Exhibit 10.1
FORMATION AGREEMENT, dated as of July 30, 2004 (this
"Agreement"), among BROWN & WILLIAMSON TOBACCO
CORPORATION, a Delaware corporation ("B&W"), BROWN &
WILLIAMSON U.S.A., INC., a North Carolina corporation
("B&W Opco"), and REYNOLDS AMERICAN INC., a North
Carolina corporation ("Reynolds American").
WHEREAS the respective Boards of Directors of B&W, B&W Opco and
Reynolds American have approved the execution, delivery and performance of this
Agreement;
WHEREAS B&W and R.J. Reynolds Tobacco Holdings, Inc., a Delaware
corporation ("RJR"), entered into the Business Combination Agreement, dated as
of October 27, 2003, as amended (the "Combination Agreement"), and each of B&W,
RJR, B&W Opco, Reynolds American and certain of their affiliates will engage in
the Transactions (as defined in the Combination Agreement);
WHEREAS B&W has agreed to contribute to B&W Opco, and B&W Opco has
agreed to accept from B&W, all of the assets, other than the Excluded Assets (as
defined below), of B&W in exchange for all of the outstanding capital stock of
B&W Opco (the "Asset Contribution");
WHEREAS B&W has agreed to assign to B&W Opco, and B&W Opco has
agreed to assume from B&W, all of the liabilities, other than the Excluded
Liabilities (as defined below), of B&W (the "Assumption of Liabilities");
WHEREAS B&W and B&W Opco have agreed to certain arrangements
regarding the employees of B&W; and
WHEREAS B&W and Reynolds American have agreed that the B&W Opco
Stock Contribution (as defined in the Combination Agreement) will occur
immediately following completion of the Asset Contribution and the Assumption of
Liabilities.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding of any nature (whether criminal, civil,
legislative, administrative, regulatory, prosecutorial or otherwise) by or
before any court, arbitrator or governmental entity or similar body.
An "affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Asset Contribution" has the meaning set forth in the recitals to
this Agreement.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
B&W Opco or any of its Subsidiaries including any disposition by means of a
merger, consolidation or similar transaction (each referred to for the purposes
of this definition as a "disposition") of (a) any shares of capital stock of a
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than B&W Opco or one of its
Subsidiaries), (b) all or substantially all the assets of any division or line
of business of B&W Opco or any of its Subsidiaries or (c) any other assets of
B&W Opco or any of its Subsidiaries outside of the ordinary course of business
of B&W Opco or such Subsidiary, in each case, other than (i) a disposition by a
Subsidiary of B&W Opco to B&W Opco or by B&W Opco or any of its Subsidiaries to
a Subsidiary of B&W Opco, (ii) a disposition by B&W Opco or any Subsidiary of
B&W Opco to Reynolds American or any of its Subsidiaries (other than B&W Opco
and its
Subsidiaries) if the transferee agrees to jointly and severally assume the
obligations of B&W Opco under this Agreement, such assumption to be in form and
substance reasonably satisfactory to B&W (provided that the obligations of B&W
Opco under this Agreement shall not be terminated as a result of such
assumption), (iii) a disposition that constitutes a Restricted Payment but that
is not otherwise prohibited by Section 5.05(c) or (iv) any sale or disposition
deemed to occur in connection with creating or granting any liens to a third
party that is not an affiliate of Reynolds American in connection with a bona
fide financing or that arise as a matter of law.
"Assumed Liabilities" means all the Liabilities (other than the
Excluded Liabilities) of B&W or any of the Included Subsidiaries or otherwise to
the extent related to the B&W Business (including (a) all Liabilities of B&W and
the Included Subsidiaries arising out of the operation or conduct of their
respective businesses prior to the Asset Contribution, (b) all Liabilities of
B&W and its affiliates under the State Settlements and (c) all Liabilities of
B&W and the Included Subsidiaries arising out of or in connection with any
Action to the extent relating to the development, manufacture, packaging,
labeling, production, delivery, sale, resale, distribution, marketing,
promotion, use or consumption of, or exposure to tobacco products, including
smoking and health-related and safety-related claims).
"Assumption of Liabilities" has the meaning set forth in the
recitals to this Agreement.
"B&W" has the meaning set forth in the preamble to this Agreement.
"B&W Accounting Policies" has the meaning set forth in Section
2.04(a).
"B&W Benefit Plans" has the meaning assigned to such term in the
Combination Agreement.
"B&W Business" means the tobacco businesses of B&W and the Included
Subsidiaries as such businesses have been conducted in the United States and its
territories and possessions on or prior to the date of this Agreement.
"B&W Indemnitees" means B&W, each affiliate of B&W (other than
Reynolds American, B&W Opco and their respective Subsidiaries following the
Effective Time (as defined in the Combination Agreement)), each of their
respective Representatives and each of the heirs, executors, successors and
assigns of any of the foregoing.
"B&W Opco" has the meaning set forth in the preamble to this
Agreement.
"B&W Opco Common Stock" means the common stock, par value $0.01 per
share, of B&W Opco.
"B&W Opco Indemnitees" means B&W Opco, Reynolds American and their
respective Subsidiaries and Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing.
"B&W Opco Services" has the meaning assigned to such term in Section
2.06(b).
"B&W Opco Stock Contribution" has the meaning assigned to it in the
Combination Agreement.
"B&W Packaging" has the meaning assigned to such term in Section
2.05.
"B&W Services" has the meaning assigned to such term in Section
2.06(a).
"B&W Trademark" has the meaning assigned to such term in Section
2.05.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combination Agreement" has the meaning set forth in the recitals to
this Agreement.
"Consent" has the meaning assigned to such term in Section 2.03.
"Consolidated Net Worth" means, as at any date of determination, the
total amount of shareholders' equity that would be shown on the balance sheet of
B&W Opco and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP, as of such date of determination; provided, however, that
Consolidated Net Worth as so determined shall be adjusted by adding thereto the
sum, without duplication, of (i) all consolidated non-cash impairment and
amortization charges related to goodwill, trademarks and other intangible assets
of B&W Opco and its Subsidiaries during the period from the date of this
Agreement to such date of determination and (ii) all restructuring charges
related to B&W Opco and its Subsidiaries that have been reflected in the
consolidated financial statements of Reynolds American that have been filed with
the SEC during the period from the date of this Agreement to such date of
determination.
"Contributed Assets" means (other than the Excluded Assets), without
duplication, (a) all the capital stock of the Included Subsidiaries, (b) all the
business, properties, assets, goodwill and rights of B&W and the Included
Subsidiaries of whatever kind and nature, real or personal, tangible or
intangible, that are owned by, leased or licensed to B&W or any of the Included
Subsidiaries on the date of this Agreement (including any items arising under
insurance policies and all guarantees, warranties, indemnities and similar
rights in favor of B&W to the extent relating to any Contributed Asset or any
Assumed Liability and all assets of the B&W Benefit Plans the sponsorship of
which is transferred to B&W Opco in connection with this Agreement) and (c) an
amount in cash equal to the Estimated MSA Liability Amount.
"Employees" means all individuals employed immediately prior to the
Asset Contribution by B&W and the Included Subsidiaries, whether employed within
or outside the United States and whether or not subject to a labor or collective
bargaining agreement, including active employees, employees on vacation,
holiday, jury duty, bereavement leave or other leave of absence (including
employees on short-term disability and long-term disability).
"Employment Transfer Time" has the meaning assigned to such term in
Section 4.01.
"Estimated MSA Liability Amount" means the accrued MSA Liability
Amount as of the date of this
Agreement, as estimated in writing by B&W not less than two days nor more than
five days prior to the date of this Agreement.
