trading sessions
on the NYSE for each of the 20 full trading days immediately preceding (but not
including) such date.
"MAXIMUM NUMBER" shall have the meaning assigned in Section 5.2(b).
"MERGER" shall have the meaning assigned in the recitals hereto.
"MERGER AGREEMENT" shall have the meaning assigned in the recitals hereto.
"NYSE" shall mean the New York Stock Exchange, Inc.
"ORIGINAL ISSUED SHARES" shall mean the Purchase Price Shares and the
Additional Shares, if any (as such terms are defined in the Merger Agreement),
and any shares of Common Stock issued in respect thereof or into which such
shares of Common Stock shall be converted in connection with stock splits,
reverse stock splits, stock dividends or distributions, or combinations or any
similar recapitalization, on or after the date hereof.
"OTHER HOLDER" shall have the meaning assigned in Section 5.2(b).
"PARENT" shall have the meaning assigned in the preamble hereto.
"PARENT DIRECTOR" shall have the meaning assigned in Section 3.4(a).
"PARENT BOARD MEMBER" shall mean a member of the Board of Directors of
Parent or of the Executive Committee of Parent.
"PERSON" shall mean any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"PIGGY-BACK REGISTRATION" shall have the meaning assigned in
Section 5.2(a).
"PIGGY-BACK REQUEST" shall have the meaning assigned in Section 5.2(a).
"PUBLIC SHARES" shall have the meaning assigned in Section 4.2(a)
"REGISTRABLE SHARES" shall mean the Shareholder Group Shares.
"REPURCHASE" shall have the meaning assigned in Section 4.2(a).
"REPURCHASE OFFER" shall have the meaning assigned in Section 4.2(a).
"SEC" shall mean the United States Securities and Exchange Commission.
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"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITY" shall have the meaning assigned in Section 4.1(e).
"SELECT VOTING MATTER" shall mean any proposed (a) amendment to the
certificate of incorporation of the Company or (b) (i) merger, consolidation or
other business combination as a result of which the stockholders of the Company
prior to such transaction would cease to hold at least 80% of the voting
securities of the entity surviving or resulting from such transaction (or the
ultimate parent entity thereof), (ii) the acquisition by any Person of at least
20% of the outstanding voting securities of the Company, (iii) the sale, lease,
exchange or other disposition of at least 20% of the assets of the Company and
its Subsidiaries taken as a whole or (iv) any transaction as a result of which
the Directors immediately prior to such transaction would cease to represent
two-thirds of the directors comprising the Board or the board of directors of
the entity surviving or resulting from such transaction (or the ultimate parent
entity thereof).
"SHAREHOLDER GROUP" shall have the meaning assigned in the preamble hereto,
it being understood that such term shall also include any transferee pursuant to
a Transfer pursuant to Section 4.1(f) hereof.
"SHAREHOLDER GROUP DIRECTOR" shall mean either of the Directors elected to
the Board at the effective time of the Merger pursuant to Section 5.12 of the
Merger Agreement, or any replacement therefor or additional Director elected
pursuant to Section 3.4 of this Agreement.
"SHAREHOLDER GROUP SHARES" shall mean, at any time, the Original Issued
Shares that are Beneficially Owned by the Shareholder Group.
"SUBSIDIARY" means, with respect to any Person, any other entity of which
securities or other ownership interests having ordinary power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
"SUBSIDIARY PURCHASE AGREEMENTS" shall have the meaning assigned in the
recitals hereto.
"TRANSFER" shall mean any sale (including forward sale), transfer, pledge,
encumbrance or other disposition to any Person.
"TRUSTEE" shall have the meaning assigned in Section 4.1(e).
"VOTES" shall mean votes entitled to be cast generally in the election of
Directors, assuming the conversion of any securities of the Company then
convertible into Common Stock or shares of any other class of capital stock of
the Company then entitled to vote generally in the election of Directors.
"VOTING POWER" shall mean, calculated at a particular point in time, the
ratio, expressed as a percentage, of (a) the Votes represented by the Voting
Securities with respect to which the Voting Power is being determined to
(b) the aggregate Votes represented by all then outstanding Voting Securities.
"VOTING SECURITIES" shall mean (i) the Common Stock, (ii) shares of any
other class of capital stock of the Company then entitled to vote generally in
the election of Directors and (iii) any securities of the Company then
convertible into shares of any class of capital stock of the Company then
entitled to vote generally in the election of Directors.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Shareholder Group as of the date hereof as
follows:
(a) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and has
all necessary corporate power and authority to enter into this Agreement and
to carry out its obligations hereunder.
(b) This Agreement has been duly and validly authorized by the Company
and all necessary and appropriate action has been taken by the Company to
execute and deliver this Agreement and to perform its obligations hereunder.
(c) This Agreement has been duly executed and delivered by the Company
and, assuming due authorization and valid execution and delivery by the
members of the Shareholder Group, is a valid and binding obligation of the
Company, enforceable against it in accordance with its terms.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER GROUP. Each
member of the Shareholder Group represents and warrants to the Company as of the
date hereof as follows:
(a) Such member (i) has been duly incorporated and is validly existing
and, with respect to those corporations organized under the laws of one of
the States of the United States of America, in good standing under the laws
of the jurisdiction of its organization and (ii) has all necessary corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder.
(b) This Agreement has been duly and validly authorized by each such
member and all necessary and appropriate action has been taken by such
member to execute and deliver this Agreement and to perform its obligations
hereunder.
(c) This Agreement has been duly executed and delivered by such member
and, assuming due authorization and valid execution and delivery by the
Company, is a valid and binding obligation of such member, enforceable
against it in accordance with its terms.
ARTICLE III
STANDSTILL; VOTING; BOARD REPRESENTATION
Section 3.1 STANDSTILL RESTRICTIONS. Subject to Section 3.2, until the
twentieth anniversary of the Closing, the members of the Shareholder Group shall
not, and shall cause each of their respective Affiliates not to, directly or
indirectly:
(a) acquire, offer to acquire or agree to acquire Beneficial Ownership
of any Voting Securities, except pursuant to stock splits, reverse stock
splits, stock dividends or distributions, or combinations or any similar
recapitalization, on or after the date hereof;
(b) acquire, offer to acquire or agree to acquire any business or
material assets of the Company or any of its Subsidiaries;
(c) initiate or propose any offer by any third party to acquire
Beneficial Ownership of Voting Securities, other than an acquisition of
Shareholder Group Shares permitted in accordance with Section 4.1;
(d) initiate or propose any merger, tender offer, business combination
or other extraordinary transaction involving the Company or any of its
Subsidiaries;
(e) act, alone or in concert with others, to seek to affect or influence
the control of the Board or the management of the Company, or the business,
operations, affairs or policies of the
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Company; PROVIDED that this subsection shall not be deemed to restrict the
Shareholder Group Directors from participating as members of the Board in
their capacity as such;
(f) deposit any Voting Securities in a voting trust or subject any
Voting Securities to any proxy, arrangement or agreement with respect to the
voting of such securities or other agreement having a similar effect, except
as provided in Section 3.3;
(g) initiate or propose any stockholder proposal or make, or in any way
participate in, directly or indirectly, any "solicitation" of "proxies" to
vote, or seek to influence any Person with respect to the voting of, any
Voting Securities, or become a "participant" in a "solicitation" (as such
terms are defined in Regulation 14A under the Exchange Act) with respect to
Voting Securities;
(h) form, join or in any way participate in a group (other than a group
comprised exclusively of the members of the Shareholder Group) of Persons
acquiring, holding, voting or disposing of any Voting Securities which would
be required under Section 13(d) of the Exchange Act and the rules and
regulations thereunder to file a statement on Schedule 13D with the SEC as a
"person" within the meaning of Section 13(d)(3) of the Exchange Act (or any
successor statute or regulation);
(i) propose, or agree to, or enter into any discussions, negotiations or
arrangements with, or provide any confidential information to, any third
party with respect to any of the foregoing;
(j) make any statement or disclosure inconsistent with the foregoing; or
(k) propose or seek an amendment or waiver of any of the provisions of
this Section 3.1.
Section 3.2 TERMINATION OF THE STANDSTILL RESTRICTIONS. The restrictions
set forth in Section 3.1 shall terminate three years following such time as the
Shareholder Group Shares represent less than 5% of the then outstanding shares
of Common Stock.
