<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[|X|]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended June 13, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission file number 1-13163
TRICON GLOBAL RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 13-3951308
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1441 Gardiner Lane, Louisville, Kentucky 40213
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 874-8300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's Common Stock as of July
23, 1998 was 152,524,240 shares.
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TRICON GLOBAL RESTAURANTS, INC.
INDEX
Page No.
----------
Part I. Financial Information
Condensed Consolidated Statement of Income - 12 and 24 weeks
ended June 13, 1998 and June 14, 1997 3
Condensed Consolidated Statement of Cash Flows - 24 weeks ended 4
June 13, 1998 and June 14, 1997
Condensed Consolidated Balance Sheet - June 13, 1998 and December
27, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis 13
Independent Accountants' Review Report 29
Part II. Other Information and Signatures 30
2
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PART I - FINANCIAL INFORMATION
TRICON GLOBAL RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data - unaudited)
12 Weeks Ended 24 Weeks Ended
-------------------- ---------------------
6/13/98 6/14/97 6/13/98 6/14/97
--------- -------- --------- ---------
REVENUES
Company restaurants $ 1,867 $ 2,214 $ 3,657 $ 4,337
Franchise and license fees 134 139 265 253
--------- -------- --------- ---------
2,001 2,353 3,922 4,590
--------- -------- --------- ---------
Costs and Expenses, net
Company restaurants
Food and paper 591 720 1,170 1,404
Payroll and employee benefits 545 622 1,083 1,255
Occupancy and other operating
expenses 471 592 943 1,164
--------- -------- --------- ---------
1,607 1,934 3,196 3,823
General, administrative and other
expenses 205 221 398 419
Facility actions net gain (73) (73) (102) (85)
Unusual charges - 39 - 39
--------- -------- --------- ---------
Total costs and expenses, net 1,739 2,121 3,492 4,196
Operating Profit 262 232 430 394
Interest expense, net 67 65 136 131
--------- -------- --------- ---------
Income Before Income Taxes 195 167 294 263
Income Tax Provision 83 46 128 90
--------- -------- --------- ---------
Net Income $ 112 $ 121 $ 166 $ 173
========= ======== ========= =========
Basic Earnings Per Common Share $ .74 $ 1.09
========= =========
Diluted Earnings Per Common Share $ .72 $ 1.07
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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TRICON GLOBAL RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions - unaudited)
24 Weeks Ended
---------------------
6/13/98 6/14/97
---------- --------
Cash Flows - Operating Activities
Net Income $ 166 $ 173
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization 201 257
Facility actions net gain (102) (85)
Unusual charges - 39
Deferred income taxes (15) (36)
Other noncash charges and credits, net 49 25
Changes in operating working capital, excluding
working capital acquired and disposed:
Accounts and notes receivable (14) 4
Inventories 4 (18)
Prepaid expenses, deferred income taxes and other
current assets (32) (88)
Accounts payable and other current liabilities (48) (69)
Income taxes payable 67 29
---------- --------
Net change in operating working capital (23) (142)
---------- --------
Net Cash Provided by Operating Activities 276 231
---------- --------
Cash Flows - Investing Activities
Capital spending (157) (175)
Refranchising of restaurants 290 384
Sale of non-core businesses - 91
Sales of property, plant and equipment 22 34
Other, net (48) (19)
---------- --------
Net Cash Provided by Investing Activities 107 315
---------- --------
Cash Flows - Financing Activities
Proceeds from Long-term Debt, net 1 -
Proceeds from Notes 604 -
Payments of Revolving Credit Facility (412) -
Payments of long-term debt (599) (10)
Short-term borrowings-three months or less, net (39) 52
Decrease in investments by and advances from PepsiCo - (614)
Other, net (1) -
---------- --------
Net Cash Used for Financing Activities (446) (572)
---------- --------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents (3) (1)
---------- --------
Net Decrease in Cash and Cash Equivalents (66) (27)
Cash and Cash Equivalents - Beginning of year 268 137
---------- --------
Cash and Cash Equivalents - End of period $ 202 $ 110
========== ========
- --------------------------------------------------------------------------------
Supplemental Cash Flow Information
Interest paid $ 153 $ 14
Income taxes paid 57 59
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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TRICON GLOBAL RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
6/13/98 12/27/97
----------- ---------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 202 $ 268
Short-term investments, at cost 76 33
Accounts and notes receivable, less allowance: $16 in 1998 and $20 in 190 149
1997
Inventories 67 73
Prepaid expenses, deferred income taxes and other current assets 188 160
----------- ---------
Total Current Assets 723 683
Property, Plant and Equipment, net 3,049 3,261
Intangibles Assets, net 721 812
Investments in Unconsolidated Affiliates 138 143
Other Assets 198 199
----------- ---------
Total Assets $ 4,829 $ 5,098
=========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Accounts payable and other current liabilities $ 1,211 $ 1,260
Income taxes payable 260 195
Short-term borrowings 89 124
----------- ---------
Total Current Liabilities 1,560 1,579
Long-term Debt 4,134 4,551
Other Liabilities and Deferred Credits 620 588
----------- ---------
Total Liabilities 6,314 6,718
----------- ---------
Shareholders' Deficit
Preferred stock, no par value, 250 shares authorized; no shares issued - -
Common stock, no par value, 750 shares authorized; 152 shares issued
and outstanding in 1998 and 1997 1,274 1,271
Accumulated deficit (2,597) (2,763)
Accumulated other comprehensive income - currency translation adjustment (162) (128)
----------- ---------
Total Shareholders' Deficit (1,485) (1,620)
=========== =========
Total Liabilities and Shareholders' Deficit $ 4,829 $ 5,098
=========== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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TRICON GLOBAL RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except per share data)
(Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for interim financial information.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. Therefore, we suggest that the accompanying financial
statements be read in conjunction with the financial statements and notes
thereto included in our annual report on Form 10-K for the fiscal year
ended December 27, 1997 ("10-K"). Except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
consolidated financial statements included in the 10-K. Forward looking
statements contained herein should be read in conjunction with the
cautionary statements contained on page 28.
The condensed consolidated financial statements include TRICON Global
Restaurants, Inc. and its wholly owned subsidiaries. The statements include
the worldwide operations of KFC, Pizza Hut and Taco Bell and, through their
respective disposal dates, our U.S. non-core businesses disposed of in
1997. These non-core businesses consist of California Pizza Kitchen, Chevys
Mexican Restaurant, D'Angelo Sandwich Shop, East Side Mario's and Hot 'n
Now (collectively, the "Non-core Businesses"). References to TRICON
throughout these notes to condensed consolidated financial statements are
made using the first person notations of "we" or "our." All significant
intercompany accounts and transactions have been eliminated. For all
periods presented prior to the Spin-off from PepsiCo, Inc. ("PepsiCo") on
October 6, 1997, the accompanying unaudited condensed consolidated
financial statements present our financial position, results of operations
and cash flows as if we had been an independent, publicly owned company.