"Excluded Assets" means:
(a) all cash, cash equivalents and bank deposits of B&W and its
Subsidiaries other than (1) any cash described in clause (c) of the
definition of Contributed Assets or (2) any cash, cash equivalents,
deposits or other assets securing the obligations of B&W and its
Subsidiaries for workers' compensation, licenses, permits and other
similar obligations required under law;
(b) the capital stock of each of the Excluded Subsidiaries and all
the business, properties, assets, goodwill, rights and Liabilities of the
Excluded Subsidiaries;
(c) all receivables, accounts and indebtedness (other than trade
receivables) due to B&W from PLC or any of its Subsidiaries, other than
from any Included Subsidiary;
(d) any loan agreements, security documents and other contracts
related to receivables, accounts and indebtedness described in clause (c)
of this definition or clauses (i) and (j) of the definition of Excluded
Liabilities;
(e) the $100 million bond filed by B&W in connection with the appeal
of Engle v. R.J. Reynolds Tobacco Co. class action litigation in Florida,
collateral securing such bond and all interest and other proceeds thereof;
(f) all other bonds, letters of credit or similar instruments
provided by B&W or any of its Subsidiaries in connection with any
tobacco-related litigation, collateral securing such bonds and all
interest and other proceeds thereof, including those listed on Schedule
1.01(a);
(g) all rights and interests of B&W and the Excluded Subsidiaries
under this Agreement and any other Transaction Agreement;
(h) all records prepared in connection with the Transactions;
(i) any tax records and copies of all other records of B&W or any of
its Subsidiaries;
(j) any service marks and service mark applications, trademarks and
trademark applications, trade dress, logos and slogans, whether registered
or unregistered, and the right to use any such service marks and service
mark applications, trademarks and trademark applications, trade dress,
logos and slogans, in any jurisdiction other than the United States and
its territories and its possessions;
(k) any patents, patent applications, inventions, trade secrets,
proprietary processes, databases, software and formulae, and the right to
use any such patents, patent applications, inventions, trade secrets,
proprietary processes, databases, software and formulae, to the extent
registered or patented in, or otherwise protected by, any jurisdiction
other than the United States and its territories and its possessions;
(l) all rights, claims and credits of B&W or any of its Subsidiaries
to the extent arising out of any other Excluded Asset or any Excluded
Liability, including any such items arising under insurance policies and
all guarantees, warranties, indemnities and similar rights in favor of B&W
or any of its Subsidiaries in respect of any other Excluded Asset or any
Excluded Liability;
(m) any capital stock of Reynolds American owned by B&W or any of
its Subsidiaries;
(n) any rights in the assets of the trusts established pursuant to
the Secular Trust Agreements by and among State Street Bank and Trust
Company, B&W, and the individuals party thereto listed on Schedule
1.01(b) (the "SERP Trust Individuals"), to the extent held in an account
thereunder for the purpose of providing a fund to pay benefits under the
Supplemental Pension Plan for Executives of B&W (the "B&W SERP") (defined
in the Secular Trust Agreement as the "SERP Account");
(o) any assets held in connection with the B&W Executive Life
Insurance Plan (the "B&W ELP");
(p) all rights to refunds, credits or offsets of Taxes relating to
the Contributed Assets or the Assumed Liabilities with respect to
Pre-Closing Tax Periods; and
(q) all assets identified on Schedule 1.01(c).
"Excluded Liabilities" means:
(a) any Liability of an Excluded Subsidiary or any other
Liability to the extent arising out of the business of an Excluded
Subsidiary;
(b) all obligations of B&W and the Excluded Subsidiaries under
this Agreement and any other Transaction Agreement;
(c) any Liability under the B&W SERP, to the extent it
pertains or relates to the service and/or accrued benefits of the SERP
Trust Individuals prior to the Employment Transfer Time, calculated on the
assumption that the SERP Trust Individual's employment terminated
immediately prior to the Employment Transfer Time;
(d) any liability under each Agreement Pertaining to Revisions
to Benefit Plans and Programs (the "Revision Agreement") entered into at
any time prior to the Employment Transfer Time between B&W and a SERP
Trust Individual, to the extent it pertains or relates to the B&W SERP
with respect to the period prior to the Employment Transfer Time;
(e) any liability under the B&W ELP and any liability under
any successor or substitute plan, program or arrangement in effect
immediately prior to
the Employment Transfer Time providing life insurance coverage to any
person covered under the B&W ELP or any such successor or substitute plan,
program or arrangement, other than any liability related to group
term-life insurance payable in lieu of continued B&W ELP participation;
(f) any liability under a Revision Agreement entered into at
any time prior to the Employment Transfer Time, to the extent it pertains
or relates to the B&W ELP or any successor or substitute plan, program or
arrangement described in clause (e) above, other than any liability
related to group term-life insurance payable to non-officers in lieu of
continued B&W ELP participation;
(g) any Liability to the extent such Liability relates to the
Excluded Assets;
(h) (i) all Taxes (other than U.S. federal and state excise
Taxes) of each Included Subsidiary measured with respect to all Taxable
periods ending on or before the date of this Agreement and the portion
through the end of the date of this Agreement for any Taxable period that
includes (but does not end on) the date of this Agreement, provided, that
for purposes of this Agreement, (A) all real property Taxes, personal
property Taxes and similar ad valorem obligations levied with respect to
the Contributed Assets for a Tax period that includes (but does not end
on) the date of this Agreement shall be apportioned between B&W and B&W
Opco based upon the number of days of such period included in the
Pre-Closing Tax Period and the number of days of such Tax period after the
date of this Agreement (which period shall not include the date of this
Agreement) and (B) all other Taxes (other than U.S. federal and state
excise Taxes) for a Tax period that includes (but does not end on) the
date of this Agreement shall be determined based upon an actual closing of
the books as if such Tax period ended as of the close of business on the
date of this Agreement, (ii) any and all Taxes (other than U.S. federal
and state excise Taxes) of any member of an affiliated, consolidated,
combined, or unitary group of which an Included Subsidiary (or any of
their
predecessors) is or was a member on or prior to the date of this
Agreement, including pursuant to Treas. Reg.ss.1.1502-6 or any analogous
or similar provision of Law, and (iii) all Taxes (other than U.S. federal
or state excise Taxes) of an Included Subsidiary arising from or related
to the Transactions;
(i) all Liabilities of B&W or any of the Included Subsidiaries
in respect of (i) borrowed money, (ii) bonds, debentures, notes or similar
instruments issued in connection with borrowed money, (iii) conditional
sale or other title retention agreements related to property or assets
purchased by B&W or any of the Included Subsidiaries, (iv) the deferred
purchase price of property or services (other than trade payables and
other accounts payable generated in the ordinary course), (v) interest
rate protection agreements, foreign currency exchange agreements or other
interest or exchange rate hedging arrangements and (vi) guarantees given
by B&W or any Included Subsidiary in respect of any of the foregoing
(other than any letters of credit); and
(j) all payables, accounts and indebtedness (other than trade
payables) owed by B&W to PLC or any of its Subsidiaries, other than to any
Included Subsidiary.
"Excluded Subsidiaries" means, collectively, the Subsidiaries of B&W
listed on Schedule 1.01(d) and the Subsidiaries of such listed Subsidiaries.
"Filings" means Reynolds American's Form S-4 initially filed with
the SEC on January 16, 2004 and any other document filed or required to be filed
with the SEC by Reynolds American or RJR in connection with the Transactions
(including any preliminary or final form thereof or any amendment or supplement
thereto).
"Final Determination" means the final resolution of Liability for
any Tax for any taxable period by or as a result of (a) a final and unappealable
decision, judgment, decree or other order by any court of competent
jurisdiction, (b) a final settlement with the IRS, a closing agreement or
accepted offer in compromise under
Sections 7121 or 7122 of the Code or a comparable agreement under the laws of
other jurisdictions, in each case which resolves the entire Tax Liability for
any taxable period, (c) any allowance of a refund or credit in respect of an
overpayment of Tax, but only after the expiration of all periods during which
such refund may be recovered by the jurisdiction imposing the Tax, or (d) any
other final disposition, including, without limitation, by reason of the
expiration of the applicable statute of limitations.
"GAAP" means U.S. generally accepted accounting principles,
consistently applied by the applicable party (except to the extent relating to a
change in GAAP).
"Included Subsidiaries" means, collectively, the Subsidiaries of B&W
that are not Excluded Subsidiaries.