Section 3.3 VOTING. Until the twentieth anniversary of the Closing or, if
earlier, such time as the Shareholder Group Shares represent less than 5% of the
then outstanding shares of Common Stock, each member of the Shareholder Group
shall (i) vote at any stockholder meeting or in connection with any action by
written consent at or in which Voting Securities are entitled to vote, on any
matter that may be presented, all of its Shareholder Group Shares in the same
proportion as the votes cast by or on behalf of the holders of Voting Securities
other than the members of the Shareholder Group; PROVIDED that, notwithstanding
the above, (A) in connection with any election of Directors by the stockholders
of the Company, the Shareholder Group members shall vote all of the Shareholder
Group Shares in favor of the election of the full slate of Director nominees
recommended by the Board to the stockholders of the Company, which slate shall
include the individual(s) nominated pursuant to Section 3.4, and (B) at any time
when the Shareholder Group Shares represent less than 10% of the then
outstanding shares of Common Stock, the Shareholder Group members shall be
entitled to vote the Shareholder Group Shares in their discretion on any Select
Voting Matter that may be presented to the stockholders of the Company and
(ii) be present in person or represented by proxy, at all meetings of
stockholders of the Company so that all Shareholder Group Shares shall be
counted for the purpose of determining the presence of a quorum at such
meetings. For the avoidance of doubt, it is understood and agreed that nothing
contained in Section 3.1 shall limit any Shareholder Group member from
exercising its voting rights as permitted under this Section 3.3 with respect to
Director elections and Select Voting Matters.
Section 3.4 BOARD OF DIRECTORS. (a)(i) For so long as the Shareholder
Group Shares represent 50% or more of the Original Issued Shares, the original
Shareholder Group Directors or any replacements therefor (one of whom shall be
the Chief Executive Officer of Parent and one of whom shall be an individual
mutually agreed upon by Parent and the Company from amongst a pool of the Parent
Board Members (a "PARENT DIRECTOR"), provided that Parent and the Company shall
be entitled, should they agree, to select a nominee not from amongst such pool
in lieu of such Parent Director) shall be included in the slate of nominees
recommended by the Board to stockholders for election as
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Directors at each annual meeting of stockholders commencing with the first
annual meeting of stockholders following the Closing, (ii) for so long as the
Shareholder Group Shares represent 5% or more of the then outstanding shares of
Common Stock but less than 50% of the Original Issued Shares, the Chief
Executive Officer of Parent shall be included in the slate of nominees
recommended by the Board to stockholders for election as a Director at each
annual meeting of stockholders commencing with the first annual meeting of
stockholders following the Closing and (iii) if the Shareholder Group Shares
represent less than 5% of the then outstanding shares of Common Stock, Parent
shall not be entitled to participate in the selection of any nominees for
election to the Board; PROVIDED, that in the event the size of the Board shall
be increased to at least 16 but fewer than 20 individuals, (A) under the
circumstances set forth in clause (i) above, such slate of nominees shall
include, in addition to the nominees contemplated by such clause (i), one
additional Parent Director (or in lieu of such Parent Director another
individual not from amongst the pool of Parent Board Members if mutually agreed
upon by Parent and the Company) and (B) for so long as the Shareholder Group
Shares represent 10% or more of the then outstanding shares of Common Stock but
less than 50% of the Original Issued Shares, such slate of nominees shall
include the Chief Executive Officer of Parent and one Parent Director (or in
lieu of such Parent Director another individual not from amongst the pool of
Parent Board Members if Parent and the Company so mutually agree); and provided,
further, that in the event the size of the Board is increased to at least 20
individuals, (A) under the circumstances set forth in clause (i) above, such
slate of nominees shall include, in addition to the nominees contemplated by
such clause (i), two additional Parent Directors (or in lieu of either of such
Parent Directors another individual or individuals not from amongst the pool of
Parent Board Members if mutually agreed to by Parent and the Company) and
(B) under the circumstances set forth in clause (ii) above, such slate of
nominees shall include, in addition to the Chief Executive Officer of Parent,
one Parent Director (or in lieu of such Parent Director another individual not
from amongst the pool of Parent Board Members if Parent and the Company so
mutually agree). Parent shall provide in a timely manner all information
required by Regulation 14A and Schedule 14A under the Exchange Act with respect
to each such nominee.
(b) In the event that any Shareholder Group Director shall cease to
serve as a Director for any reason other than the fact that Parent no longer
has a right to participate in the selection of nominees to the Board (i) if
the vacancy is created by a change in the Chief Executive Officer of Parent,
the vacancy created thereby shall be filled by the new Chief Executive
Officer of Parent, (ii) if the vacancy is created by the departure of a
Parent Director, the vacancy created thereby shall be filled by a Parent
Director (or in lieu of such Parent Director another individual not from
amongst the pool of Parent Board Members if Parent and the Company shall so
mutually agree) or (iii) otherwise, the vacancy created thereby shall be
filled by a Parent Director (or in lieu of a Parent Director another
individual not from amongst the pool of Parent Board Members if mutually
agreed upon by Parent and the Company).
(c) Notwithstanding anything in this Agreement to the contrary,
(i) upon the first date that the Shareholder Group Shares represent 5% or
more of the then outstanding Shares of Common Stock but less than 50% of the
Original Issued Shares (A) at such time when there are 15 or fewer Directors
serving on the Board, the Shareholder Group members shall use their
reasonable best efforts to cause the Shareholder Group Director who is not
the Chief Executive Officer of Parent to resign immediately and (B) at such
time when there are 20 or more Directors serving on the Board, the
Shareholder Group members shall use their reasonable best efforts to cause
the Shareholder Group Directors other than the Chief Executive Officer and
one other Shareholder Group Director to resign immediately, (ii) upon the
first date that the Shareholder Group Shares represent 10% or more of the
then outstanding Shares of Common Stock but less than 50% of the Original
Issued Shares at such time when there are at least 16 but fewer than 20
Directors serving on the Board, the Shareholder Group members shall use
their reasonable best efforts to cause one Shareholder Group Director other
than the Chief Executive Officer of Parent to resign
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immediately, (iii) upon the first date that the Shareholder Group Shares
represent 5% or more but less than 10% of the then outstanding Shares of
Common Stock at such time when there are at least 16 but fewer than 20
Directors serving on the Board, the Shareholder Group members shall use
their reasonable best efforts to cause the Shareholder Group Director other
than the Chief Executive Officer of Parent to resign immediately and
(iv) upon the first date that the Shareholder Group Shares represent less
than 5% of the then outstanding shares of Common Stock, the Shareholder
Group members shall use their reasonable best efforts to cause any
Shareholder Group Director(s) then serving on the Board to resign
immediately.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Shareholder Group Directors shall be permitted to provide to
Parent information concerning the Company and its Subsidiaries that such
individuals receive in their capacity as Directors, provided that with
respect to any such information provided, Parent shall, and it hereby agrees
to, be bound by the same restrictions on disclosure and use of confidential
information as apply to such Shareholder Group Directors in their capacity
as Directors.
Section 3.5 PROVISION OF INFORMATION. The Company shall provide to Parent
in a reasonably timely manner such information regarding the Company and its
Subsidiaries as Parent requests and which is necessary in order for Parent to
prepare (a) the reports and accounts of Parent required under applicable stock
exchange rules and regulations or (b) the reports of Parent required to be filed
under the Exchange Act, provided that with respect to such information provided,
Parent shall, and it hereby agrees to, be bound by the same restrictions on
disclosure and use of confidential information as apply to a Shareholder Group
Director in its capacity as a Director, it being understood and agreed that
nothing contained in this Section 3.5 shall prohibit Parent from including any
such information in such reports under applicable stock exchange rules and
regulations or under the Exchange Act as and to the extent required to be so
included.
ARTICLE IV
TRANSFER RESTRICTIONS; LIQUIDITY
Section 4.1 TRANSFER RESTRICTIONS. Without the prior consent of the Board,
the members of the Shareholder Group shall not Transfer any Shareholder Group
Shares except for:
(a) Transfers made prior to the eight-month anniversary of the Closing
or following the fourteen-month anniversary of the Closing (i) in an
underwritten public offering in a manner designed to result in a wide
distribution or (ii) in one or more privately negotiated transactions exempt
from the registration requirements of the Securities Act; PROVIDED that in
each case no Transfer under this clause (a) is made, to the knowledge of the
Shareholder Group (without inquiry in the case of a Transfer pursuant to
clause (i)), to any Person or group that, after giving effect to such
Transfer, would Beneficially Own Voting Securities representing more than 5%
of the Voting Power, except that in the case of a Transfer to a Person
specified in Rule 13d-1(b)(1)(ii) promulgated under the Exchange Act that
would be eligible based on such Person's status and passive intent with
respect to the ownership, holding and voting of such Voting Securities to
report such Person's ownership of Voting Securities on Schedule 13G
(assuming such Person owned a sufficient number of such Voting Securities to
require such filing), no Transfer under this clause (a) is made to any such
Person that, after giving effect to such Transfer, would Beneficially Own
Voting Securities representing 10% or more of the Voting Power; AND PROVIDED
FURTHER, that in the case of a Transfer pursuant to clause (i), the members
of the Shareholder Group shall use their reasonable best efforts to cause
the underwriter(s) of such offering to agree to use their reasonable efforts
to prevent any purchase of shares in such offering by any Person or group
that would, upon such purchase, exceed either of the foregoing thresholds;
(b) Transfers made following the fourteen-month anniversary of the
Closing pursuant to Rule 144 under the Securities Act;
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(c) Transfers pursuant to any business combination, tender or exchange
offer to acquire Common Stock or other extraordinary transaction that the
Board has recommended, or pursuant to a tender or exchange offer that the
Board has not recommended but only after such time as a majority of the
shares of Common Stock outstanding have been tendered into such offer and
after all material conditions with respect to such offer (including any
financing condition, any minimum condition with respect to number of shares
tendered and any condition with respect to removal of the Company Rights
Plan or any other takeover protections) have been satisfied or irrevocably
waived by the offeror; PROVIDED that no Shareholder Group Shares shall be
tendered into any tender offer or exchange offer not recommended by the
Board prior to the time all such material conditions (other than any such
condition that can be satisfied only at the closing of such offer) have been
satisfied or irrevocably waived by the offeror;
(d) Transfers to the Company or a Subsidiary of the Company;
(e) Transfers to a bona fide financial institution acting in the
capacity of trustee ("TRUSTEE") with respect to an exchangeable or
convertible security of Parent (the "SECURITY"); provided, that the terms of
the Security shall be consistent with the rights, restrictions and
limitations set forth in this Agreement and the powers of the Trustee shall
be consistent therewith; and PROVIDED FURTHER that the distribution by
Parent of the Security and the underlying Shareholder Group Shares otherwise
complies with the restrictions on Transfer contained in this Section 4.1;
and
(f) Transfers by a member of the Shareholder Group to Parent or to any
controlled Affiliate of Parent or to any new holding company of the
Shareholder Group, PROVIDED that prior thereto such transferee agrees in
writing to acquire and hold such transferred shares subject to all the
provisions of this Agreement as if such transferee were an original member
of the Shareholder Group.