Certain allocations in 1997 of previously unallocated PepsiCo interest of
$58 million and $118 million and general and administrative expenses of $12
million and $24 million for the 12 and 24 weeks ended June 14, 1997,
respectively, as well as computations of separate tax provisions, have been
made to facilitate such presentation. We believe that the bases of
allocation of interest and general and administrative expenses were
reasonable based on the facts available at the date of their allocation.
However, based on current information, such amounts are not indicative of
amounts which we would have incurred if we had been an independent,
publicly owned company for 1997.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
In our opinion, the accompanying unaudited condensed consolidated financial
statements include all adjustments considered necessary to present fairly,
when read in conjunction with the 10-K, our financial position as of June
13, 1998, and the results of our operations for the 12 and 24 weeks ended
June 13, 1998 and June 14, 1997 and cash flows for the 24 weeks ended June
13, 1998 and June 14, 1997. The results of operations for such interim
periods are not necessarily indicative of the results to be expected for
the full year.
6
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2. EARNINGS PER COMMON SHARE ("EPS")
<TABLE>
<CAPTION>
12 Weeks 24 Weeks
Ended Ended
6/13/98 6/13/98
----------- ----------
<S> <C> <C>
Net income $ 112 $ 166
=========== ==========
Basic EPS:
Weighted-average common shares outstanding 152 152
=========== ==========
Basic EPS $ .74 $ 1.09
=========== ==========
Diluted EPS:
Weighted-average common shares outstanding 152 152
Shares assumed issued on exercise of dilutive options 19 19
Shares assumed purchased with proceeds of dilutive options (16) (16)
----------- ----------
Shares applicable to diluted earnings 155 155
=========== ==========
Diluted EPS $ .72 $ 1.07
=========== ==========
</TABLE>
Unexercised employee stock options to purchase 1.9 million and 2.1 million
shares of our common stock for the 12 and 24 weeks ended June 13, 1998,
respectively, were not included in the computation of diluted EPS because
their exercise prices were greater than the average market price of our
common stock during the 12 and 24 weeks ended June 13, 1998.
Basic and diluted EPS data has been omitted for the 12 and 24 weeks ended
June 14, 1997 since we were not an independent, publicly owned company with
a capital structure of our own during that period.
3. CHANGES IN ACCOUNTING PRINCIPLES
a. Reporting Comprehensive Income
Effective December 28, 1997, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as our other annual
financial statements. This Statement also requires that we classify items
of other comprehensive earnings by their nature in an annual financial
statement. For example, other comprehensive earnings may include foreign
currency translation adjustments, minimum pension liability adjustments,
and unrealized gains and losses on certain investments in debt and equity
securities. Our annual financial statements for prior periods will be
reclassified, as required.
7
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Our quarterly total comprehensive income was as follows:
12 Weeks Ended 24 Weeks Ended
------------------ -------------------
6/13/98 6/14/97 6/13/98 6/14/97
------- --------- -------- --------
Net income $ 112 $ 121 $ 166 $ 173
Currency translation adjustment 3 (36) (34) (40)
------- --------- -------- --------
Total comprehensive income $ 115 $ 85 $ 132 $ 133
======= ========= ======== ========
b. Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," was issued in
March 1998. SOP 98-1 identifies the characteristics of internal-use
software and specifies that once the preliminary project stage is complete,
certain external direct costs, certain direct internal payroll and
payroll-related costs and interest costs incurred during the development of
computer software for internal use should be capitalized and amortized. SOP
98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998, with earlier application encouraged, and must be applied
to internal-use computer software costs incurred in those fiscal years for
all projects, including those projects in progress upon initial application
of this SOP. We currently expense all such costs as incurred. We have not
yet quantified the dollar impact of adopting SOP 98-1; however, when
implemented in 1999, it will result in the capitalization of costs which
would have been previously expensed.
c. Disclosures About Segments of an Enterprise and Related Information
Effective December 28, 1997, we adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This Statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise" and requires that a public company report annual and interim
financial and descriptive information about its reportable operating
segments. Operating segments, as defined, are components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. This Statement allows aggregation
of similar operating segments into a single operating segment, in general,
if the businesses are considered similar under the criteria of this
Statement. For purposes of applying this Statement, our domestic businesses
have been aggregated. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Adoption of
this Statement had no impact on our reportable segments as disclosed in our
10-K. Following are the disclosures recommended by the new standard on an
interim basis:
8
<PAGE>
GEOGRAPHIC AREAS
Revenues
---------------------------------------------------
12 Weeks Ended 24 Weeks Ended
6/13/98 6/14/97 (1) 6/13/98 6/14/97 (1)
----------------------------------------------------------------------------
United States $ 1,524 $ 1,792 $ 2,991 $ 3,516
International 477 561 931 1,074
-------- --------- --------- --------
$ 2,001 $ 2,353 $ 3,922 $ 4,590
======== ========= ========= ========
Operating Profit, Interest (Expense) Income,
Net and Income (Loss) Before Income Taxes
-----------------------------------------------------
12 Weeks Ended 24 Weeks Ended
6/13/98 6/14/97 (1) 6/13/98 6/14/97 (1)
----------------------------------------------------------------------------
Operating profit
United States $ 253 $ 148 (2) $ 406 $ 280 (2)
International 45 100 89 144
Foreign exchange net
losses - (5) - (8)
Unallocated corporate
expenses (36) (11) (65) (22)
-------- --------- --------- ---------
262 232 430 394
-------- --------- --------- ---------
Interest expense, net
United States (3) (5) (6) (10)
International - (2) 1 (3)
Unallocated corporate
expenses (64) (58) (131) (118)
-------- --------- --------- ---------
(67) (65) (136) (131)
-------- --------- --------- ---------
Income before income taxes
United States 250 143 (2) 400 270 (2)
International 45 98 90 141
Foreign exchange net
losses - (5) - (8)
Unallocated corporate
expenses (100) (69) (196) (140)
-------- --------- --------- ---------
$ 195 $ 167 $ 294 $ 263
======== ========= ========= =========
(1)Results from the United States included the Non-core Businesses disposed
of in 1997. Excluding the unusual charges, the Non-core Businesses
contributed the following:
12 Weeks 24 Weeks
Ended Ended
6/14/97 6/14/97
------------ ------------
Revenues $ 88 $ 191
Operating profit 5 10
Interest expense, net (1) (2)
Income before income taxes 4 8
Net income 3 6
(2)Includes unusual charges related to the disposal of the Non-core
Businesses in 1997 of $39 million for the quarter and year-to-date.