"Indemnifiable Losses" means all losses, Liabilities, damages
(including compensatory damages, punitive damages, exemplary damages, penalties,
sanctions and restitution), deficiencies, fines, expenses, Actions, demands,
judgments, orders, decrees or settlements, whether or not resulting from Third
Party Claims, including interest and penalties recovered by a third party with
respect thereto and out-of-pocket expenses and reasonable attorneys' and
accountants' fees and expenses incurred in the investigation or defense of any
of the same or in asserting, preserving or enforcing any of an Indemnitee's
rights hereunder, suffered or incurred by an Indemnitee.
"Indemnifying Party" has the meaning assigned to such term in
Section 5.03(a).
"Indemnitee" means any of the B&W Indemnitees or the B&W Opco
Indemnitees, as the case may be.
"Independent Firm" has the meaning set forth in Section 2.04(c).
"IRS" means the United States Internal Revenue Service.
"Liabilities" means any and all debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or
unliquidated, accrued or not accrued, known or unknown, whenever or however
arising and whether or not the same would be required by GAAP to be reflected in
financial statements or disclosed in the notes thereto.
"Measurement Time" has the meaning set forth in Section 2.04(a).
"Minimum Required Working Capital Amount" means, with respect to any
date, the amount set forth on Schedule 1.01(e) with respect to such date.
"MSA" means the Master Settlement Agreement, dated as of November
23, 1998, among the 46 states and five U.S. territories listed on the signature
pages thereto, the District of Columbia, Philip Morris Incorporated, R.J.
Reynolds Tobacco Company, B&W and Lorillard Tobacco Company, as amended,
supplemented or replaced.
"MSA Liability Amount" means, with respect to any period, the total
of all amounts due by B&W for such period pursuant to (a) the State Settlements
and (b) attorney fee payment agreements adopted pursuant to any of the State
Settlements.
"Negotiation Period" has the meaning set forth in Section 2.04(b).
"Non-Assignable Assets" has the meaning set forth in Section 2.03.
"Notice of Dispute" has the meaning set forth in Section 2.04(b).
"Person" means any individual, firm, corporation, partnership,
company, limited liability company, trust, joint venture, association,
governmental entity, unincorporated organization or other entity.
"PLC" means British American Tobacco p.l.c., a public limited
company incorporated under the laws of England and Wales.
"Pre-Closing Tax Period" means all taxable periods ending on or
before the day of this Agreement and the portion ending on the day of this
Agreement of any
taxable period that includes (but does not end on) such day.
"RJR" has the meaning set forth in the recitals to this Agreement.
"Representative" of any Person means any officer, director, manager,
employee, consultant, attorney or other advisor or representative of such
Person.
"Restricted Payments" means, with respect to B&W Opco or any of its
Subsidiaries, (a) the declaration or payment of any dividends or any other
distributions of any sort in respect of its capital stock (including any payment
in connection with any merger or consolidation involving such Person) or similar
payment to the direct or indirect holders of its capital stock (other than
dividends or distributions payable solely in its capital stock and dividends or
distributions payable solely to B&W Opco or one of its Subsidiaries), (b) the
purchase, redemption or other acquisition or retirement for value of any capital
stock of B&W Opco held by any Person or of any capital stock of a Subsidiary of
B&W Opco held by any affiliate of Reynolds American (other than B&W Opco or a
Subsidiary of B&W Opco), including in connection with any merger or
consolidation and including the exercise of any option to exchange any capital
stock, or (c) the making of any investment in Reynolds American or any of its
Subsidiaries (other than B&W Opco or one of its Subsidiaries); provided,
however, that, with respect to any calendar year, Restricted Payments shall not
include the declaration or payment of any dividends (other than extraordinary
dividends or liquidating dividends) or any other distributions of any sort by
B&W Opco in respect of its capital stock in an aggregate amount equal to the
sum, without duplication, of (i) (A) the aggregate amount of dividends (other
than extraordinary dividends or liquidating dividends) paid by Reynolds American
to the holders of Reynolds American common stock during such calendar year and
(B) the aggregate amount of cash required by Reynolds American to repurchase
Reynolds American common stock pursuant to Section 2.04(d) of the Governance
Agreement (as defined in the Combination Agreement) and (ii) the aggregate
amount of interest, indebtedness and corporate overhead expenses paid by
Reynolds American or
R.J. Reynolds Tobacco Holdings, Inc. during such calendar year (including
amounts paid in respect of payroll and other compensation expenses (including
pensions) and other post-retirement benefits, but excluding amounts paid by
Reynolds American in respect of the $400 million loan to Reynolds American from
FHS, Inc.), Taxes, insurance, SEC, NYSE and other administrative fees and
expenses, banking fees and expenses and other types of corporate overhead and
administrative costs and expenses associated with being a public holding
company); provided, further, however, that, in the event Reynolds American owns
any "significant subsidiary" (as defined in Regulation S-X of the SEC) that is
not a Subsidiary of B&W Opco, the amount determined in clause (i) and (ii) above
will be reduced by the amount of such payments allocated to such significant
subsidiary by Reynolds American as determined by Reynolds American in good faith
consistent with past practice.
"Reynolds American" has the meaning set forth in the preamble to
this Agreement.
"SEC" means the Securities and Exchange Commission.
"State Settlements" means (a) the MSA and (b) the Settlement
Agreement, dated as of August 25, 1997, among the State of Florida, Philip
Morris Incorporated, R.J. Reynolds Tobacco Company, B&W, Lorillard Tobacco
Company and United States Tobacco Company, as amended by the Stipulation of
Amendment to Settlement Agreement and For Entry of Consent Decree, dated as of
September 11, 1998, (c) the Settlement Agreement and Stipulation for Entry of
Consent Decree, dated as of May 8, 1998, among the State of Minnesota, Philip
Morris Incorporated, R.J. Reynolds Tobacco Company, B&W and Lorillard Tobacco
Company, (d) the Comprehensive Settlement Agreement and Release, dated as of
October 17, 1997, among the State of Mississippi, Philip Morris Incorporated,
R.J. Reynolds Tobacco Company, B&W and Lorillard Tobacco Company, as amended by
the Stipulation of Amendment to Settlement Agreement and For Entry of Agreed
Order, dated as of July 2, 1998, (e) the Comprehensive Settlement Agreement and
Release, dated as of January 16, 1998, among the State of Texas, Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, B&W, Lorillard Tobacco Company and
United States Tobacco Company, as amended by
the Stipulation of Amendment to Settlement Agreement and For Entry of Consent
Decree, dated as of July 24, 1998, in each case, as amended, supplemented or
replaced, and (f) the Trust Agreement, dated July 19, 1999 among Philip Morris
Incorporated, B&W, Lorillard Tobacco Company and R.J. Reynolds Tobacco Company,
as settlors, The Chase Manhattan Bank, as trustee, and the Grower States listed
therein, as amended, supplemented or replaced.
"Submission Notice" has the meaning set forth in Section 2.04(c).
A "Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Successor Company" has the meaning assigned to such term in Section
5.05(a).
"Taxes" means all (a) domestic or foreign (whether national,
Federal, state, provincial, local or otherwise) taxes, assessments, duties or
similar charges of any kind whatsoever, including all corporate franchise,
income, sales, use, ad valorem, receipts, value added, profits, license,
withholding, payroll, employment, excise, property, net worth, capital gains,
transfer, stamp, documentary, payroll, alternative minimum, recapture and other
taxes, including any interest, fines, penalties and additions imposed with
respect to such amounts; (b) Liability for the payment of any amounts of the
type described in clause (a) as a result of being a member of an affiliated,
consolidated, combined, unitary or aggregate group and (c) Liability for the
payment of any amounts as a result of an express or implied obligation to
indemnify any other person with respect to the payment of any amounts of the
type described in clause (a) or (b).
"Texas Settlement Agreement" means the Comprehensive Settlement
Agreement and Release, dated as of January 16, 1998, among the State of Texas,
Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, B&W, Lorillard Tobacco Company and
United States Tobacco Company, as amended by the Stipulation of Amendment to
Settlement Agreement and For Entry of Consent Decree, dated as of July 24, 1998,
and as further amended by the Agreement of Amendment to Settlement Agreement,
dated as of June 8, 2001.
"Third Party Claim" has the meaning set forth in Section 5.03(a).
"Transaction Agreements" has the meaning assigned to such term in
the Combination Agreement.