Any certificates for shares of Common Stock issued in respect of any
Transfer pursuant to Section 4.1(a)(ii) or Section 4.1(f) shall bear a legend or
legends referencing restrictions under the Securities Act on transfer of such
shares and, in the case of a Transfer under Section 4.1(f), under this
Agreement; PROVIDED, that the holder of any certificate(s) bearing any such
legend referencing restrictions under the Securities Act shall be entitled to
receive from the Company new certificates for a like number of shares of Common
Stock not bearing such legend upon the request of such holder and upon delivery
to the Company of an opinion of counsel to such holder, which opinion is
reasonably satisfactory, in form and substance, to the Company and its counsel,
that the restriction referenced in such legend is no longer required in order to
ensure compliance with the Securities Act.
Prior to the fourteen-month anniversary of the Closing Date, no Shareholder
Group member nor any of their respective directors and officers shall, and each
Shareholder Group member shall use its reasonable best efforts to cause its and
its Subsidiaries' employees, agents and representatives, including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries not to, make any public statement or announcement regarding, or
cause to be known by the public or the investment community generally, any plan
or intention of any Shareholder Group member to sell or otherwise dispose of,
prior to such fourteen-month anniversary of the Closing, any Registrable Shares
(or any securities convertible into or exchangeable for any Registrable Shares)
to the public or any third party, other than sales or dispositions that are
intended to be consummated prior to the eight-month anniversary of the Closing
Date.
Section 4.2 COMPANY REPURCHASE. (a) Until the twentieth anniversary of the
Closing or, if earlier, such time as the Shareholder Group Shares represent less
than 5% of the then outstanding shares of Common Stock, if the Company
purchases, during any fiscal year of the Company, shares of Common Stock whether
by open market repurchase or otherwise, other than by tender offer or in
connection with the Company's employee benefit plans (a "REPURCHASE"), the
Company shall, within 30 days after the end of such fiscal year (other than the
first fiscal year end occurring after the Closing Date), deliver to Parent, on
behalf of the Shareholder Group, a written offer to purchase Shareholder
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Group Shares from the members of the Shareholder Group on the terms set forth
below (a "REPURCHASE OFFER"). Each Repurchase Offer shall offer to purchase a
percentage of the Shareholder Group Shares as of the end of such fiscal year
equal to the percentage that the shares of Common Stock repurchased from the
Beneficial Owners of shares of Common Stock other than the Shareholder Group
(the "PUBLIC SHARES") during such fiscal year (or, in the case of the Repurchase
Offer made in respect of the first full fiscal year of the Company occurring
after the Closing Date, during the period beginning on the day following the
Closing Date and ending on the fiscal year end of the first full fiscal year
occurring after the Closing Date) represents of the total average outstanding
Public Shares during such fiscal year or period, at a price per share equal to
the weighted average per share purchase price paid for Repurchases during such
fiscal year or period. Each Repurchase Offer shall set forth the calculation of
such percentage, average number of shares outstanding and the weighted average
per share purchase price. Parent shall provide notice to the Company within
15 days of receipt of a Repurchase Offer of whether the Shareholder Group
accepts such Repurchase Offer, which notice shall specify the total number of
Shareholder Group Shares as to which the Repurchase Offer is accepted, the name
or names of the selling Shareholder Group members and the number of Shareholder
Group Shares to be sold by each such member.
(b) Any purchase of Shareholder Group Shares by the Company pursuant to
this Section 4.2 shall be on a mutually determined closing date which shall
not be more than 20 Business Days after Parent delivers the notice of
acceptance pursuant to Section 4.2(a). On the closing date, the selling
members of the Shareholder Group shall deliver the shares of Common Stock
being sold and documentation reasonably satisfactory to the Company
evidencing the transfer of such Common Stock. The purchase price shall be
paid by wire transfer of immediately available funds to an account or
accounts specified by Parent by notice given no less than two Business Days
prior to the closing date.
(c) The Company may assign any of its purchase rights under this
Section 4.2 to any Subsidiary of the Company without the consent of the
Shareholder Group, provided, however, that no such assignment shall relieve
the Company of any of its obligations thereunder.
Section 4.3 OBLIGATION TO DISPOSE OF SHAREHOLDER GROUP SHARES. The members
of the Shareholder Group shall, and hereby agree to, prior to the tenth
anniversary of the Closing Date, sell, transfer or otherwise dispose of
Shareholder Group Shares, in each case in accordance with Section 4.1, such that
on and as of such tenth anniversary of the Closing Date the Shareholder Group
Shares held by the Shareholder Group members shall represent less than 25% of
the Original Issued Shares.
ARTICLE V
REGISTRATION RIGHTS
Section 5.1 DEMAND REGISTRATIONS. (a) Subject to Section 5.3, at any time
prior to the six-month anniversary of the Closing or following the
fourteen-month anniversary of the Closing, Parent, on behalf of the Shareholder
Group, may, on not more than twelve (12) separate occasions in the aggregate and
not more frequently than once during any nine-month period, require the Company
to file a registration statement under the Securities Act in respect of all or a
portion of the Registrable Shares (so long as such request covers Registrable
Shares with a Market Value on the date of the Demand Request of at least
$300 million if the aggregate Market Value of all Registrable Shares on such
date is at least $300 million or, if such Market Value is less than
$300 million, so long as such request covers all Registrable Shares), by
delivering to the Company written notice stating that such right is being
exercised, specifying the number of shares of Common Stock to be included in
such registration (the shares subject to such request, the "DEMAND SHARES") and
describing the intended method of distribution thereof, which may include an
underwritten offering (a "DEMAND REQUEST"). Subject to Section 5.7, upon
receiving a Demand Request, the Company shall (i) use reasonable best efforts to
file as promptly as reasonably practicable a registration statement on such form
as the
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Company may reasonably deem appropriate (provided that the Company shall not be
obligated to register any securities on a "shelf" registration statement or
otherwise to register securities for offer or sale on a continuous or delayed
basis) providing for the registration of the sale of such Demand Shares pursuant
to the intended method of distribution (a "DEMAND REGISTRATION") and (ii) after
the filing of an initial version of the registration statement, use reasonable
best efforts to cause such registration statement to be declared effective under
the Securities Act as promptly as practicable after the date of filing of such
registration statement.
(b) Notwithstanding anything in this Agreement to the contrary, the
Company shall be entitled to postpone and delay, for reasonable periods of
time, but in no event more than an aggregate of 60 days during any 12-month
period (a "BLACKOUT PERIOD"), the filing or effectiveness of any Demand
Registration if the Company shall determine that any such filing or the
offering of any Registrable Shares would (i) in the good faith judgment of
the Board, impede, delay or otherwise interfere with any pending or
contemplated material acquisition, corporate reorganization or other similar
material transaction involving the Company, (ii) based upon advice from the
Company's investment banker or financial advisor, adversely affect any
pending or contemplated financing, offering or sale of any class of
securities by the Company or (iii) in the good faith judgment of the Board,
require disclosure of material non-public information (other than
information relating to an event described in clauses (i) or (ii) above)
which, if disclosed at such time, would be harmful to the best interests of
the Company and its stockholders; PROVIDED, HOWEVER, that the Company shall
give written notice to Parent of its determination to postpone or delay the
filing of any Demand Registration; and PROVIDED, FURTHER, that in the event
that the Company proposes to register Common Stock, whether or not for sale
for its own account, during a Blackout Period, the Shareholder Group shall
have the right to exercise its rights under Section 5.2 of this Agreement
with respect to such registration, subject to the limitations contained in
this Agreement on the exercise of such rights. Upon notice by the Company to
Parent of any such determination, the members of the Shareholder Group shall
keep the fact of any such notice strictly confidential, and during any
Blackout Period, promptly halt any offer, sale, trading or transfer by it of
any Common Stock for the duration of the Blackout Period set forth in such
notice (or until such Blackout Period shall be earlier terminated in writing
by the Company) and promptly halt any use, publication, dissemination or
distribution of the Demand Registration, each prospectus included therein,
and any amendment or supplement thereto by it for the duration of the
Blackout Period set forth in such notice (or until such Blackout Period
shall be earlier terminated in writing by the Company) and, if so directed
by the Company, will deliver to the Company any copies then in its
possession of the prospectus covering such Registrable Shares.