9
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Identifiable Assets
---------------------
6/13/98 12/27/97
----------------------------------------------------------------------
United States $ 3,374 $ 3,637
International 1,455 1,461
------- ---------
$ 4,829 $ 5,098
======== =========
d. Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. This Statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). SFAS No. 133 cannot be applied retroactively. When
adopted, SFAS No. 133 must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and,
at the company's election, before January 1, 1998).
We have not yet quantified the impacts of adopting SFAS No. 133 on our
financial statements and have not determined the timing of or method of our
adoption of SFAS No. 133. However, the Statement could increase volatility
in earnings and other comprehensive income.
4. LONG-TERM DEBT
During the 24 weeks ended June 13, 1998, we made net payments of $587
million and $412 million under our unsecured bank Term Loan Facility and
the unsecured Revolving Credit Facility, respectively. As discussed in our
10-K, amounts outstanding under the revolving credit facility are expected
to fluctuate from time to time, but term loan reductions cannot be
reborrowed. Such payments reduced amounts outstanding at June 13, 1998 to
$1.38 billion and $2.02 billion from $1.97 billion and $2.44 billion at
year end 1997, on the term facility and revolving facility, respectively.
At June 13, 1998, we had unused revolving credit agreement lines available
aggregating $1.08 billion, net of outstanding letters of credit of $147
million.
In fiscal 1997, we filed with the Securities and Exchange Commission a
shelf registration statement on Form S-3 with respect to offerings of up to
$2 billion of senior unsecured debt. In early May 1998, we issued $350
million 7.45% Unsecured Notes due May 15, 2005 and $250 million 7.65%
Unsecured Notes due May 15, 2008 (collectively referred to as the "Notes").
The proceeds, net of issuance costs, were used to reduce existing
borrowings under our unsecured term facility and revolving facility. The
Notes are carried net of related discounts which are being amortized over
the life of the Notes. The unamortized discount for each issue was
approximately $600,000 at June 13, 1998 and the amount of amortization in
the quarter was not significant. Interest is payable May 15 and November 15
10
<PAGE>
commencing on November 15, 1998. In anticipation of the issuance of the
Notes, we had entered into $600 million in treasury locks to eliminate
interest rate sensitivity in pricing of the Notes. Concurrent with the
issuance of the Notes, the locks were settled at a gain which will be
amortized to interest expense over the life of the Notes.
5. COMMITMENTS AND CONTINGENCIES
Relationship with Former Parent After Spin-off
As disclosed in our 1997 10-K, in connection with the October 6, 1997
spin-off from PepsiCo (the "Spin-off"), separation and other related
agreements (the "Separation Agreement") were entered into which contain
certain indemnities to the parties and provide for the allocation of tax
and other assets, liabilities and obligations arising from periods prior to
the Spin-off. The Separation Agreement provided for, among other things,
our assumption of all liabilities relating to the restaurant businesses,
inclusive of the Non-core Businesses disposed of in 1997, and the
indemnification of PepsiCo with respect to such liabilities. Our best
estimates of all such liabilities have been included in the accompanying
condensed consolidated financial statements.
Under the Separation Agreement, PepsiCo maintains full control and absolute
discretion with regard to any combined or consolidated tax filings for
periods through the Spin-off Date. PepsiCo also maintains full control and
absolute discretion regarding common tax audit issues. Although PepsiCo has
contractually agreed to, in good faith, use its best efforts to settle all
joint interests in any common audit issue on a consistent basis with prior
practice, there can be no assurance that determinations so made by PepsiCo
would be the same as we would reach, acting on our own behalf.
We have agreed to certain restrictions on future actions to help ensure
that the Spin-off maintains its tax-free status. Restrictions include,
among other things, limitations on the liquidation, merger or consolidation
with another company, certain issuances and redemptions of our Common
Stock, the granting of stock options and certain sales, refranchisings,
distributions or other dispositions of assets. If we fail to abide by such
restrictions or to obtain waivers from PepsiCo and, as a result, the
Spin-off fails to qualify as a tax-free reorganization, we will be
obligated to indemnify PepsiCo for any resulting tax liability, which could
be substantial. Additionally, we are obligated to indemnify PepsiCo in
certain circumstances with respect to any employer payroll tax it incurs
related to the exercise of vested PepsiCo options held by our employees
after the Spin-off. No payments under these indemnities have been required
through the second quarter of 1998.
Other Commitments and Contingencies
We were directly or indirectly contingently liable in the amounts of $304
million and $302 million at June 13, 1998 and December 27, 1997,
respectively, for certain lease assignments and guarantees. In connection
with these contingent liabilities, after the Spin-off, we were required to
maintain cash collateral balances at certain institutions of approximately
$30 million, which are included in Other Assets in the accompanying
condensed consolidated balance sheet. At June 13, 1998, $223 million
represented contingent liabilities to lessors as a result of our assigning
our interest in and obligations under real estate leases as a condition to
the refranchising of Company restaurants. The $223 million represented the
present value of the minimum payments of the assigned leases, excluding any
renewal option periods, discounted at our pre-tax cost of debt. On a
nominal basis, the contingent liability resulting from the assigned leases
was $333 million. The balance of the contingent liabilities primarily
reflected guarantees to support financial arrangements of certain
unconsolidated affiliates and restaurant franchisees.
11
<PAGE>
We are currently and, for certain prior years were, primarily self-insured
for most workers' compensation, general liability and automotive liability
losses, subject to per occurrence and aggregate annual liability
limitations. During the first two quarters of 1997, we participated with
PepsiCo in a guaranteed cost program for certain coverages. We are also
primarily self-insured for health care claims for eligible participating
employees, subject to certain deductibles and limitations. We determine our
liability for claims reported and for claims incurred but not reported on
an actuarial basis.
We are subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. Like some other large retail employers, Taco Bell recently has
been faced with allegations of purported class-wide wage and hour
violations. We believe that the ultimate liability, if any, in excess of
amounts already recognized arising from such claims or contingencies is not
likely to have a material adverse effect on our results of operations,
financial condition or cash flows.