"Transactions" has the meaning assigned to such term in the
Combination Agreement.
"Working Capital" means, as of any time, (a) the sum of (i)
Inventories - FIFO basis (including leaf, finished goods, wrapping materials,
spare parts and miscellaneous), (ii) Accounts Receivable External (including
domestic accounts receivable, leaf (ELT) accounts receivable and miscellaneous
accounts receivable), (iii) Due from Affiliates - Trading and (iv) Other Debtors
(including salesforce contingent funds, sundry unidentified items, unamortized
strike/wage concessions, prepaid insurance, prepaid legal fees, etc. but
excluding LIC, home escrows and the Star note) less (b) the sum of, (i) Excise
Tax Payable (Federal and state), (ii) Accrued Liabilities (including marketing
accruals, provisions for payroll, vacation pay, profit sharing, etc.), (iii)
Accounts Payable and (iv) Due to Affiliates - Trading. For the avoidance of
doubt, Working Capital shall not include any accruals relating to the MSA
Liability Amount.
"Working Capital Statement" has the meaning set forth in Section
2.04(a).
ARTICLE II
Asset Contribution
SECTION 2.01. The Asset Contribution. Upon the effectiveness of this
Agreement, B&W shall contribute, assign, convey, transfer and deliver to B&W
Opco, and B&W
Opco shall acquire and accept from B&W, all right, title and interest of B&W in
and to the Contributed Assets. B&W Opco has previously issued to B&W 100 fully
paid and nonassessable shares of B&W Opco Common Stock, representing all of the
outstanding capital stock of B&W Opco.
SECTION 2.02. Retention of Copies; Access. Notwithstanding anything
to the contrary contained in this Agreement and subject to Section 6.10, (a) B&W
may retain, at its expense, archival copies of contracts, books and records or
other documents or materials conveyed by this Agreement, and (b) B&W Opco will
permit B&W to have reasonable access to such contracts, books, records,
documents and materials on and after the date of this Agreement to make such
copies. B&W Opco will give B&W at least 30 calendar days' prior written notice
of B&W Opco's intention to dispose of any books, records or other documentation
which constitute Contributed Assets. B&W will have the opportunity to obtain
possession, at its own expense, of any such books, records or documentation as
B&W may reasonably require prior to B&W Opco's disposition thereof. In the
absence of bad faith or wilful misconduct, neither B&W nor B&W Opco will have
any liability arising out of or in connection with its retention and handling of
such records.
SECTION 2.03. Consents. Notwithstanding anything to the contrary
contained in this Agreement, if the contribution, assignment, conveyance,
transfer or delivery or attempted contribution, assignment, conveyance, transfer
or delivery to B&W Opco of any Contributed Asset is (a) prohibited by any
applicable Law or (b) would require any authorization, approval, consent or
waiver (each a "Consent") from a third Person and such Consent shall not have
been obtained prior to the effectiveness of this Agreement (each, a
"Non-Assignable Asset"), in either case, the Asset Contribution shall proceed,
but the Asset Contribution shall not constitute the contribution, assignment,
conveyance, transfer or delivery of such Non-Assignable Asset, and this
Agreement shall not constitute a contribution, assignment, conveyance, transfer
or delivery of such Non-Assignable Asset unless and until such Consent is
obtained. After the Asset Contribution, B&W and B&W Opco shall continue to use
reasonable best efforts to obtain any necessary Consent. The cost of obtaining
any
such Consent shall be borne solely by B&W and shall constitute an Excluded
Liability hereunder. During the period between the date of this Agreement and
the consummation of the contribution, assignment, conveyance, transfer or
delivery of such Non-Assignable Asset, B&W will operate such Non-Assignable
Assets pursuant to written instructions from B&W Opco and all benefits of, and
risks arising out of or related to, the ownership and operation of such
Non-Assignable Asset will be for the account of B&W Opco, except as set forth in
Section 5.01(b) or 5.02(b). At or as soon as reasonably practicable after the
date of this Agreement, B&W and B&W Opco will enter into such agreements as may
be reasonably required to carry out the intent of the immediately preceding
sentence in order to provide such further specific assurances as B&W or B&W Opco
may reasonably request.
SECTION 2.04. Working Capital Adjustment. (a) As soon as reasonably
practicable after the date of this Agreement (but in no event later than 60
calendar days after the date of this Agreement), B&W Opco will cause to be
prepared and delivered to B&W an unaudited consolidated balance sheet of B&W
Opco and its Subsidiaries as of the date of this Agreement, after giving effect
to the Asset Contribution and the Assumption of Liabilities but prior to giving
effect to the B&W Opco Stock Contribution (such time being referred to as the
"Measurement Time"), together with a statement of each component of Working
Capital of B&W Opco as of the Measurement Time (the "Working Capital
Statement"). The Working Capital Statement will be prepared in accordance with
the same accounting principles, policies, practices and procedures used to
prepare the amounts set forth on Schedule 1.01(e), which are the same accounting
principles, policies, practices and procedures used to prepare the B&W Audited
Historical Financial Statements (as defined in the Combination Agreement),
except that inventory is valued on a FIFO basis (the "B&W Accounting Policies").
B&W will have the right to audit the worksheets, examine underlying records and
review any work papers relating to the Working Capital Statement.
(b) If B&W disagrees with the Working Capital Statement, B&W must,
within 20 business days after delivery of the Working Capital Statement to B&W,
notify B&W Opco in writing as to whether B&W accepts the Working Capital
Statement. If B&W notifies B&W Opco that it does not accept the Working Capital
Statement (the "Notice of Dispute"), B&W will set out each disputed item, the
amount in dispute and its reasons for such dispute in reasonable detail,
including any adjustments which, in B&W's opinion, should be made to the Working
Capital Statement in order to comply with the requirements of this Section 2.04.
After delivery of the Notice of Dispute, B&W may not introduce additional
disagreements with respect to any item in the Working Capital Statement. If a
Notice of Dispute is received by B&W Opco in accordance with this Section
2.04(b), B&W and B&W Opco will use all reasonable efforts to meet and resolve
the objections of B&W to the Working Capital Statement within 60 calendar days
of B&W Opco's receipt of the Notice of Dispute (the "Negotiation Period").
(c) If B&W and B&W Opco do not reach agreement prior to expiration
of the Negotiation Period, then B&W and B&W Opco will each deliver to the
Atlanta office of Ernst & Young LLP or such other accounting firm as the parties
shall jointly agree (the "Independent Firm") a written notice (a "Submission
Notice") specifying the nature and value of all items remaining in dispute
within ten calendar days following the expiration of the Negotiation Period. B&W
and B&W Opco will be deemed to have agreed with all items and amounts contained
in the Working Capital Statement other than the disputed items in each
Submission Notice.