(c) In connection with an underwritten offering, if the managing
underwriter or co-managing underwriter reasonably and in good faith shall
have advised the Company or Parent that, in its opinion, the number of
Demand Shares subject to a Demand Request exceeds the number which can be
sold in such offering, the Company shall include in such registration the
number of Demand Shares that, in the opinion of such managing underwriter or
underwriters, can be sold in such offering; PROVIDED that if as a result of
any reduction pursuant to this paragraph (c) the aggregate Market Value of
the Demand Shares to be so included is less than $300 million, the
Shareholder Group may withdraw such Demand Request with respect to all
Demand Shares covered thereby and such registration shall not count for the
purposes of determining the number of Demand Registrations to which the
Shareholder Group is entitled under Section 5.1(a).
(d) In connection with any underwritten offering, the managing
underwriter for such Demand Registration shall be selected by Parent,
PROVIDED that such managing underwriter shall be a nationally recognized
investment banking firm and shall be reasonably acceptable to the Company.
The Company may, at its option, select a nationally recognized investment
banking firm reasonably acceptable to Parent to act as co-managing
underwriter.
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(e) Nothing in this Article V shall affect or supersede any of the
transfer restrictions set forth in Article IV hereof or any of the other
provisions of this Agreement.
Section 5.2 PIGGY-BACK REGISTRATION. (a) If, at any time following the
Closing, the Company proposes to register any Common Stock under the Securities
Act on its behalf or on behalf of any of its stockholders, on a form and in a
manner that would permit registration of the Registrable Shares (other than in
connection with dividend reinvestment plans, rights offerings or a registration
statement on Form S-4 or S-8 or any similar successor form), the Company shall
give reasonably prompt written notice to Parent, on behalf of the Shareholder
Group, of its intention to do so, which notice shall be given to Parent not less
than 15 Business Days prior to the contemplated filing date for such
registration statement. Upon the written election of Parent, on behalf of the
Shareholder Group (a "PIGGY-BACK REQUEST"), given within 10 Business Days
following the receipt by Parent of any such written notice (which election shall
specify the number of the Registrable Shares intended to be disposed of by the
Shareholder Group), the Company shall include in such registration statement (a
"PIGGY-BACK REGISTRATION"), subject to the provisions of this Section 5.2 and,
in the case of a registration on behalf of any of the Company's stockholders,
subject to the rights of such stockholders, such number of the Registrable
Shares as shall be set forth in such Piggy-Back Request. No registration
effected under this Section 5.2 shall relieve the Company of its obligations to
effect a Demand Registration required under Section 5.1.
(b) In the event that the Company proposes to register Common Stock in
connection with an underwritten offering and a nationally recognized
investment banking firm selected by the Company to act as managing
underwriter thereof reasonably and in good faith shall have advised the
Company, a member of the Shareholder Group, or any other holder of Common
Stock intending to offer Common Stock in the offering (each, an "OTHER
HOLDER") that, in its opinion, the inclusion in the registration statement
of some or all of the Registrable Shares sought to be registered by the
Shareholder Group would adversely affect the price or success of the
offering, the Company shall include in such registration statement such
number of shares of Common Stock as the Company is advised can be sold in
such offering without such an effect (the "MAXIMUM NUMBER") as follows and
in the following order of priority: (A) FIRST, such number of shares of
Common Stock as the Company intended to be registered and sold by the
Company if such registration was initiated by the Company or, if such
registration is on behalf of any Other Holders, such number of shares of
Common Stock as such Other Holders intended to be registered and sold, and
(B) SECOND, if and to the extent that the number of shares of Common Stock
to be registered under clause (A) is less than the Maximum Number, such
number of shares of Common Stock as the Shareholder Group, the Company (if
such registration was not initiated by the Company) and any Other Holders
(or additional Other Holders) shall have intended to register which, when
added to the number of shares of Common Stock to be registered under
clause (A), is less than or equal to the Maximum Number, on a PRO RATA basis
according to the total number of shares of Common Stock intended to be
registered by each such Person.
Section 5.3 TERMINATION OF REGISTRATION OBLIGATION. Notwithstanding
anything in this Agreement to the contrary, if at any time the Company shall
obtain a written opinion of legal counsel reasonably satisfactory to Parent to
the effect that the Registrable Shares may be publicly offered for sale in the
United States by the Shareholder Group without restriction as to manner of sale
and amount of securities sold and without registration under the Securities Act,
the Company shall no longer be obligated to file or maintain a registration
statement with respect to the Registrable Shares pursuant to this Agreement,
unless at a later date Parent delivers to the Company an opinion of counsel to
Parent, which opinion is reasonably satisfactory in form and substance to
counsel to the Company, that registration is then required as a result of a
change in applicable law.
Section 5.4 REGISTRATION PROCEDURES. (a) In connection with each
registration statement prepared pursuant to this Article V, and in accordance
with the intended method or methods of distribution of
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the Registrable Shares as described in such registration statement, the Company
shall, as soon as reasonably practicable and to the extent practicable:
(i) prepare and file with the SEC a registration statement on an
appropriate registration form of the SEC and use reasonable efforts to
cause such registration statement to become and remain effective
promptly, which registration statement shall comply as to form in all
materials respects with the requirements of the applicable form and
include all financial statements required by such form to be filed
therewith; PROVIDED that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall
furnish to one counsel selected by Parent, on behalf of the Shareholder
Group, draft copies of all such documents proposed to be filed at least
ten Business Days (in the case of a Demand Registration) or seven days
(in the case of any other registration) prior to such filing, which
documents will be subject to the reasonable review and comment of Parent
and its agents and representatives and the underwriters, if any, and the
Company shall not file any registration statement in respect of a Demand
Registration or amendment or supplement thereto to which Parent or the
underwriters, if any, shall reasonably object;
(ii) furnish without charge to the members of the Shareholder Group,
and the underwriters, if any, at least one conformed copy of the
registration statement and each post-effective amendment or supplement
thereto (including all schedules and exhibits but excluding all documents
incorporated or deemed incorporated therein by reference, unless
requested in writing by Parent, on behalf of the Shareholder Group, or an
underwriter) and such number of copies of the registration statement and
each amendment or supplement thereto and the summary, preliminary, final,
amended or supplemented prospectuses included in such registration
statement as Parent or such underwriter may reasonably request in order
to facilitate the public sale or other disposition of the Registrable
Shares being sold by the Shareholder Group (the Company hereby consents
to the use in accordance with the U.S. securities laws of such
registration statement (or post-effective amendment thereto) and each
such prospectus (or preliminary prospectus or supplement thereto) by each
member of the Shareholder Group and the underwriters, if any, in
connection with the offering and sale of the Registrable Shares covered
by such registration statement or prospectus);
(iii) use reasonable best efforts to keep such registration statement
effective for the earlier of (A) 60 days and (B) such time as all of the
securities covered by the registration statement have been disposed (the
"EFFECTIVE PERIOD"); prepare and file with the SEC such amendments,
post-effective amendments and supplements to the registration statement
and the prospectus as may be necessary to maintain the effectiveness of
the registration for the Effective Period and to cause the prospectus
(and any amendments or supplements thereto) to be filed;
(iv) use reasonable best efforts to register or qualify the
Registrable Shares covered by such registration statement under such
other securities or "blue sky" laws of such jurisdictions in the United
States as are reasonably necessary, keep such registrations or
qualifications in effect for so long as the registration statement
remains in effect, and do any and all other acts and things which may be
reasonably necessary to enable the Shareholder Group or any underwriter
to consummate the disposition of the Registrable Shares in such
jurisdictions; PROVIDED, HOWEVER, that in no event shall the Company be
required to qualify to do business as a foreign corporation in any
jurisdiction where it would not, but for the requirements of this
subparagraph (iv), be required to be so qualified; to execute or file any
general consent to service of process under the laws of any jurisdiction;
to take any action that would subject it to service of process in suits
other than those arising out of the offer and sale of the securities
covered by the registration statement; or to subject itself to taxation
in any jurisdiction where it would not otherwise be obligated to do so,
but for this paragraph (iv);
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(v) use reasonable best efforts to cause the Registrable Shares to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the Shareholder Group to
consummate the disposition of the Registrable Shares;
(vi) use reasonable best efforts to cause all Registrable Shares
covered by such registration statement to be listed on the NYSE or on the
principal securities exchange on which the Common Stock is then listed,
or if no similar securities are then so listed, cause all such
Registrable Shares to be listed on a United States national securities
exchange or secure designation of each such Registrable Share as a Nasdaq