6. SUBSEQUENT EVENT
On July 21, 1998, our Board of Directors declared a dividend distribution
of one right for each share of common stock outstanding as of August 3,
1998 (the "Record Date"). Each right initially entitles the registered
holder to purchase a unit consisting of one one-thousandth of a share (a
"Unit") of Series A Junior Participating Preferred Stock, without par
value, at a purchase price of $130 per Unit, subject to adjustment. The
rights, which do not have voting rights, will become exercisable for TRICON
common stock ten business days following a public announcement that a
person or group has acquired, or has commenced or intends to commence a
tender offer for, 15% or more, or 20% or more if such person or group owned
10% or more on the adoption date of this plan, of our common stock. In the
event the rights become exercisable for common stock, each right will
entitle its holder (other than the Acquiring Person as defined in the
Agreement) to purchase, at the rights then-current exercise price, TRICON
common stock having a value of twice the exercise price of the right. In
the event the rights become exercisable for common stock and thereafter we
are acquired in a merger or other business combination, each right will
entitle its holder to purchase, at the right's then-current exercise price,
common stock of the acquiring company having a value of twice the exercise
price of the right.
The rights are redeemable in their entirety, prior to becoming exercisable,
at $.01 per right under certain specified conditions. The rights expire on
July 21, 2008, unless such date is extended or the rights are earlier
redeemed or exchanged as provided in the Agreement.
The foregoing description of the rights is qualified in its entirety by
reference to the Rights Agreement between TRICON and BankBoston, N.A., as
Rights Agent, dated as of July 21, 1998 (including the exhibits thereto),
which is filed as an Exhibit to our Form 10-Q for the twelve week period
ended June 13, 1998.
12
<PAGE>
Management's Discussion and Analysis
for the 12 and 24 Weeks Ended June 13, 1998
Introduction
On October 6, 1997 (the "Spin-off Date"), the worldwide operations of KFC,
Pizza Hut and Taco Bell (the "Core Business(es)") became an independent,
publicly owned restaurant Company known as TRICON Global Restaurants, Inc.
through a Spin-off from our former parent, PepsiCo, Inc. (the "Spin-off"). The
following Management's Discussion and Analysis should be read in conjunction
with the unaudited Condensed Consolidated Financial Statements on pages 3 - 12
and the Cautionary Statements on page 28 and our filing on Form 10-K for the
year ended December 27, 1997 ("10-K"). For purposes of this Management's
Discussion and Analysis, we include the worldwide operations of the Core
Businesses and, through their respective dates of disposal in 1997, the Non-core
Businesses. Where significant to the discussion, the impact of the Non-core
Businesses has been separately identified. Though the full-year benefits of the
fourth quarter 1997 unusual charge, discussed below, have been and are expected
to be significant, we now expect that they will be offset in the near term by
the negative impact of adverse economic conditions in Asia and incremental
spending related to Year 2000 issues. Through the first half of 1998, we
estimate that the benefits of the fourth quarter charge were approximately $5
million less than the negative impacts of Asia and Year 2000 spending.
In the following discussion, volume is the estimated dollar effect of the
year-over-year change in customer transaction counts. Effective net pricing
includes price increases/decreases and the effect of product mix. Portfolio
effect includes the impact on operating results related to our refranchising
initiative and closure of underperforming stores. System sales represents the
Core Business' combined sales of the Company, joint venture, franchised and
licensed units.
Tabular amounts are displayed in millions except per share and unit count
amounts, or as specifically identified.
Comparability
Certain factors impacting comparability of operating performance in the
quarter ended June 13, 1998 were anticipated at the prior fiscal year end and
are more fully discussed in the 10-K. Updated information is provided, as
follows.
Asian Economic Events
The overall economic turmoil and weakening of local currencies throughout
much of Asia against the U.S. dollar beginning in late 1997 continues to
present, in the near term, a challenging retail environment. The difficult
economic conditions have continued through the second quarter of this year and
have adversely affected the U.S. dollar value of our foreign currency
denominated sales ("translation") and consumer demand as seen in reduced
transaction counts, both of which continue to impact our consolidated results of
operations.
Asian operations in such countries as China, Japan, Korea, Singapore, and
Thailand, among others, comprised approximately 37% and 32% of our international
system U.S. dollar translated sales in the quarter and year-to-date,
respectively, versus 40% and 36% for the quarter and year-to-date 1997,
respectively. Asian system sales declined 11% and 13% for the quarter and
year-to-date, respectively. Declines in system sales in Japan, Korea, and
Indonesia have been partially offset by system sales increases in China and
Taiwan primarily due to new unit development. Excluding the impact of foreign
currency translation, Asian system sales increased 6% and 4% for the quarter and
year-to-date, respectively.
13
<PAGE>
Revenues from Asia declined 7% for the quarter and 6% year-to-date as the
impacts of translation and volume declines more than offset new unit
development. Excluding the impacts of foreign currency translation, revenues
from Asia increased approximately 15% and 16% for the quarter and year-to-date,
respectively.
Operating profits from Asia declined 48% and 47% for the quarter and
year-to-date, respectively, and are expected to decline at a somewhat lower rate
through the remainder of 1998. Excluding the impact of foreign currency
translation, operating profits declined 14% and 16% for the quarter and
year-to-date, respectively. While we continue to work with our suppliers to
reduce food costs and focus on increasing our everyday value offerings, the
challenges continue. We expect to continue to cautiously seek out investment
opportunities in Asia, drawing on lessons learned there, and from our experience
in other countries such as Mexico and Poland. The complexities of the
international environment in which we operate make it difficult to accurately
predict the ongoing effect of currency movements and continuing economic turmoil
on our results of operations. Related effects will be reported in our financial
statements as they become known and estimable.
Selected highlights of our recent operating results in Asia are as follows:
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
-------------------------------- --------------------------------
% B(W) % B(W)
6/13/98 6/14/97 vs. 1997 6/13/98 6/14/97 vs. 1997
-------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Systems Sales $ 549 $ 615 (11) $ 960 $ 1,106 (13)
% of International System Sales 37% 40% 32% 36%
Revenues $ 113 $ 121 (7) $ 192 $ 205 (6)
% of International Revenues 24% 22% 21% 19%
Operating Profit, excluding
facility actions $ 11 $ 21 (48) $ 23 $ 43 (47)
% of Total International
Operating Profit, excluding 31% 62% 30% 54%
facility actions
</TABLE>
Note: A summary of total International results is located on page 23.