(d) The Independent Firm will (i) make an examination of the Working
Capital Statement, (ii) inspect and examine each party's working papers, (iii)
schedule meetings at which each party may present supporting data and arguments
to substantiate its position and (iv) after giving each party an opportunity to
rebut the other party's data and arguments, decide all disputed items set forth
in each Submission Notice. B&W Opco and B&W will instruct, and will use their
reasonable best efforts to cause, the Independent Firm to determine and report
to B&W and B&W Opco in writing upon all disputed items included in the
Submission Notices within 90 calendar days following the delivery of such
Submission Notices to the Independent Firm in accordance with this Section 2.04,
and such report will be final, binding and conclusive on B&W and B&W Opco. The
Independent Firm's determination will be accompanied by a certificate of the
Independent Firm that it reached its decision in accordance with the provisions
of this Section 2.04. The Independent Firm will not have the authority to review
or make a determination with respect to any matter except the disputed items
included in each Submission Notice, it being understood that the Independent
Firm will not conduct its own independent audit or review, but rather will only
resolve specific differences between B&W and B&W Opco and make a determination
within the range of such differences as set forth in each Submission Notice. In
resolving such differences, the Independent Firm may not assign a value to an
item greater than the greatest value claimed by any party or less than the
smallest value for such item claimed by any party in the Submission Notice. The
fees and disbursements of the Independent Firm will be allocated equally between
B&W and B&W Opco. In acting under this Agreement, the Independent Firm will be
entitled to the privileges and immunities of arbitrators. The Working Capital
Statement will be deemed final, binding and conclusive on the parties hereto for
the purposes of this Section 2.04 upon the earliest of (A) the failure of B&W to
deliver a Notice of Dispute to B&W Opco pursuant to Section 2.04(b) within 20
business days of B&W Opco's delivery of the Working Capital Statement to B&W,
(B) the resolution of all disputes by B&W and B&W Opco in accordance with this
Section 2.04, (C) the failure by B&W to deliver a Submission Notice to the
Independent Firm in accordance with Section 2.04(c) (provided B&W Opco has
delivered a Submission Notice in accordance with Section 2.04(c)) or (D) the
resolution of all the disputed items set forth in the Submission Notice by the
Independent Firm. The Working Capital Statement, as modified by all adjustments
provided for in the Notice of Dispute, will be deemed final, binding and
conclusive on the parties hereto for the purpose of this Section 2.04 upon
failure of B&W Opco to deliver a Submission Notice to the Independent Firm in
accordance with Section 2.04(c) (provided B&W has delivered a Submission Notice
in accordance with Section 2.04(c)). B&W and B&W Opco will each permit the other
party, its agents and the Independent Firm reasonable access during normal
business hours, and on reasonable notice, to all relevant books and records,
computer files, premises and personnel involved in the preparation of the
underlying records and operating systems which generated
the information used in the preparation of the Working Capital Statement, the
Notice of Dispute and the Submission Notice and will permit them to take copies
of such accounts, documents and records at their own expense.
(e) Within five business days of the Working Capital Statement being
deemed final, if the Working Capital of B&W Opco as of the Measurement Time (as
finally determined) is less than the Minimum Required Working Capital Amount as
of the Measurement Time, B&W shall pay to B&W Opco an amount equal to (i) such
Minimum Required Working Capital Amount less such Working Capital plus (ii)
interest on such difference from the date of this Agreement to the date of such
payment at a rate per annum equal to (A) three-month LIBOR (as reported in The
Wall Street Journal (Northeast edition) or, if not reported therein, in another
authoritative source acceptable to B&W and B&W Opco) on the date of this
Agreement (or if no quotation for three-month LIBOR is available for such date,
on the next preceding date for which such a quotation is available) plus (B)
1.5%.
SECTION 2.05. License of B&W Trademark. From the date of this
Agreement until the second anniversary of the date of this Agreement, B&W hereby
grants to B&W Opco and its Subsidiaries a non-exclusive, non-assignable,
royalty-free license to use the Brown & Williamson(R) trademark (the "B&W
Trademark") on purchase orders, product labels, packaging materials and all
other Contributed Assets on which the B&W Trademark appears as of the date of
this Agreement ("B&W Packaging"). During such period, Reynolds American will use
the B&W Trademark in the form and style in which it was used on the B&W
Packaging as of the date of this Agreement (whether alone or in combination with
other trademarks) on B&W Packaging, provided that any such products manufactured
by B&W Opco are manufactured, in all material respects, at the same quality
standards maintained by B&W prior to the Effective Time. Any B&W Packaging not
used within the aforesaid license period shall not thereafter be used by B&W
Opco and will be destroyed at B&W Opco's sole expense unless otherwise agreed to
by B&W in writing.
SECTION 2.06. Transition Support Services. (a) B&W and its
affiliates shall provide B&W Opco with the
services described on Schedule 2.06(a) (the "B&W Services") for the transitional
period set forth on such Schedule; provided, however, B&W and its affiliates
shall not be obligated to perform any such B&W Service if and to the extent that
such B&W Service (i) has not historically been provided by B&W in the ordinary
course with respect to the B&W Business, or in a volume substantially greater
than that which has been historically provided to the B&W Business by B&W or
such affiliate, (ii) would require B&W to hire any additional personnel or make
any capital expenditures, (iii) is for any operations of B&W Opco other than in
respect of the B&W Business or (iv) would breach any contract to which B&W is a
party or violate any applicable law to which B&W is subject. B&W Opco will
reimburse B&W for the B&W Services at B&W's fully-allocated costs. During the
period in which the B&W Services are being provided, B&W Opco shall furnish B&W
with such information and other reasonable assistance as is necessary to enable
B&W to perform the B&W Services. Any such information shall be provided by B&W
Opco at the same times and in the same format as previously supplied to B&W by
the B&W Business. B&W Opco shall be responsible for assuring that such
information is accurate and complete. B&W's performance of any B&W Service may
be suspended during any period that B&W Opco fails to provide such information
and assistance to the extent such failure renders performance of such B&W
Service by B&W unduly burdensome. B&W shall not be liable to B&W Opco for any
Indemnifiable Losses in respect of providing any B&W Service absent gross
negligence or wilful misconduct.
(b) B&W Opco and its Subsidiaries shall provide B&W and its
affiliates with the services described on Schedule 2.06(b) (the "B&W Opco
Services") for the transitional period set forth on such Schedule; provided,
however, B&W Opco and its Subsidiaries shall not be obligated to perform any
such B&W Opco Service if and to the extent that such B&W Opco Service (i) has
not been historically provided to B&W in the ordinary course of the B&W
Business, or in a volume substantially greater than that which has been
historically provided to B&W and its affiliates prior to the date of this
Agreement, (ii) would require B&W Opco to hire any additional personnel or make
any capital expenditures, (iii) is for any operations of a person other than B&W
or any of its affiliates or
(iv) would breach any contract to which B&W Opco is a party or violate any
applicable law to which B&W Opco is subject. B&W will reimburse B&W Opco for the
B&W Opco Services at B&W Opco's fully-allocated costs. During the period in
which the B&W Opco Services are being provided, B&W shall furnish B&W Opco with
such information and other reasonable assistance as is necessary to enable B&W
Opco to perform the B&W Opco Services. Any such information shall be provided by
B&W at the same times and in the same format as previously supplied. B&W shall
be responsible for assuring that such information is accurate and complete. B&W
Opco's performance of any B&W Opco Service may be suspended during any period
that B&W fails to provide such information and assistance to the extent such
failure renders performance of such B&W Opco Service by B&W Opco unduly
burdensome. B&W Opco shall not be liable to B&W for any Indemnifiable Losses in
respect of providing any B&W Opco Service absent gross negligence or wilful
misconduct.
SECTION 2.07. Further Assurances. On and after the effectiveness of
this Agreement, B&W shall from time to time, at the request of B&W Opco and at
B&W's expense, execute and deliver, or cause to be executed and delivered, such
other instruments of conveyance and transfer and take such other actions as B&W
Opco may reasonably request, in order to more effectively consummate the
transactions contemplated hereby and to vest in B&W Opco title to the
Contributed Assets.
SECTION 2.08. Texas Settlement Agreement. The parties hereto hereby
acknowledge and agree that (a) consistent with Section 2.03, the Texas
Settlement Agreement shall not be assigned by B&W to B&W Opco unless and until
such time as all required consents under the Texas Settlement Agreement for such
assignment shall have been obtained or as otherwise permitted by an order of the
United States District Court for the Eastern District of Texas, Texarkana
Division, or appellate courts thereof, (b) this Agreement shall not purport to
release B&W from its obligations under the Texas Settlement Agreement to the
State of Texas or any other party to the Texas Settlement Agreement except in
accordance with the terms of the Texas Settlement Agreement or as otherwise
permitted by an order of the United States District Court for the Eastern
District of Texas, Texarkana Division, or appellate courts
thereof, and (c) consistent with Section 3.01, upon effectiveness of this
Agreement, B&W Opco shall assume, satisfy, perform, pay and discharge all
Liabilities of B&W under the Texas Settlement Agreement, which are Assumed
Liabilities, and such Assumed Liabilities shall be subject to the provisions of
Article V.
ARTICLE III
Assumption of Liabilities
SECTION 3.01. Assumption of Liabilities. Upon the effectiveness of
this Agreement, B&W Opco agrees to assume, satisfy, perform, pay and discharge
each of the Assumed Liabilities.