National Market "national market system security" within the meaning of
Rule 11 Aa2-1 of the SEC or secure National Association of Securities
Dealers Automated Quotation authorization for such shares and, without
limiting the generality of the foregoing, use reasonable best efforts to
take such actions as may be required by the Company as the issuer of such
Registrable Shares in order to facilitate the registration of at least
two market makers as such with respect to such shares with the National
Association of Securities Dealers, Inc.;
(vii) promptly notify Parent and the managing underwriter or
underwriters, if any, after becoming aware thereof, (A) when the
registration statement or any related prospectus or any amendment or
supplement thereto has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become
effective, (B) of any request by the SEC or any United States state
securities authority for amendments or supplements to the registration
statement or the related prospectus or for additional information,
(C) of the issuance by the SEC of any stop order suspending the
effectiveness of the registration statement or the initiation of any
proceedings for that purpose, (D) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose or (E) within the Effective Period of the
happening of any event or the existence of any fact which makes any
statement in the registration statement or any post-effective amendment
thereto, prospectus or any amendment or supplement thereto, or any
document incorporated therein by reference untrue in any material respect
or which requires the making of any changes in the registration statement
or post-effective amendment thereto or any prospectus or amendment or
supplement thereto so that they will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(viii) during the Effective Period, use its reasonable best efforts
to obtain, as promptly as practicable, the withdrawal of any order
enjoining or suspending the use or effectiveness of the registration
statement or any post-effective amendment thereto or the lifting of any
suspension of the qualification of any of the Registrable Shares for sale
in any jurisdiction;
(ix) deliver promptly to Parent and the managing underwriters, if
any, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the
SEC or its staff with respect to the registration statement and permit
Parent to do such investigation, with respect to information contained in
or omitted from the registration statement as it deems reasonably
necessary for the purpose of conducting customary due diligence with
respect to the Company, PROVIDED any such investigation shall not
interfere unreasonably with the Company's business;
(x) use reasonable best efforts to provide and cause to be maintained
a transfer agent and registrar for all such Registrable Shares covered by
such registration statement not later than the effective date of such
registration statement;
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(xi) cooperate with the Shareholder Group and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing such Registrable Shares to be
sold under the registration statement in a form eligible for deposit with
the Depository Trust Corporation not bearing any restrictive legends and
not subject to any stop transfer order with any transfer agent, and cause
such Registrable Shares to be issued in such denominations and registered
in such names as the managing underwriters, if any, may request in
writing or, if not an underwritten offering, in accordance with the
instructions of the Shareholder Group, in each case at least two Business
Days prior to any sale of Registrable Shares;
(xii) in the case of an underwritten offering, use reasonable best
efforts to enter into an underwriting agreement customary in form and
scope for underwritten secondary offerings of the nature contemplated by
the applicable registration statement;
(xiii) use reasonable best efforts to obtain an opinion from the
Company's counsel and a "cold comfort" letter from the Company's
independent public accountants (and, if necessary, any other independent
certified public accountants of any Subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the registration
statement) in customary form and covering such matters as are customarily
covered by such opinions and "cold comfort" letters in connection with an
offering of the nature contemplated by the applicable registration
statement;
(xiv) not later than the effective date of the applicable
registration statement, provide a CUSIP number for all Registrable
Shares;
(xv) in connection with any underwritten offering of Registrable
Shares having a Market Value on the date of the applicable Demand Request
of at least $500 million, provide reasonable assistance to the
underwriters in the marketing of such Registrable Shares, including by
making reasonably available its employees and personnel and by
participating reasonably in road shows; and
(xvi) use reasonable best efforts to provide to counsel to Parent and
to the managing underwriters, if any, no later than the time of filing of
any document which is to be incorporated by reference into the
registration statement or prospectus (after the initial filing of such
registration statement), copies of any such document.
(b) In the event that the Company would be required, pursuant to
Section 5.4(a)(vii)(E) above, to notify Parent or the managing underwriter
or underwriters, if any, of the happening of any event specified therein,
the Company shall, subject to the provisions of Section 5.1(b) hereof, as
promptly as practicable, prepare and furnish to the Shareholder Group and to
each such underwriter a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Registrable Shares that have been registered pursuant to this Agreement,
such prospectus shall not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. Parent, on behalf of the Shareholder Group,
agrees that, upon receipt of any notice from the Company pursuant to
Section 5.4(a)(vii)(E) hereof, Parent shall, and shall use its reasonable
best efforts to cause any sales or placement agent or agents for the
Registrable Shares and the underwriters, if any, to forthwith discontinue
disposition of the Registrable Shares until such Person shall have received
copies of such amended or supplemented prospectus and, if so directed by the
Company, to destroy or to deliver to the Company all copies, other than
permanent file copies, then in its possession of the prospectus (prior to
such amendment or supplement) covering such Registrable Shares as soon as
practicable after Parent's receipt of such notice.
B-14
(c) Parent shall furnish to the Company in writing such information
regarding the Shareholder Group and its intended method of distribution of
the Registrable Shares as the Company may from time to time reasonably
request in writing, but only to the extent that such information is required
in order for the Company to comply with its obligations under all applicable
securities and other laws and to ensure that the prospectus relating to such
Registrable Shares conforms to the applicable requirements of the Securities
Act and the rules and regulations thereunder. Parent shall notify the
Company as promptly as practicable of any inaccuracy or change in
information previously furnished by Parent to the Company or of the
occurrence of any event, in either case as a result of which any prospectus
relating to the Registrable Shares contains or would contain an untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and promptly
furnish to the Company any additional information required to correct and
update any previously furnished information or required so that such
prospectus shall not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) (i) The members of the Shareholder Group agree not to effect any
public sale or distribution of any Registrable Shares, including any sale
pursuant to Rule 144 under the Securities Act, and not to effect any such
public sale or distribution of any other equity security of the Company or
of any security convertible into or exchangeable or exercisable for any
equity security of the Company (in each case, other than as part of such
underwritten public offering) during the 10 days prior to, and during the
60 day period (or such longer period as Parent agrees with the underwriter
of such offering) beginning on, the consummation of any underwritten public
offering of the Registrable Shares covered by a registration statement
referred to in Section 5.2 to the extent the Shareholder Group's Registrable
Shares are being sold thereunder.
(ii) The Company hereby agrees that if it shall previously have
received a request pursuant to Section 5.1 or 5.2 for registration of
Registrable Shares in an underwritten offering, and if such previous
registration shall not have been withdrawn or abandoned, the Company
shall not sell, transfer, or otherwise dispose of, any Common Stock, or
any other equity security of the Company or any security convertible into
or exchangeable for any equity security of the Company until the earlier
of (A) 60 days after the effective date of such registration statement
and (B) such time as all of the Registrable Shares covered by such
registration statement have been distributed, other than (x) as part of
such underwritten offering, (y) pursuant to a registration statement on
Form S-8 or Form S-4 under the Securities Act or any successor or similar
form or (z) in one or more private transactions that would not interfere
with the method of distribution contemplated by such registration
statement.
(e) In the case of any registration under Section 5.1 pursuant to an
underwritten offering, or in the case of a registration under Section 5.2 if
the Company has entered into an underwriting agreement in connection
therewith, all shares of Common Stock to be included in such registration
shall be subject to the applicable underwriting agreement and no Person may
participate in such registration unless such Person agrees to sell such
Person's securities on the basis provided therein and completes and executes
all questionnaires, indemnities, underwriting agreements and other documents
(other than powers of attorney) which must be executed in connection
therewith, and provides such other information to the Company or the
underwriter as may be reasonably requested to register such Person's Common
Stock.
Section 5.5 REGISTRATION EXPENSES. The members of the Shareholder Group
shall bear all agent fees and commissions, underwriting discounts and
commissions, and fees and disbursements of their counsel and accountants, in
connection with any registration of any Registrable Shares pursuant to
B-15
Section 5.1 or 5.2. The Company shall bear all other fees and expenses in
connection with any registration statement pursuant to Section 5.1 or 5.2,
including all registration and filing fees, all printing costs, and all fees and
expenses of counsel and accountants for the Company.