Year 2000
We have established an enterprise-wide program to prepare our computer
systems and applications for the Year 2000 issue. We are utilizing both internal
and external resources to identify, correct and test the systems for Year 2000
compliance. We anticipate that the majority of our domestic reprogramming will
be complete by December 1998, and testing efforts will be substantially
concluded in the first quarter of 1999. Further validation through testing will
be conducted throughout 1999. TRICON Restaurants International ("TRI") has
initiated a program to assess and correct computer systems for the Year 2000
issue in five major international markets. The program was distributed to all
other international markets in early 1998. The overall TRI Year 2000 program is
managed by three regional project managers in Asia, Europe and the Americas. The
regional project managers are currently initiating the program in all
international markets. We anticipate that business-critical international
systems will be reprogrammed and tested by June 1999.
Because third party failures could have a material impact on our ability to
conduct business, confirmations are being requested from our processing vendors
and suppliers to certify that plans are being developed to address the Year 2000
issue. Information has been provided to all franchisees regarding the potential
business risks associated with the Year 2000 issue. We intend to make every
reasonable effort to assess the Year 2000
14
<PAGE>
readiness of our critical business partners and develop contingency plans.
However, unanticipated third party failures to the extent qualified replacement
vendors are not available on a timely basis, as well as the failure to execute
our own remediation efforts, could have a material adverse impact on our
financial condition, results of operations and liquidity in 1999 and beyond.
Testing and remediation of all our systems and applications is expected to
cost $40-$50 million from inception in 1997 through completion in 1999. Of these
costs, approximately $17 million had been incurred through June 13, 1998, of
which $13 million was spent in 1998 ($7 million in the second quarter) and $4
million was spent in 1997. Approximately $35 million is expected to be incurred
in fiscal 1998. All costs are expected to be funded by cash flows from
operations.
Other Factors Affecting Comparability
In addition to the above identified near-term risks in our Asian businesses
and costs related to Year 2000 issues, we believe that certain items included in
1997 results of operations are either unlikely to recur in 1998 or are expected
to recur in significantly different magnitudes, thereby affecting comparability
of results. These items include $24 million in special KFC franchise contract
renewal fees primarily from renewals in the second and third quarters of 1997
(approximately $19 million and $5 million, respectively) which will not recur in
1998 and the income included in 1997 results attributable to the Non-core
Businesses sold in 1997, excluding unusual disposal charges, of approximately $4
million ($3 million after-tax) in the first quarter of 1997, $4 million ($3
million after-tax) in the second quarter of 1997 and $4 million ($4 million
after-tax) in the third quarter of 1997. Unusual disposal charges related to the
Non-core Businesses of $39 million and $15 million were recorded in the second
and third quarters of 1997, respectively. In addition, 1998 total facility
actions net gain after-tax is expected to be approximately 20% to 25% less than
the after-tax net gain recognized in 1997, excluding the fourth quarter 1997
charge, due to the 1997 tax-free gain of approximately $100 million related to
the refranchising of our restaurants in New Zealand through an initial public
offering.
Additionally, we believe that our 1998 net interest expense will be higher
than the interest allocated to us by PepsiCo for 1997. We currently expect net
interest expense to be approximately $25 million to $30 million higher in 1998.
This increase is driven by the higher outstanding debt levels and higher
expected weighted average interest rates.
As disclosed in the 10-K, we are proceeding with the relocation of our
Wichita, Kansas, operations to other facilities. Through June 13, 1998, we have
incurred approximately $5 million ($3 million in the second quarter) of
termination benefits and other expenses related to this relocation. We currently
expect to incur approximately $6 million of early retirement and other expenses
in the third quarter of 1998 and $1 million in the fourth quarter. These charges
are expected to be substantially offset by the anticipated gain on the sale of
the facility in the fourth quarter.
Store Portfolio Perspectives
In the fourth quarter of 1997, we announced a $530 million unusual charge
($425 million after-tax). The charge included (1) costs of closing
underperforming stores during 1998, primarily at Pizza Hut and internationally;
(2) reduction to fair market value, less costs to sell, of the carrying amounts
of certain restaurants we intend to refranchise in 1998; (3) impairment of
certain restaurants intended to be used in the business; (4) impairment of
certain joint venture investments; and (5) related personnel reductions. Of the
$530 million charge, approximately $440 million related to asset writedowns and
approximately $90 million related to liabilities, primarily occupancy-related
costs and severance. Through June 13, 1998, the amounts utilized to date apply
only to the actions covered by the charge and no material adjustments have been
made to the charge. The charge included reserves related to 1,407 units expected
to be refranchised and/or closed. As of June 13, 1998, 366 units have been
closed and 42 units have been refranchised.
15
<PAGE>
The charge is expected to have a favorable impact on future cash flows and
operating profits. We believe our worldwide business, upon completion of the
actions covered by the charge, will be significantly more focused and better
positioned to deliver consistent growth in operating earnings before facility
actions. We estimate that the favorable impact on operating profit related to
the 1997 fourth quarter charge was approximately $15 million in the second
quarter of 1998 and approximately $28 million year-to-date resulting primarily
from the absence of depreciation in 1998 for stores included in the charge.
For the last few years, we have been working to reduce our share of total
system units by selling Company restaurants to existing and new franchisees
where their expertise can be leveraged to improve our concepts' overall
operational performance, while retaining Company ownership of key markets. This
portfolio-balancing activity has, and will continue to, reduce our reported
revenues and increase the importance of system sales as a key performance
measure. Refranchising frees up invested capital while continuing to generate
franchise fees, thereby improving returns. The impact of refranchising gains is
expected to decrease over time. The following table summarizes the refranchising
activities for the first half of 1998 and 1997.
12 Weeks Ended 24 Weeks Ended
-------------------- ----------------------
6/13/98 6/14/97 6/13/98 6/14/97
--------- --------- ---------- ---------
Number of units refranchised 387 385 585 479
Refranchising proceeds, pre-tax $ 169 $ 344 $ 290 $ 384
Refranchising net gain, pre-tax 79 137 108 153
Our portfolio initiatives, coupled with the relative number of new points
of distribution added by our franchisees and licensees and by us, have reduced
our overall Company ownership percentage (including joint venture units) of our
Core Businesses' total system units by almost 3 percentage points from year-end
1997 and by 9 percentage points from year-end 1996 to 35% at June 13, 1998. As
we approach a Company/franchise balance more consistent with our major
competition, refranchising activity is expected to substantially decrease.