SECTION 3.02. Further Assurances. (a) On and after the effectiveness
of this Agreement, B&W Opco shall from time to time, at the request of B&W, take
such actions as B&W may reasonably request, in order to more effectively
consummate the transactions contemplated hereby, including the assumption of the
Assumed Liabilities by B&W Opco. The parties intend that any payment or accrual
by B&W Opco of any Assumed Liabilities shall be deductible by B&W Opco for all
Tax purposes to the extent provided by applicable law. If B&W Opco receives a
refund or credit or accrues an offset to Tax relating to Pre-Closing Tax
Periods, B&W Opco shall pay to B&W within 20 days of such receipt or accrual the
amount of such refund, credit or offset to Tax.
(b) B&W and B&W Opco shall cooperate in good faith, and shall cause
their respective officers, directors, affiliates, employees, agents, auditors
and representatives to cooperate in good faith, in all matters relating to
Taxes, including by maintaining and making available to each other all books and
records necessary in connection with Taxes.
ARTICLE IV
Employee Matters
SECTION 4.01. Transfer of Employment to B&W Opco. (a) Upon the
effectiveness of this Agreement, (i) B&W Opco shall assume and honor all terms
and
conditions of employment (including under any applicable labor or collective
bargaining agreement) in respect of the Employees to the extent required to
accomplish the transfer of employment of the Employees to B&W Opco in connection
with the Asset Contribution and Assumption of Liabilities and (ii) B&W and B&W
Opco agree to take or cause to be taken such actions as are reasonably
practicable (including the assumption, if necessary, of Liabilities relating to
the employment of Employees) such that the employment of the Employees will
transfer to B&W Opco at such time (the "Employment Transfer Time"). B&W Opco
shall offer to employ and continue the employment of each Employee at the same
salary and wages payable by B&W and the Included Subsidiaries to such Employee
immediately prior to the Employment Transfer Time and shall maintain terms and
conditions of employment which replicate those provided by B&W and the Included
Subsidiaries immediately prior to the Employment Transfer Time as and to the
extent required by applicable Law or as a result of negotiation with applicable
unions.
(b) If any Employee requires a work permit or employment pass or
other approval for his or her employment to continue with B&W Opco following the
Employment Transfer Time, B&W Opco shall use its reasonable best efforts to
ensure that any necessary applications are promptly made and to secure the
necessary permit, pass or other approval.
(c) B&W and B&W Opco intend that (i) for purposes of any severance
or termination benefit plan, program, policy, agreement or arrangement of B&W or
any Included Subsidiary, the Transactions shall not constitute a severance of
employment of any Employee prior to or upon the consummation of the Transactions
and (ii) Employees will have continuous and uninterrupted employment immediately
before and immediately after the Employment Transfer Time. B&W Opco shall assume
all Liabilities in respect of claims made by any Employees for severance or
other termination benefits (including claims for wrongful dismissal, notice of
termination of employment or pay in lieu of notice) arising out of, relating to
or in connection with B&W Opco's failure to offer employment to, or continue the
employment of, any Employee, or failure to offer or continue employment on terms
and conditions which would preclude any claims of constructive dismissal or
similar claims under any applicable Law or other failure to comply with the
terms of this Agreement, or where any such severance or termination benefits are
automatically required to be paid under applicable Law.
SECTION 4.02. Transfer of Benefit Plans. As of the Employment
Transfer Time, B&W Opco shall adopt as the successor plan sponsor, all B&W
Benefit Plans (and, as applicable, any related trusts) and shall assume all of
B&W's rights under such related trusts and all of B&W's Liabilities under the
B&W Benefit Plans (other than Excluded Liabilities), and B&W and B&W Opco shall
take all action reasonably required to effect such adoption and assumption as of
the Employment Transfer Time. Following such adoption and assumption, PLC and
its Subsidiaries shall have no further Liabilities of any kind or description
under the B&W Benefit Plans or their related trusts (except for Excluded
Liabilities).
ARTICLE V
Indemnification; Covenants
SECTION 5.01. Indemnification by B&W Opco and Reynolds American.
Subject to the provisions of this Article V, from and after the effectiveness of
the Asset Contribution and the Assumption of Liabilities, B&W Opco and Reynolds
American (but, in the case of Reynolds American, only with respect to clause (c)
below) shall jointly and severally indemnify, defend and hold harmless the B&W
Indemnitees from and against, and pay or reimburse the B&W Indemnitees for, all
Indemnifiable Losses, as incurred, to the extent:
(a) relating to or arising from the Contributed Assets
or the Assumed Liabilities (including the failure by B&W Opco to pay,
perform or otherwise discharge any of the Assumed Liabilities in
accordance with their terms), whether such Indemnifiable Losses relate to
or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the
Asset Contribution and Assumption of Liabilities;
(b) relating to or arising from the Non-Assignable
Assets, whether such Indemnifiable Losses relate to or arise from events,
occurrences, actions, omissions, facts or circumstances occurring,
existing or asserted before, at or after the Asset Contribution and
Assumption of Liabilities; provided, however, that with respect to
Indemnifiable Losses relating to or arising from events, occurrences,
facts or circumstances relating to or arising from actions or omissions by
any B&W Indemnitee occurring after the Asset Contribution and Assumption
of Liabilities, B&W Opco shall not be liable to the extent such
Indemnifiable Losses directly relate to or arise from (i) actions or
omissions by any B&W Indemnitee that are in conflict with any written
instruction from B&W Opco with respect to such Non-Assignable Asset or
(ii) any action taken by B&W with respect to such Non-Assignable Assets
outside the ordinary course of business or that is finally determined by a
court of competent jurisdiction to result from the gross negligence or
wilful misconduct of B & W;
(c) relating to or arising from any untrue or allegedly
untrue statement of a material fact contained in, or incorporated by
reference to, any of the Filings or any omission to state therein 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, but in each case not with respect to statements made
therein or incorporated by reference therein based upon information
supplied in writing by B&W specifically for inclusion or incorporation by
reference therein; provided, however, that the indemnification provided
for in this clause (c) shall only apply to Third Party Claims; or
(d) the aggregate MSA Liability Amount due and payable
with respect to any period prior to the date of this Agreement and paid by
a B&W Opco Indemnitee on or after such time is less than the Estimated MSA
Liability Amount, with any such payment or payments being made promptly
following the finalization of the various components thereof; provided,
however, that any reduction in such MSA
Liability Amount resulting from any Non-Participating Manufacturer's
adjustment shall not be considered for purposes of this Section 5.01(d).
SECTION 5.02. Indemnification by B&W. Subject to the provisions of
this Article V, from and after the effectiveness of the Asset Contribution and
the Assumption of Liabilities, B&W shall indemnify, defend and hold harmless the
B&W Opco Indemnitees from and against, and pay or reimburse the B&W Opco
Indemnitees for, all Indemnifiable Losses, as incurred, to the extent:
(a) relating to or arising from the Excluded Assets or
the Excluded Liabilities (including the failure by B&W to pay, perform or
otherwise discharge any of the Excluded Liabilities in accordance with
their terms), whether such Indemnifiable Losses relate to or arise from
events, occurrences, actions, omissions, facts or circumstances occurring,
existing or asserted before, at or after the Asset Contribution and
Assumption of Liabilities (other than Indemnifiable Losses that relate to
or arise from the Non-Assignable Assets);
(b) relating to or arising from the Non-Assignable Assets with
respect to such Indemnifiable Losses relating to or arising from events,
occurrences, facts or circumstances relating to or arising from actions or
omissions by B&W occurring after the Asset Contribution and Assumption of
Liabilities that (i) are in conflict with any written instruction from B&W
Opco with respect to such Non-Assignable Asset or (ii) are taken outside
the ordinary course of business or are finally determined by a court of
competent jurisdiction to result from the gross negligence or wilful
misconduct of B & W;
(c) relating to or arising from any untrue statement of a
material fact contained in, or incorporated by reference to, any of the
Filings or 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 under which they were made, not
misleading, but only with respect to statements made
therein or incorporated by reference therein based upon information
supplied in writing by B&W specifically for inclusion or
incorporation by reference therein; provided, however, that the
indemnification provided for in this clause (c) shall only apply to
Third Party Claims; or
(d) the aggregate MSA Liability Amount due and payable
with respect to any period prior to the date of this Agreement and
paid by a B&W Opco Indemnitee on or after the date of this Agreement
is greater than the Estimated MSA Liability Amount, with any such
payment or payments being made promptly following the finalization
of the various components thereof.