Section 5.6 INDEMNIFICATION; CONTRIBUTION. (a) The Company shall, and it
hereby agrees to, indemnify and hold harmless each member of the Shareholder
Group and its respective directors, officers, employees and controlling Persons,
if any, and each underwriter, its partners, directors, officers, employees and
controlling Persons, if any, in any offering or sale of the Registrable Shares,
against any losses, claims, damages or liabilities, actions or proceedings
(whether commenced or threatened) in respect thereof and expenses (including
reasonable fees of counsel) (collectively, "CLAIMS") to which each such
indemnified party may become subject, insofar as such Claims (including any
amounts paid in settlement effected with the consent of the Company as provided
herein), or actions or proceedings in respect thereof, arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any registration statement, or any preliminary or final prospectus
contained therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and the Company shall,
and it hereby agrees to, reimburse periodically Parent or any such underwriter
for any legal or other out-of-pocket expenses reasonably incurred by them in
connection with investigating or defending any such Claims; PROVIDED, HOWEVER,
that the Company shall not be liable to any such Person in any such case to the
extent that any such Claims arise out of or are based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, or preliminary or final prospectus, or amendment or
supplement thereto, in reliance upon and in conformity with information
furnished to the Company by the Shareholder Group or any underwriter or
representative of the Shareholder Group expressly for use therein, or by the
Shareholder Group's failure to furnish the Company, upon request, with the
information with respect to the Shareholder Group, or any underwriter or
representative of the Shareholder Group, or the Shareholder Group's intended
method of distribution, that is the subject of the untrue statement or omission
or if the Company shall sustain the burden of proving that the Shareholder Group
or such underwriter sold securities to the Person alleging such Claims without
sending or giving, at or prior to the written confirmation of such sale, a copy
of the applicable prospectus (excluding any documents incorporated by reference
therein) or of the applicable prospectus, as then amended or supplemented
(excluding any documents incorporated by reference therein), if the Company had
previously furnished copies thereof to the Shareholder Group or such
underwriter, and such prospectus corrected such untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement.
(b) The members of the Shareholder Group shall, and hereby agree,
severally and not jointly, to (i) indemnify and hold harmless the Company,
its directors, officers, employees and controlling Persons, if any, and each
underwriter, its partners, officers, directors, employees and controlling
Persons, if any, in any offering or sale of Registrable Shares, against any
Claims to which each such indemnified party may become subject, insofar as
such Claims (including any amounts paid in settlement as provided herein),
or actions or proceedings in respect thereof, arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact contained
in such registration statement, or any preliminary or final prospectus
contained therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by the
Shareholder Group expressly for use therein, and (ii) reimburse the Company
for any legal or
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other out-of-pocket expenses reasonably incurred by the Company in
connection with investigating or defending any such Claim.
(c) Promptly after receipt by an indemnified party under Section 5.6(a)
or Section 5.6(b) of written notice of the commencement of any action or
proceeding for which indemnification under Section 5.6(a) or Section 5.6(b)
may be requested, such indemnified party shall notify such indemnifying
party in writing of the commencement of such action or proceeding; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party in respect of such
action or proceeding hereunder unless the indemnifying party was materially
prejudiced by such failure of the indemnified party to give such notice, and
in no event shall such omission relieve the indemnifying party from any
other liability it may have to such indemnified party. In case any such
action or proceeding shall be brought against any indemnified party and it
shall notify an indemnifying party of the commencement thereof, such
indemnifying party shall be entitled to participate therein and, to the
extent that it shall determine, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, such indemnifying party shall not be liable to such
indemnified party for any legal or any other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; PROVIDED, HOWEVER, that (i) if the
indemnifying party fails to take reasonable steps necessary to defend
diligently the action or proceeding within 20 days after receiving notice
from such indemnified party that the indemnified party believes it has
failed to do so; (ii) if such indemnified party who is a defendant in any
action or proceeding which is also brought against the indemnifying party
reasonably shall have concluded that there may be one or more legal defenses
available to such indemnified party which are not available to the
indemnifying party; or (iii) if representation of both parties by the same
counsel is otherwise inappropriate under applicable standards of
professional conduct, then, in any such case, the indemnified party shall
have the right to assume or continue its own defense as set forth above (but
with no more than one firm of counsel for all indemnified parties in each
jurisdiction) and the indemnifying party shall be liable for any expenses
therefor (including, without limitation, any such reasonable counsel's
fees). If the indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay the fees and
expenses of more than one counsel for each indemnified party with respect to
such claim. The indemnifying party will not be subject to any liability for
any settlement made without its consent, which consent shall not be
unreasonably withheld or delayed. No indemnifying party shall, without the
prior written consent of the indemnified party, compromise or consent to
entry of any judgment or enter into any settlement agreement with respect to
any action or proceeding in respect of which indemnification is sought under
Section 5.6(a) or Section 5.6(b) (whether or not the indemnified party is an
actual or potential party thereto), unless such compromise, consent or
settlement includes an unconditional release of the indemnified party from
all liability in respect of such claim or litigation, does not subject the
indemnified party to any material injunctive relief or other material
equitable remedy and does not include a statement or admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) The members of the Shareholder Group and the Company agree that if,
for any reason, the indemnification provisions contemplated by Sections
5.6(a) or 5.6(b) hereof are unavailable to or are insufficient to hold
harmless an indemnified party in respect of any Claims referred to therein,
then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of such Claims in such proportion as
is appropriate to reflect the relative fault of, the indemnifying party, on
the one hand, and the indemnified party, on the other hand, with respect to
such offering of securities. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact
B-17
relates to information supplied by such indemnifying party or by such
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. If, however, the allocation in the second preceding sentence is
not permitted by applicable law, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative faults, but
also the relative benefits of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. The parties
hereto agree that it would not be just and equitable if contributions
pursuant to this Section 5.6(d) were to be determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the preceding sentences of this
Section 5.6(d). The amount paid or payable by an indemnified party as a
result of the Claims referred to above shall be deemed to include (subject
to the limitations set forth in Section 5.6(c) hereof) any legal or other
fees or expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action, proceeding or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
Section 5.7 PURCHASE RIGHT. (a) Notwithstanding anything to the contrary
contained in this Agreement, within five Business Days after receipt by the
Company of a Demand Request from Parent, the Company may elect, by delivery of
written notice (the "PURCHASE NOTICE") to Parent, on behalf of the Shareholder
Group, to purchase all or any of the Demand Shares specified therein (the number
of shares elected to be purchased, the "PURCHASE SHARES") at a price per share
equal to the Market Value on the date of the Demand Request. Any purchase of the
Demand Shares shall be allocated PRO RATA among the members of the Shareholder
Group according to each member's portion of the Demand Shares. Any Demand Shares
that are not purchased pursuant to this Section 5.7, either because the Company
has elected not to purchase any Demand Shares (or fails to make the required
election within the relevant time period) or because the Company elects to
purchase some but not all of the Demand Shares, shall be subject to the
registration obligations of the Company under this Article V. In the event that
the Company elects to purchase some but not all of the Demand Shares, Parent, on
behalf of the Shareholder Group, may withdraw the Demand Request with respect to
the remaining shares, which shall not constitute a Demand Request for the
purposes of determining the number of Demand Requests to which the Shareholder
Group is entitled under Section 5.1(a).
(b) Any purchase of Demand Shares by the Company pursuant to this
Section 5.7 shall be on a mutually determined closing date which shall not
be more than 20 Business Days after the Purchase Notice is given. On the
closing date, the members of the Shareholder Group shall deliver the shares
of Common Stock being sold and documentation satisfactory to the Company
evidencing the transfer of such Common Stock. The purchase price shall be
paid by wire transfer of immediately available funds to an account or
accounts specified by Parent by notice given no less than two Business Days
prior to the closing date.
(c) The Company may assign any of its purchase rights under this
Section 5.7 to any Subsidiary of the Company without the consent of the
Shareholder Group, PROVIDED, HOWEVER, that no such assignment shall relieve
the Company of any of its obligations thereunder.
ARTICLE VI
EFFECTIVENESS AND TERMINATION
Section 6.1 EFFECTIVENESS. This Agreement shall take effect immediately
upon the Closing and shall remain in effect until it is terminated pursuant to
Section 6.2 hereof.
B-18
Section 6.2 TERMINATION. Other than the termination provisions applicable
to particular Sections of this Agreement that are specifically provided
elsewhere in this Agreement, this Agreement shall terminate upon the earliest to
occur of the following:
(a) The twentieth anniversary of the Closing; or
(b) Mutual written agreement of the Company and Parent, on behalf of the
Shareholder Group, at any time to terminate this Agreement.
ARTICLE VII
MISCELLANEOUS
Section 7.1 INJUNCTIVE RELIEF. Each party hereto acknowledges that it
would be impossible to determine the amount of damages that would result from
any breach of any of the provisions of this Agreement and that the remedy at law
for any breach, or threatened breach, of any of such provisions would likely be
inadequate and, accordingly, agrees that each other party shall, in addition to
any other rights or remedies which it may have, be entitled to seek such
equitable and injunctive relief as may be available from any court of competent
jurisdiction to compel specific performance of, or restrain any party from
violating, any of such provisions. In connection with any action or proceeding
for injunctive relief, each party hereto hereby waives the claim or defense that
a remedy at law alone is adequate and agrees, to the maximum extent permitted by
law, to have each provision of this Agreement specifically enforced against it,
without the necessity of posting bond or other security against it, and consents
to the entry of injunctive relief against it enjoining or restraining any breach
or threatened breach of such provisions of this Agreement.