16
<PAGE>
Results of Operations
Worldwide
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
----------------------------------- --------------------------------
6/13/98 6/14/97 % B(W) 6/13/98 6/14/97 % B(W)
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
SYSTEM SALES - CORE ONLY $ 4,736 $ 4,536 4 $ 9,293 $ 9,120 2
========= ========= ========= =========
REVENUES
Company sales $ 1,867 $ 2,214 (16) $ 3,657 $ 4,337 (16)
Franchise and license fees 134 139 (4) 265 253 5
-------- --------- -------- ---------
Total Revenues $ 2,001 $ 2,353 (15) $ 3,922 $ 4,590 (15)
========= ========= ========= =========
COMPANY RESTAURANT MARGINS
Domestic $ 209 $ 224 (7) $ 359 $ 404 (11)
International 51 56 (9) 102 110 (7)
-------- --------- -------- ---------
Total $ 260 $ 280 (7) $ 461 $ 514 (10)
========= ========= ========= =========
% of sales 13.9% 12.6% 1.3 points 12.6% 11.8% .8 points
Ongoing operating profit $ 189 $ 198 (5) $ 328 $ 348 (6)
Facility actions net gain (73) (73) - (102) (85) 20
Unusual charges - 39 NM - 39 NM
--------- --------- --------- ---------
Operating profit 262 232 13 430 394 9
Interest expense, net 67 65 (3) 136 131 (4)
Income tax provision 83 46 (80) 128 90 (42)
--------- --------- --------- ---------
Net Income $ 112 $ 121 (7) $ 166 $ 173 (4)
========= ========= ========= =========
Diluted earnings per share $ .72 $ 1.07
========= =========
Pro forma diluted earnings per
share (1) $ .78 $ 1.12
========= =========
</TABLE>
(1) Assumes the 152 million shares issued at Spin-off and the 3 million
dilutive options for the second quarter and year-to-date, respectively, had
been outstanding from the beginning of the comparable period in fiscal
1997.
NM - Not Meaningful
- --------------------------------------------------------------------------------
WORLDWIDE RESTAURANT UNIT ACTIVITY
<TABLE>
<CAPTION>
Joint
Company Venture Franchised Licensed Total
-------------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 27, 1997 10,117 1,090 15,097 3,408 29,712
New Builds & Acquisitions 122 37 359 282 800
Refranchising & Licensing (585) (6) 511 80 -
Closures (354) (28) (304) (205) (891)
-------------- --------- ------------- ---------- ----------
Balance at June 13, 1998 9,300(a) 1,093 15,663 3,565 29,621
============== ========= ============= ========== ==========
% of Total 31.4% 3.7% 52.9% 12.0% 100.0%
============== ========= ============= ========== ==========
</TABLE>
(a) Includes 399 units approved for closure, but not yet closed at June 13,
1998.
- --------------------------------------------------------------------------------
17
<PAGE>
System sales increased $200 million or 4% in the quarter and $173 million
or 2% year-to-date. Excluding the negative impact of foreign currency
translation, system sales increased $319 million or 7% in the quarter and $473
million or 5% year-to-date. The increase in both the quarter and year-to-date
resulted primarily from the development of new units during the last twelve
months, predominantly by franchisees and licensees. Domestically, development
during 1998 was principally at Pizza Hut and Taco Bell with international
development largely in China. This growth in system sales was partially offset
by store closures.
Revenues decreased $352 million, or 15%, for the quarter and $668 million,
or 15%, year-to-date. Company restaurant sales decreased $347 million, or 16%,
for the quarter and $680 million, or 16%, for year-to-date. Excluding the
negative impact of foreign currency translation, total revenues decreased $307
million, or 13%, for the quarter and $573 million, or 12%, year-to-date. This
decrease in Company sales for both quarter and year-to-date was primarily due to
portfolio actions and the Non-core Businesses sold in 1997, which had 1997
revenues of $88 million and $191 million for the quarter and year-to-date,
respectively. The decrease in revenues was partially offset by new unit
development.
Franchise and license fees decreased $5 million, or 4%, and increased $12
million, or 5% for the quarter and year-to-date, respectively. The decline in
the quarter is primarily due to the $19 million of renewal fees received in the
second quarter of 1997 under a special KFC U.S. franchise contract renewal
program and to the unfavorable effects of foreign currency translation. These
declines were partially offset by an increase in continuing fees related to our
refranchising activities and new franchise and license units. The increase on a
year-to-date basis reflected the increase in continuing fees from refranchised
units and new unit development in excess of the 1997 KFC renewal fees and the
unfavorable effects of foreign currency translation.
Company Restaurant Margins - Worldwide
12 Weeks Ended 24 Weeks Ended
----------------- -----------------
6/13/98 6/14/97 6/13/98 6/14/97
------- -------- -------- -------
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 31.7 32.5 32.0 32.4
Payroll and employee benefits 29.2 28.1 29.6 29.0
Occupancy and other operating expenses 25.2 26.8 25.8 26.8
------- -------- -------- -------
Company restaurant margins 13.9% 12.6% 12.6% 11.8%
======= ======== ======== =======
Company restaurant margins as a percent of sales increased 130 basis points
for the second quarter of 1998 and 80 basis points year-to-date as compared to
the same periods in 1997. The increase was primarily driven by the portfolio
effect, which contributed approximately 80 basis points and 70 basis points for
the quarter and year-to-date, respectively, to this improvement. In addition,
the absence in 1998 of depreciation and amortization relating to stores included
in the fourth quarter charge contributed approximately 70 basis points and 60
basis points for the quarter and year-to-date, respectively. The positive
portfolio effect and the benefits of the fourth quarter charge were mitigated by
the margin impact of cost increases, primarily labor, and volume declines both
in the U.S. and internationally. Favorable effective net pricing and declines in
other operating expenses mitigated the margin decline. Other operating expenses
in 1997 included costs related to the implementation of several store condition
and quality initiatives primarily at Pizza Hut and Taco Bell designed to enhance
customer satisfaction.
18
<PAGE>
General, Administrative and Other Expenses
12 Weeks Ended 24 Weeks Ended
---------------------------- ---------------------------
6/13/98 6/14/97 % B(W) 6/13/98 6/14/97 % B(W)
--------- ------- -------- -------- ------- --------
Domestic - Core $ 109 $ 130 16% $ 218 $ 254 14%
Domestic - Non-core - 8 NM - 16 NM
International 60 67 10% 115 119 3%
Unallocated 36 16 NM 65 30 NM
--------- ------- -------- -------
$ 205 $ 221 7% $ 398 $ 419 5%
========= ======= ======== =======
General, administrative and other expenses ("G&A") decreased $16 million in
the quarter or 7% and $21 million or 5% year-to-date. G&A includes general and
administrative expenses, other income and expense, equity income or loss from
investments in unconsolidated affiliates and foreign exchange gains and losses.