SECTION 5.03. Procedures Relating to Indemnification. (a) In order
for an Indemnitee to be entitled to any indemnification provided for under this
Agreement in respect of, arising out of or involving a claim made by any Person
who is not an Indemnitee against such Indemnitee (a "Third Party Claim"), such
Indemnitee must notify the party who may become obligated to provide
indemnification hereunder (the "Indemnifying Party") in writing, and in
reasonable detail, of the Third Party Claim reasonably promptly, and in any
event within 20 days after receipt by such Indemnitee of written notice of the
Third Party Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually and materially prejudiced as a
result of such failure; provided, further, however, that no such notice shall
need to be given by any B&W Indemnitee with respect to Third Party Claims
arising as a result of any Action pending as of the date of this Agreement.
After any required notification (if applicable), the Indemnitee shall deliver to
the Indemnifying Party, promptly after the Indemnitee's receipt thereof, copies
of all notices and documents (including court papers) received by the Indemnitee
relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof (at the expense of the
Indemnifying Party) with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnitee; provided, however, that (i) the
Indemnifying Party shall not be entitled to assume such defense unless it first
acknowledges in writing its obligation hereunder to indemnify the Indemnitee
with respect to all material elements of such Third Party Claim and (ii) the
Indemnifying Party shall not be entitled to assume the defense of a Third Party
Claim if (but only to the extent that) the Indemnitee reasonably determines that
it has defenses, claims or positions that are unique, separate or distinct from
the defenses, claims or positions that might be available to other Persons
relating to such Third Party Claim (such as jurisdictional defenses). Except as
set forth below, should the Indemnifying Party so elect to assume the defense of
a Third Party Claim, the Indemnifying Party will not be liable to the Indemnitee
for any legal expenses subsequently incurred by the Indemnitee in connection
with the defense thereof. If the Indemnifying Party assumes such defense, the
Indemnitee shall have the right to participate, at its own expense, in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party shall control such defense; provided, however, that an
Indemnitee may reassume control of any defense if the Indemnitee reasonably
believes that the Indemnifying Party does not have the financial capability to
fully indemnify the Indemnitee for the Indemnifiable Losses that may be incurred
by the Indemnitee as a result of the applicable Third Party Claim or if the
Indemnifying Party fails to diligently prosecute the defense of such Third Party
Claim within 20 calendar days after receipt of written notice of such failure to
prosecute by the Indemnitee. The Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel employed by the Indemnitee (i) for any
period during which the Indemnifying Party has not assumed the defense thereof,
(ii) as a result of the retention of control pursuant to the proviso to the
first sentence of this Section 5.03(b) or (iii) following the reassumption of
control of any defense pursuant to the proviso to the preceding sentence.
Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to
assume the defense of any Third Party Claim if the Third Party Claim seeks an
order, injunction or other equitable
relief or relief for other than money damages against the Indemnitee which the
Indemnitee reasonably determines cannot be separated from any related claim for
money damages. If such equitable or other relief portion of the Third Party
Claim can be so separated from that for money damages, the Indemnifying Party
shall be entitled to assume the defense of the portion relating to money damages
and, in such event, the Indemnifying Party shall continue to be liable for the
reasonable fees and expenses of counsel employed by the Indemnitee with respect
to the portion of the defense of such Third Party Claim that the Indemnifying
Party has not assumed. The indemnification required by Section 5.01 or 5.02, as
the case may be, shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when invoices are received or
the Indemnifiable Loss is incurred. If the Indemnifying Party chooses to defend
or prosecute a Third Party Claim (i) all the parties hereto reasonably necessary
or appropriate for such defense or prosecution shall cooperate in the defense or
prosecution thereof, which cooperation shall include the retention and (upon the
Indemnifying Party's request) the provision to the Indemnifying Party of records
and information which are reasonably relevant to such Third Party Claim, (ii)
the Indemnifying Party shall keep the Indemnitee reasonably informed of all
significant developments in connection with the defense or prosecution of such
Third Party Claim and (iii) the Indemnitee shall agree to any settlement,
compromise or discharge of such Third Party Claim which the Indemnifying Party
may recommend (after representing to the Indemnitee that such settlement is
reasonably likely to be acceptable to the parties to the Third Party Claim) and
which by its terms obligates the Indemnifying Party to pay the full amount of
Liability of the Indemnitee in connection with such Third Party Claim; provided,
however, that, unless the Indemnitee in its sole discretion otherwise consents
in writing, the Indemnifying Party shall not consent to entry of any Judgment or
enter into any settlement (x) that provides for injunctive or other nonmonetary
relief affecting the Indemnitee or any of its affiliates (other than the
Indemnifying Party and its Subsidiaries) or their respective properties or (y)
that does not include as an unconditional term thereof the giving by each
claimant or plaintiff to such Indemnitee of a release from all Liability with
respect to such claim.
If the Indemnifying Party shall have assumed the defense of a Third Party Claim,
the Indemnitee shall not admit any Liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying Party's
prior written consent.
(c) In order for an Indemnitee to be entitled to any indemnification
provided for under this Agreement in respect of a claim that does not involve a
Third Party Claim, the Indemnitee shall deliver notice of such claim (in
reasonably sufficient detail to enable the Indemnifying Party to evaluate such
claim) with reasonable promptness to the Indemnifying Party. The failure by any
Indemnitee to give such notification shall not affect the indemnification
provided hereunder except to the extent that the Indemnifying Party shall have
been actually and materially prejudiced as a result of such failure. If the
Indemnifying Party has disputed its Liability with respect to such claim the
Indemnifying Party and the Indemnitee shall proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations, such
dispute shall be resolved by litigation, subject to the provisions of Section
6.09, in an appropriate court of competent jurisdiction.
SECTION 5.04. Certain Limitations. (a) The amount of any
Indemnifiable Losses or other Liability for which indemnification is provided
under this Agreement shall be net of any amounts actually recovered by the
Indemnitee from third parties (including amounts actually recovered under
insurance policies) with respect to such Indemnifiable Losses. The Indemnitee
shall use its reasonable best efforts to seek to obtain recovery in respect of
any Indemnifiable Loss or such other Liability under any available insurance
policy.
(b) Any indemnification payments made pursuant to this Agreement
shall be treated for all Tax purposes (i) as to the Indemnitee, as nontaxable
reimbursements or capital contributions, as the case may be, and (ii) as to the
Indemnifying Party, as deductible payments to the extent provided by applicable
law, unless, and then only to the extent, otherwise required by a Final
Determination. If an indemnification payment made pursuant to this Agreement is
treated as a taxable payment as a result of a
Final Determination, such indemnification payment shall be (i) reduced to take
account of the present value of any net Tax benefit actually realized by the
Indemnitee in connection with or otherwise arising from the incurrence of the
applicable Indemnifiable Loss and (ii) increased to take account of any net Tax
cost incurred by the Indemnitee as a result of the receipt of such
indemnification payment (grossed up for such increase).
SECTION 5.05. Limitation on Transfer of B&W Opco Assets. (a) B&W
Opco shall not consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, directly or indirectly,
all or substantially all its assets to, any Person, unless the resulting,
surviving or transferee Person (the "Successor Company") shall be a Person
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not B&W Opco)
shall expressly assume all the obligations of B&W Opco under this Agreement. Any
such assumption shall be in writing and in form and substance reasonably
satisfactory to B&W. For purposes of this Section 5.05(a), the sale, lease,
conveyance, assignment, transfer or other disposition of all or substantially
all of the properties and assets of one or more Subsidiaries of B&W Opco, which
properties and assets, if held by B&W Opco instead of such Subsidiaries, would
constitute all or substantially all of the properties and assets of B&W Opco on
a consolidated basis, shall be deemed to be the transfer of all or substantially
all of the properties and assets of B&W Opco. Notwithstanding the foregoing, the
obligations of B&W Opco under this Agreement shall not be terminated as a result
of any such assumption.