Section 7.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the Company and by
Parent and the members of the Shareholder Group and their respective successors
and permitted assigns, and no such term or provision is for the benefit of, or
intended to create any obligations to, any other Person, except as otherwise
specifically provided in this Agreement. Except as expressly provided in
Sections 4.1(f), 4.2(c) and 5.7(c), neither this Agreement nor any rights or
obligations hereunder shall be assignable without the consent of the other
party.
Section 7.3 AMENDMENTS; WAIVER. This Agreement may be amended only by an
agreement in writing executed by the parties hereto. Either party may waive in
whole or in part any benefit or right provided to it under this Agreement, such
waiver being effective only if contained in a writing executed by the waiving
party. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon breach thereof shall constitute a waiver of any
such breach or of any other covenant, duty, agreement or condition, nor shall
any delay or omission of either party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it thereafter.
Section 7.4 NOTICES. Except as otherwise provided in this Agreement, all
notices, requests, claims, demands, waivers and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
by hand, when delivered personally or by courier, three days after being
deposited in the U.S. mail (registered or certified mail, postage prepaid,
return receipt requested), or when received by facsimile transmission if
promptly confirmed by telephone, as follows:
If to any member of the Shareholder Group:
Diageo plc
8 Henrietta Place
London England W1M9AG
Attention: Group General Counsel
Fax: 011-44207-927-4864
B-19
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Francis J. Aquila, Esq.
Fax: (212) 558-3588
If to the Company:
General Mills, Inc.
Number One General Mills Boulevard
Minneapolis, Minnesota 55426
Attention: General Counsel
Fax: (763) 764-3302
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Steven A. Rosenblum, Esq.
Fax: (212) 403-2000
or to such other address, facsimile number or telephone as either party may,
from time to time, designate in a written notice given in a like manner.
Section 7.5 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to principles of conflicts of law.
Section 7.6 HEADINGS. The descriptive headings of the several sections in
this Agreement are for convenience only and do not constitute a part of this
Agreement and shall not be deemed to limit or affect in any way the meaning or
interpretation of this Agreement.
Section 7.7 INTEGRATION. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.
Section 7.8 SEVERABILITY. If any term or provision of this Agreement or
any application thereof shall be declared or held invalid, illegal or
unenforceable, in whole or in part, whether generally or in any particular
jurisdiction, such provision shall be deemed amended to the extent, but only to
the extent, necessary to cure such invalidity, illegality or unenforceability,
and the validity, legality and enforceability of the remaining provisions, both
generally and in every other jurisdiction, shall not in any way be affected or
impaired thereby.
Section 7.9 SHAREHOLDER GROUP REPRESENTATIVE. Parent shall act on behalf
of the Shareholder Group to receive notices and take any other actions
hereunder.
Section 7.10 CONSENT TO JURISDICTION. In connection with any suit, claim,
action or proceeding arising out of this Agreement, the parties each hereby
consent to the in personam jurisdiction of the United States federal courts and
state courts located in the State of Delaware; Parent and the Company each agree
that service in the manner set forth in Section 7.4 hereof shall be valid and
sufficient for all purposes; and the parties each agree to, and irrevocably
waive any objection based on forum non conveniens or venue to, appear in any
United States federal court or state court located in the State of Delaware.
Section 7.11 COUNTERPARTS. This Agreement may be executed by the parties
hereto in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
B-20
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective authorized officers as of the date set forth at the
head of this Agreement.
GENERAL MILLS, INC.
By:
-----------------------------------------
Name:
Title:
DIAGEO plc
By:
-----------------------------------------
Name:
Title:
GRAMET HOLDINGS CORPORATION
By:
-----------------------------------------
Name:
Title:
[ADD DIAGEO SUBS]
B-21
APPENDIX C
E V E R C O R E G R O U P
July 16, 2000
Board of Directors
General Mills, Inc.
Number One General Mills Boulevard
Minneapolis, MN 55440
Members of the Board of Directors;
You have informed us that General Mills, Inc. ("General Mills" or the
"Company"), General Mills North American Businesses, Inc., a wholly owned
subsidiary of General Mills ("Merger Sub"), Diageo plc ("Diageo") and The
Pillsbury Company, an indirect wholly owned subsidiary of Diageo ("Pillsbury"),
propose to enter into an Agreement and Plan of Merger (the "Agreement") which
provides for the acquisition by the Company and certain of its subsidiaries of
the worldwide food business (other than the fast food business) of Diageo (the
"Business"), through (i) the merger of Merger Sub with and into Pillsbury with
Pillsbury becoming a wholly owned subsidiary of General Mills (the "Merger") in
which all of the shares of common stock, par value $1.00 per share, of Pillsbury
shall be converted into the right to receive shares of General Mills Common
Stock, par value $0.10 per share ("General Mills Common Stock") and (ii) the
purchase by certain subsidiaries of the Company (the "Subsidiary Purchases") of
the capital stock and/or assets and liabilities of the Diageo subsidiaries
comprising the non-U.S. Business, with an aggregate of 141 million shares of
General Mills Common Stock being paid as consideration pursuant to the Merger
and Subsidiary Purchases. We understand that at the effective time of the
Merger, Pillsbury will have an aggregate indebtedness of $5.142 billion, and
that Diageo will pay to General Mills on the first anniversary of the Merger, up
to $642 million plus interest, based on the 20-day average trading price of the
General Mills Common Stock at such first anniversary, as more fully set forth in
the Agreement. The foregoing transactions are collectively referred to as the
"Transaction."
You have asked us whether, in our opinion, the consideration to be paid by
General Mills in connection with the Transaction is fair, from a financial point
of view, to General Mills.
In connection with rendering our opinion, we have, among other things:
(i) Analyzed certain publicly available financial statements and other
information relating to General Mills and the Business;
(ii) Analyzed certain internal financial statements and other non-public
financial and operating data concerning General Mills and the Business,
including the amount of the new third-party indebtedness to be incurred
by Pillsbury prior to and in connection with the Transaction, proceeds
of which will be paid to stockholders of Pillsbury and/or affiliates of
Diageo;
(iii) Analyzed certain financial projections concerning General Mills and the
Business furnished to us and reviewed for us by the managements of
General Mills, Diageo and the Business;
(iv) Discussed the past and current operation and financial condition and
the prospects of the Business with the management of the Business;
(v) Discussed the past and current operation and financial condition and the
prospects of General Mills with the management of General Mills;
(vi) Compared the valuation of the Business implied by the consideration to
be received by stockholders of Pillsbury and the sellers of the
subsidiaries comprising the non-U.S. Business,
June 16, 2000
Page 2
and the financial performance of the Business, to that of certain
comparable publicly-traded companies;
(vii) Reviewed the financial terms, to the extent available, of certain
comparable acquisition transactions;
(viii) Reviewed the relevant historical stock prices of the General Mills
Common Stock;
(ix) Participated in discussions and negotiations among representatives of
General Mills, Diageo and their financial and legal advisors;
(x) Reviewed the Agreement and the related exhibits and schedules in
substantially final form and have assumed that the final form of the
Agreement will not vary in any manner that is material to our analysis;
(xi) Reviewed certain financial information concerning cost savings and
combination benefits ("Synergies") expected to result from the
Transaction that was provided to us or reviewed for us by the
managements of General Mills and the Business; and
(xii) Performed such other analyses and examinations and considered such
other factors as we have in our sole judgement deemed appropriate.
For purposes of our analysis and opinion, we have not assumed responsibility
for independently verifying the accuracy and completeness of the information
reviewed by us or reviewed for us for purposes of this opinion. With respect to
the financial projections of General Mills and the Business and the underlying
analysis concerning the potential Synergies which were furnished to us or
reviewed for us by the management of General Mills, we have assumed that they
have been reasonably prepared on a basis which reflects the best currently
available estimates and good faith judgements of the managements of General
Mills and the Business of the future financial performance of General Mills and
the Business, and of the expected Synergies. We have further assumed that, in
all material respects, such financial projections and Synergies will be realized
in the amounts and times indicated thereby. We express no view as to such
financial projections or Synergies, or the assumptions upon which they are
based. We have not made nor assumed any responsibility for making any
independent valuation or appraisal of the assets or liabilities of General Mills
or the Business, nor have we been furnished with any such appraisals. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information and form of Agreement made available to us as of,
the date hereof. Our opinion does not address General Mills' underlying business
decision to effect the Transaction nor constitute a recommendation to any
General Mills shareholder as to how such holder should vote with respect to the
matters to be submitted to such shareholders in connection with the Transaction.
Furthermore, we express no opinion as to the price or range of prices at which
the shares of General Mills Common Stock will trade subsequent to the
announcement or the consummation of the Transaction.
For purposes of rendering our opinion, we have assumed, in all respects
material to our analysis, that all conditions to the consummation of the
Transaction will be satisfied without waiver thereof.
We have acted as financial advisor to the Board of Directors of General
Mills in connection with the Transaction and will receive a fee for our
services, including for rendering this opinion, payment of a significant portion
of which is contingent upon the consummation of the Transaction. In the past,
Evercore Group Inc. and its affiliates have provided financial advisory services
to General Mills.