Included in the 1997 unallocated G&A was a PepsiCo allocation amount of $12
million in the quarter and $24 million year-to-date, reflecting a portion of
PepsiCo's shared administrative expenses. The allocated PepsiCo administrative
expenses were based on PepsiCo's total corporate administrative expenses using a
ratio of our revenues to PepsiCo's revenues. We believe that this basis of
allocation was reasonable based on the facts available at the date of such
allocation. Based on our current analysis, G&A that we incurred in the second
quarter of 1998 and year-to-date as an independent, publicly owned company was
higher than the 1997 allocation from PepsiCo by approximately $6 million and $10
million, respectively.
Excluding the effects of the disposal of our Non-core Businesses, G&A would
have decreased $8 million or 4% in the quarter and $5 million, or 1%,
year-to-date. For the quarter and year-to-date, the decrease reflected the
benefits of stores sold or closed, decreased headquarters and field operating
expenses primarily at Taco Bell, decreased foreign exchange losses and increased
equity income from TRICON's investments in unconsolidated affiliates partially
offset by increased investment spending. Investment spending consisted primarily
of costs related to spending on Year 2000 issues (see page 14 for details),
increased administrative expenses incurred as an independent, publicly owned
company and efforts to improve and consolidate administrative and accounting
systems, including the relocation to Louisville of our processing center in
Wichita (see page 15 for details).
Facility Actions Net Gain
12 Weeks Ended 24 Weeks Ended
--------------------- -------------------------
6/13/98 6/14/97 6/13/98 6/14/97
--------- ---------- ----------- ---------
Refranchising net gain $ (79) $ (137) $ (108) $ (153)
Store closure costs, net (2) 25 (2) 29
Recurring impairment 8 39 8 39
--------- ---------- ----------- ---------
Facility actions net gain $ (73) $ (73) $ (102) $ (85)
========= ========== =========== =========
Refranchising net gain, which included initial franchise fees of $12
million and $9 million for the 12 weeks ended June 13, 1998 and June 14, 1997,
respectively, and $19 million and $12 million for the 24 weeks ended June 13,
1998 and June 14, 1997, respectively, arose from refranchising 585 and 479 units
in 1998 and 1997, respectively. See page 16 for more details regarding
refranchising activities.
19
<PAGE>
Impairment resulted from our normal recurring evaluation of stores held for
use. The lower amount in 1998 was primarily driven by 1997 decisions to dispose
of certain stores which may have otherwise been impaired in the current
evaluation. Future impairment charges will be dependent on facts and
circumstances at each future evaluation date and current impairment is not
necessarily indicative of future impairment.
Unusual Charges
Unusual charges of $39 million in the second quarter of 1997 resulted from
our 1996 decision to dispose of our remaining Non-core Businesses. These
disposal charges represented a further reduction of the carrying amounts of the
Non-core Businesses to their estimated or actual fair market value, less costs
to sell.
Operating Profits
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
-------------------------------- -------------------------------
6/13/98 6/14/97 % B(W) 6/13/98 6/14/97 % B(W)
--------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Domestic - Core $ 190 $ 175 9 $ 316 $ 289 9
Domestic - Non-core - 5 NM - 10 NM
International 35 34 3 77 79 (3)
Foreign exchange losses - (5) NM - (8) NM
Unallocated expenses (36) (11) NM (65) (22) NM
--------- ---------- --------- ---------
Ongoing operating profit 189 198 (5) 328 348 (6)
Facility actions net gain (73) (73) - (102) (85) 20
Unusual charges - 39 NM - 39 NM
--------- ---------- --------- ---------
Reported operating profit $ 262 $ 232 13 $ 430 $ 394 9
========= ========== ========= =========
</TABLE>
Excluding facility actions net gain and the 1997 unusual charges of $39
million related to the disposal of the Non-core Businesses, operating profits
declined $9 million, or 5%, and $20 million, or 6%, for the quarter and
year-to-date, respectively. Excluding the negative impact of currency
translation, the decrease in operating profit was $5 million for the quarter and
$10 million year-to-date, or 3%, for both periods. The remaining decrease in
operating profit was driven by the absence in 1998 of the operating profits from
the Non-core Businesses of $5 million and $10 million for the quarter and
year-to-date, respectively. Declines in restaurant margin dollars were offset by
reduced G&A in the quarter and by higher franchise fees and reduced G&A on a
year-to-date basis.
Interest Expense, Net
Prior to the Spin-off, our operations were financed through operating cash
flows, refranchising activities and investments by and advances from PepsiCo.
Our 1997 interest expense includes an allocation of $58 and $118 million for the
12 and 24 weeks ended June 14, 1997, respectively, by PepsiCo of its interest
expense (PepsiCo's weighted average interest rate applied to the average balance
of investments by and advances from PepsiCo) and interest on our external debt
for periods prior to the Spin-off. We believe such allocated interest expense is
not indicative of the interest expense that we would have incurred as an
independent, publicly owned Company or will incur in future periods.
Interest expense increased $2 million, or 3%, and $5 million, or 4%, for
the quarter and year-to-date, respectively. This increase is primarily due to
the higher interest rate on our outstanding debt, as compared to the PepsiCo
rate used in the allocation process prior to the Spin-off, and also higher
outstanding debt levels.
20
<PAGE>
Income Taxes
12 Weeks Ended 24 Weeks Ended
----------------------- ----------------------
6/13/98 6/14/97 6/13/98 6/14/97
---------- --------- --------- -----------
Income taxes $ 83 $ 46 $ 128 $ 90
Reported Effective tax rate 42.6% 27.5% 43.5% 34.2%
Ongoing effective tax rate* 42.6% 39.9% 43.5% 42.6%
* Adjusted to exclude the effects of the tax-free New Zealand gain of $93
million and the unusual charges of $39 million in the second quarter of
1997.
The increase in the ongoing year-to-date effective tax rate is primarily
attributable to an increase in state and foreign taxes, as well as an
unfavorable shift in the mix of our earnings by nature and by legal entity
partially offset by adjustments related to prior years.