(b) B&W Opco shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, consummate any Asset Disposition unless B&W Opco or
such Subsidiary receives consideration at the time of such Asset Disposition
that has a fair market value at least equal to the fair market value (including
as to the value of all non-cash consideration) of the shares and assets subject
to such Asset Disposition. In the event that the value of the shares and assets
subject to such Asset Disposition exceeds $20,000,000, the fair market value of
such shares and
assets shall be determined in good faith by the Board of Directors of Reynolds
American.
(c) B&W Opco shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to make a Restricted Payment if at the
time B&W Opco or such Subsidiary makes such Restricted Payment the Consolidated
Net Worth (adjusted to give effect to any such Restricted Payment) would be less
than $5.9 billion (or if different, 75% of the Consolidated Net Worth of B&W
Opco and its Subsidiaries as reflected on the balance sheet of B&W Opco and its
Subsidiaries on August 1, 2004, after giving effect to the Transactions
(including the merger of R. J. Reynolds Tobacco Company into B&W Opco and the
distribution of Santa Fe Natural Tobacco Company, Inc. by RJR to Reynolds
American)).
(d) The limitations set forth in this Section 5.05 shall terminate
in the event that Reynolds American has expressly assumed all of the obligations
of B&W Opco under this Agreement. Any such assumption shall be in writing and in
form and substance reasonably satisfactory to B&W. Notwithstanding the
foregoing, the obligations of B&W Opco under this Agreement (other than under
this Section 5.05) shall not be terminated as a result of any such assumption.
ARTICLE VI
Miscellaneous
SECTION 6.01. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to B&W or B&W Opco (prior to completion of the
B&W Opco Stock Contribution), to
401 South 4th Avenue
Louisville, KY 40232
Fax: (502) 217-7297
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, NY 10019
Fax: 212-474-3700
Phone: 212-474-1000
Attention: Philip A. Gelston, Esq.
Sarkis Jebejian, Esq.
(b) if to Reynolds American or B&W Opco (after the
completion of the B&W Opco Stock Contribution), to
401 North Main Street
Winston-Salem, NC 27102-2990
Fax: (336) 741-2998
Attention: General Counsel
with a copy to:
Jones Day
222 East 41st Street
New York, NY 10017
Fax: 212-755-7306
Phone: 212-326-3939
Attention: Jere R. Thomson, Esq.
SECTION 6.02. Amendments; Waivers. (a) No provision of this
Agreement may be amended or waived unless such amendment or waiver is in writing
and signed, in the case of an amendment, by the parties hereto, or in the case
of a waiver, by the party against whom the waiver is to be effective.
(b) The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights nor shall any single or partial exercise by any party to this Agreement
of any of its rights under this Agreement preclude any other or further exercise
of such rights or any other rights under this Agreement. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law or otherwise.
SECTION 6.03. Interpretation. When a reference is made in this
Agreement to a Section, Subsection, Schedule or Exhibit, such reference shall be
to a Section or Subsection of, or a Schedule or an Exhibit to, this Agreement
unless otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein", "hereby" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. The words "date hereof" shall refer to the date of this Agreement.
The term "or" is not exclusive. The word "extent" in the phrase "to the extent"
shall mean the degree to which a subject or other thing extends, and such phrase
shall not mean simply "if". The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms. Any
agreement or instrument defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement or instrument as from
time to time amended, modified or supplemented. References to a Person are also
to its permitted successors and assigns. This Agreement, including the
provisions of Article V, shall not be strictly construed against any Indemnitee
seeking to enforce any indemnification rights under this Agreement.
SECTION 6.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule or Law,
or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the Transactions contemplated
hereby are fulfilled to the extent possible.
SECTION 6.05. Counterparts; Effectiveness. 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; provided,
however, that the rights and obligations of Reynolds American under this
Agreement shall not become effective until the completion of the B&W Opco Stock
Contribution. This Agreement and the obligations set forth herein shall remain
in effect following consummation of the Transactions and shall not terminate
unless and until each of the parties hereto has agreed to such termination in
writing.
SECTION 6.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the other Transaction Agreements constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and thereof and,
except for Article V, are not intended to confer upon any Person other than the
parties any rights or remedies.
SECTION 6.07. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 6.08. Assignment. Except as set forth in Section 5.05(a),
neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise, by any of the parties without the prior written consent of the other
parties hereto, except that B&W may assign, in its sole discretion, any of or
all its rights, interests and obligations under this Agreement to PLC or any of
its Subsidiaries that agrees in writing to be bound by the provisions hereof
(provided that any such assignment shall not relieve B&W from its obligations
under this Agreement). Any purported assignment without such prior written
consent shall be void. Subject to the preceding sentences, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and assigns.
SECTION 6.09. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in the Chancery Court of the State of Delaware, this being
in addition to any other remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
Chancery Court of the State of Delaware in the event any dispute arises out of
this Agreement or any Transaction, (b) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court, (c) irrevocably and unconditionally waives (and agrees not to
plead or claim) any objection to the laying of venue of any action, suit or
proceeding arising out of this Agreement or any Transaction, (d) agrees that it
will not bring any action relating to this Agreement or any Transaction in any
court other than any Federal court sitting in the State of Delaware or Chancery
Court of the State of Delaware (provided that this Section 6.09(d) shall not
apply in respect of any claim for indemnification in respect of any Third Party
Claim that is brought in any other court, in which case, such an action may be
brought in such other court) and (e) waives any right to trial by jury with
respect to any action related to or arising out of this Agreement or any
Transaction.
SECTION 6.10. Confidentiality. (a) B&W agrees to maintain, and B&W
shall cause its directors, officers, employees and other representatives to
maintain, the confidentiality of all material non-public information obtained by
B&W from Reynolds American or any of its Subsidiaries or their respective
directors, officers, employees or agents in connection with this Agreement.
(b) Notwithstanding the foregoing, the confidentiality obligations
of Section 6.10(a) will not apply to information obtained other than in
violation of this Agreement:
(i) which B&W or any of its directors, officers, employees or other
representatives is required to disclose by judicial or administrative
process, or by other requirements of applicable law or regulation or any
governmental authority; provided, however, that, where and to the extent
practicable, B&W (A) will give B&W Opco and Reynolds American reasonable
notice of any such requirement and, to the extent protective measures
consistent with such requirement are available, the opportunity to seek
appropriate protective measures and (B) will cooperate with B&W Opco and
Reynolds American in attempting to obtain such protective measures;
(ii) which becomes available to the public other than as a result of
a breach of Section 6.10(a); or
(iii) which has been provided to B&W or any of its officers,
employees or other representatives by a third party other than from
Reynolds American or any of its Subsidiaries or their respective
directors, officers, employees or agents whom B&W reasonably believes
obtained such information in breach of a contractual or fiduciary
obligation to B&W Opco.
(c) Notwithstanding anything herein to the contrary, any party to
this Agreement (and any employee, representative or other agent of such party)
may disclose to any and all Persons, without limitation of any kind, the tax
treatment and tax structure of the transactions contemplated by this Agreement
and all materials of any kind (including opinions or other tax analyses) that
are
provided to it relating to such tax treatment and tax structure, except that (i)
this provision shall not permit disclosure until the earliest of (A) the date of
the public announcement of discussions relating to the transaction, (B) the date
of the public announcement of the transaction or (C) the date of the execution
of an agreement (with or without conditions) to enter into the transaction, (ii)
tax treatment and tax structure shall not include the identity of any existing
or future party (or any affiliate of such party) to this Agreement and (iii)
this provision shall not permit disclosure to the extent that nondisclosure is
necessary in order to comply with applicable securities laws. Nothing in this
Agreement shall in any way limit any party's ability to consult any tax advisor
(including a tax advisor independent from all other entities involved in the
transactions contemplated by this Agreement) regarding the tax treatment or tax
structure of the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Formation
Agreement as of the day and year first above written.
BROWN & WILLIAMSON TOBACCO CORPORATION
By______________________________________________
Name:
Title:
BROWN & WILLIAMSON U.S.A., INC.
By______________________________________________
Name:
Title:
REYNOLDS AMERICAN INC.
By______________________________________________
Name: Charles A. Blixt
Title: Executive Vice
President and
General Counsel