C-2
June 16, 2000
Page 3
It is understood that this letter and the opinion expressed herein is for
the information of the Board of Directors of General Mills only and may not be
quoted or referred to or relied upon or used for any other purpose without our
prior written consent except as we and our affiliates have otherwise agreed with
General Mills in writing, provided that we hereby consent to the inclusion in
full of the text of this opinion in any document delivered to the stockholders
of General Mills in connection with the Transaction. This opinion is not
intended to confer any rights or remedies upon any employee, creditor or
shareholder of General Mills or any other party.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the consideration proposed to be paid by General Mills in
connection with the Transaction is fair, from a financial point of view, to
General Mills.
Very truly yours,
EVERCORE GROUP INC.
By: /s/ DAVID G. OFFENSEND
-------------------------
David G. Offensend
VICE CHAIRMAN
C-3
APPENDIX D
[MERRILL LYNCH LOGO]
WILLIAM D. RIFKIN
Vice Chairman
Investment Banking
Corporate and Institutional
Client Group
World Financial Center
North Tower
New York, New York 10281-1330
212 449 7021
July 16, 2000
Board of Directors
General Mills, Inc.
Number One Geneva Boulevard
Minneapolis, MN 55426
Members of the Board of Directors:
Diageo plc (the "Parent"), The Pillsbury Company, an indirect wholly owned
subsidiary of the Parent (the "Company"), General Mills, Inc. (the "Acquiror")
and General Mills North American Businesses, Inc., a wholly owned subsidiary of
the Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger, to be dated as of July 16, 2000 (the "Merger Agreement"),
pursuant to which (a) the Acquisition Sub will be merged with and into the
Company in a transaction (the "Merger") in which all of the outstanding shares
of the Company's common stock, par value $1.00 per share (the "Company Shares"),
will be converted into the right to receive shares of the common stock of the
Acquiror, par value $.10 per share (the "Acquiror Shares"), and (b) certain
purchase agreements will be entered into by certain affiliates of the Acquiror
(the "Acquiror Affiliates") and certain affiliates of the Parent providing for
the acquisition by the Acquiror Affiliates of all of the outstanding shares of
capital stock of certain subsidiaries of the Parent (the "Subsidiaries") and/or
the assets and liabilities of the Subsidiaries (collectively, the "Subsidiary
Purchases" and, together with the Merger, the "Transaction"), with an aggregate
of 141 million Acquiror Shares being paid pursuant to the Transaction. The
Agreement also contemplates that, prior to the consummation of the Transaction,
the Company will incur new third-party indebtedness in an amount specified in
the Agreement and pay the proceeds therefrom to one or more affiliates of the
Parent. The consideration proposed to be paid by the Acquiror pursuant to the
Merger and by the Acquiror Affiliates pursuant to the Subsidiary Purchases,
taken as a whole, shall consist of the Acquiror Shares to be issued upon
conversion of the Company Shares and pursuant to the Subsidiary Purchases, as
adjusted pursuant to Sections 2.13, 2.14 and 9.4(d) of the Merger Agreement.
You have asked us whether, in our opinion, the consideration to be paid by
the Acquiror pursuant to the Merger and by the Acquiror Affiliates pursuant to
the Subsidiary Purchases, taken as a whole, is fair from a financial point of
view to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Parent's food business, other than the fast food business
(the "Acquired Business"), and the Acquiror that we deemed to be
relevant;
Board of Directors
July 16, 2000
Page 2
(2) Reviewed certain information, including financial forecasts, relating to
the earnings, cash flow, assets, liabilities and prospects of the
Acquired Business and the Acquiror, as well as the amount and timing of
the cost savings and related expenses and synergies expected to result
from the Transaction (the "Expected Synergies") furnished to us by the
Acquiror;
(3) Participated in discussions with members of senior management and
representatives of the Parent, the Acquired Business and the Acquiror
concerning the matters described in clauses 1 and 2 above, as well as
their respective businesses and prospects;
(4) Reviewed the market prices and valuation multiples for the Acquiror
Shares and the equity securities of companies with businesses that we
deemed to be comparable to the Acquired Business;
(5) Reviewed the results of operations of the Acquired Business and the
Acquiror and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Reviewed the potential pro forma impact of the Transaction;
(8) Reviewed a draft dated July 16, 2000 of the Merger Agreement;
(9) Reviewed a draft dated July 15, 2000 of the Stockholders Agreement (the
"Stockholders Agreement"), proposed to be entered into among the
Acquiror, the Parent and certain subsidiaries of the Parent and relating
to the Merger Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Acquired Business or the Acquiror or been furnished with any
such evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Acquired
Business or the Acquiror. With respect to the financial forecast information and
the Expected Synergies furnished to or discussed with us by the Acquiror, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the Acquiror's management as to
the expected future financial performance of the Acquired Business or the
Acquiror, as the case may be, and the Expected Synergies. We have also assumed
that the final form of each of the Merger Agreement and the Stockholders
Agreement will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed in excess of the commitments of the
Acquiror set forth in Section 5.2 of the Merger Agreement. We have also assumed
that none of the payments contemplated by Section 9.4(d) of the Merger Agreement
will be required to be made.
D-2
Board of Directors
July 16, 2000
Page 3
We are acting as financial advisor to the Acquiror in connection with the
Transaction and will receive a fee from the Acquiror for our services. In
addition, the Acquiror has agreed to indemnify us for certain liabilities
arising out of our engagement. We are currently providing services, as a
prospective underwriter, to the Parent and/or its affiliates in connection with
certain prospective public offerings of debt and equity securities, and have, in
the past, provided financial advisory and financing services to the Acquiror and
the Parent and/or its affiliates and may continue to do so and have received,
and may receive, fees for the rendering of such services. In addition, in the
ordinary course of our business, we may actively trade the securities of the
Parent, as well as the Acquiror Shares and other securities of the Acquiror, for
our own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Acquiror as to how such shareholder
should vote on the proposed Transaction or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Transaction.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the consideration to be paid by the Acquiror pursuant to the
Merger and by the Acquiror Affiliates pursuant to the Subsidiary Purchases,
taken as a whole, is fair from a financial point of view to the Acquiror.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner &
Smith Incorporated
--------------------------------------
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
D-3
[INSERT GENERAL MILLS LOGO]
GENERAL MILLS, INC.
SPECIAL MEETING OF STOCKHOLDERS
[DAY OF WEEK], [ ], 2000
[ ] A.M. (LOCAL TIME)
[LOCATION]
GENERAL MILLS, INC.
[LOGO] PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 2000
I appoint Stephen W. Sanger, James A. Lawrence and Raymond G. Viault, together
and separately, as proxies to vote all shares of common stock which I have power
to vote at the special meeting of stockholders to be held on [ ],
2000 at [location], and at any adjournment thereof, in accordance
with the instructions on the reverse side of this card and with the same
effect as though I were present in person and voting such shares. The proxies
are authorized in their discretion to vote upon such other business as may
properly come before the meeting and they may name others to take their place.
(CONTINUED, AND TO BE SIGNED AND DATED ON REVERSE SIDE)
---------------------------
COMPANY #
CONTROL #
---------------------------
THERE ARE THREE WAYS TO VOTE YOUR PROXY
VOTE BY PHONE VOTE VIA INTERNET
1-800-[ ] http://www.[ ] VOTE BY MAIL
-----------
Use any touch-tone telephone to Use the Internet to vote your Mark, sign and date your proxy
vote your proxy 24 hours a day, proxy 24 hours a day, 7 days a card and return it in the postage-
7 days a week. Have your proxy week. Have your proxy card in paid envelope we have provided.
card in hand when you call. You hand when you access the web
will be prompted to enter your 3- site. You will be prompted to
digit company number and a 7-digit enter your 3-digit company number
control number, which are located and a 7-digit control number,
above, and then followthe simple which are located above, to create
instructions. an electronic ballot.
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned the proxy
card. The deadline for telephone or Internet voting is noon EDT, [day of
week], [ ], 2000.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
- -------------------------------------------------------------------------------
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1 AND 2.
1. Approve the issuance of shares of General Mills |_| For |_| Against |_| Abstain
common stock to subsidiaries of Diageo plc under the
Agreement and Plan of Merger, dated as of July 16, 2000,
among General Mills, General Mills North American
Businesses, Inc., Diageo and The Pillsbury Company.
2. Approve an amendment to the Restated Certificate |_| For |_| Against |_| Abstain
of Incorporation of General Mills to eliminate Article V.
3. Transact such other business as may properly come
before the special meeting or any adjournment.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED
"FOR" ITEMS 1 AND 2.
Address Change? Mark Box |_| Dated
---------------------------------------
Indicate changes below:
---------------------------------------
| |
| |
| |
| |
---------------------------------------
Signature(s) of Stockholder(s) in Box
PLEASE SIGN exactly as name appears at
left. Joint owners should each sign.
Executors, administrators, trustees,
etc. should so indicate when signing.
If signer is a corporation, please sign
full name by duly authorized officer.
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