Diluted Earnings Per Share
1997 operating earnings from Core Businesses include $19 million ($11 million
after-tax or $.07 per pro forma diluted share) received under a special KFC U.S.
franchise contract renewal program. The components of diluted earnings per
common share ("EPS") were as follows:
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
----------------------- ----------------------
6/13/98 6/14/97(a) 6/13/98 6/14/97(a)
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Operating earnings - Core Businesses $ .45 $ .48 $ .70 $ .76
Facility actions net gain .27 .42 .37 .46
-------- ----------- -------- -----------
Net income - Core Businesses .72 .90 1.07 1.22
Operating earnings - Non-core Businesses - .02 - .04
Unusual charges - (.14) - (.14)
-------- ----------- -------- -----------
Net income $ .72 $ .78 $ 1.07 $ 1.12
======== =========== ======== ===========
</TABLE>
a) Pro forma EPS assumes the 152 million shares issued at Spin-off and the 3
million dilutive options for the 12 and 24 weeks ended June 13, 1998, had
been outstanding from the beginning of the comparable period in fiscal
1997, as our capital structure as an independent, publicly owned Company
did not exist during the first half of 1997.
21
<PAGE>
Domestic
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
-------------------------------- ----------------------------
6/13/98 6/14/97 % B(W) 6/13/98 6/14/97 % B(W)
----------- ---------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
SYSTEM SALES - CORE ONLY $ 3,239 $ 3,022 7 $ 6,296 $ 6,018 5
=========== ========== ========= =========
REVENUES
Company sales $ 1,435 $ 1,698 (15) $ 2,816 $ 3,351 (16)
Franchise and license fees 89 94 (5) 175 165 6
----------- ---------- --------- ---------
Total Revenues $ 1,524 $ 1,792 (15) $ 2,991 $ 3,516 (15)
=========== ========== ========= =========
COMPANY RESTAURANT MARGINS $ 209 $ 224 (7) $ 359 $ 404 (11)
% of sales 14.6% 13.2% 1.4 points 12.8% 12.1% .7 points
OPERATING PROFITS, EXCLUDING
FACILITY ACTIONS NET GAIN AND
UNUSUAL CHARGES
Core Businesses $ 190 $ 175 9 $ 316 $ 289 9
Non-core Businesses - 5 NM - 10 NM
=========== ========== ========= =========
$ 190 $ 180 6 $ 316 $ 299 6
=========== ========== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
U.S. RESTAURANT UNIT ACTIVITY
Company Franchised Licensed Total
----------- ----------- --------- ----------
Balance at December 27, 1997 7,822 9,597 3,167 20,586
New Builds & Acquisitions 25 104 240 369
Refranchising & Licensing (518) 515 3 -
Closures (273) (104) (166) (543)
----------- ----------- --------- ----------
Balance at June 13, 1998 7,056 10,112 3,244 20,412
=========== =========== ========= ==========
% of Total 34.6% 49.5% 15.9% 100.0%
=========== =========== ========= ==========
(a) Includes 292 units approved for closure, but not yet closed at June 13,
1998.
- --------------------------------------------------------------------------------
System sales from Core Businesses increased $217 million in the quarter and
$278 million year-to-date, or 7% and 5%, respectively. The increase in the
quarter is primarily attributable to new unit activity during the last twelve
months predominantly by franchisees and licensees at Pizza Hut and Taco Bell.
This increase was partially offset by store closures. The quarter was also
positively impacted by the same store sales growth at Pizza Hut and Taco Bell.
Revenues decreased $268 million in the quarter and $525 million
year-to-date, or 15% for both periods. Company sales declined $263 million, or
15%, in the quarter and $535 million, or 16%, year-to-date. Excluding the effect
of the Non-core Businesses, Company sales declined $175 million in the quarter
and $344 million year-to-date, or 11% for both periods. This decline was
principally attributable to the portfolio effect from Taco Bell and Pizza Hut.
This decrease was partially offset by positive same store sales growth by Pizza
Hut and Taco Bell in the quarter and by Pizza Hut and KFC on a year-to-date
basis.
22
<PAGE>
Franchise and license fees decreased $5 million, or 5%, and increased $10
million, or 6%, for the quarter and year-to-date, respectively. The decline in
the quarter is primarily due to the $19 million of renewal fees received in the
second quarter of 1997 under a special KFC U.S. franchise contract renewal
program. These declines were partially offset by an increase in continuing fees
related to our refranchising activities and new franchise and license units. The
increase on a year-to-date basis reflected the increase in continuing fees from
refranchised units and new unit development in excess of the 1997 KFC renewal
fees.
Same store sales are measured for our U.S. Company units. Same store sales
at KFC decreased 1% in the second quarter of 1998 and increased almost 2%
year-to-date. The decline in the quarter was primarily due to the successful
promotion of Buffalo Crispy Strips in the second quarter of 1997 partially
offset by price increases. On a year-to-date basis, these declines were more
than offset by strong product promotions, such as Honey Barbecue Wings and
Original Recipe.
Same store sales at Pizza Hut increased 9% for the quarter and 7%
year-to-date primarily due to increased traffic and higher average guest checks
at traditional and delivery units driven by the new product offerings of "The
Edge" and the "Sicilian" pizzas.
Taco Bell same store sales increased 3% for the quarter and remained even
with the prior year on a year-to-date basis. The increase in the quarter was
driven by an increase in average guest checks resulting primarily from favorable
effective net pricing. On a year-to-date basis, the increase for the second
quarter was offset by the transaction declines in the first quarter of 1998
relating to the comparison to the highly successful Star Wars promotion in 1997.
Company Restaurant Margins - Domestic
12 Weeks Ended 24 Weeks Ended
----------------------- --------------------
6/13/98 6/14/97 6/13/98 6/14/97
---------- ---------- -------- ---------
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 30.5 31.0 30.9 31.0
Payroll and employee benefits 30.7 29.7 31.3 30.6
Occupancy and other operating
expenses 24.2 26.1 25.0 26.3
---------- ---------- -------- ---------
Company restaurant margins 14.6% 13.2% 12.8% 12.1%
========== ========== ======== =========
Company restaurant margins as a percent of sales increased approximately
140 basis points for the quarter and 70 basis points year-to-date as compared to
the same periods in 1997. The portfolio effect contributed approximately 110
basis points and 90 basis points for the quarter and year-to-date, respectively,
to this improvement. In addition, the benefits of the fourth quarter charge
contributed approximately 50 basis points for the quarter and year-to-date.
Margins, excluding the portfolio effect and the benefits of the fourth quarter
charge, were essentially flat in the quarter. Labor cost increases and volume
declines, primarily at KFC, were nearly offset by favorable effective net
pricing and reductions in other operating expenses. The increased labor costs
were primarily due to higher wage rates related to the increased minimum wage in
the U.S. and to a change in the management complement in certain of our
restaurants, as well as to lapping a favorable casualty insurance actuarial
adjustment in 1997. The reduction in operating costs primarily relates to higher
costs incurred in 1997 principally by Pizza Hut and Taco Bell associated with
the implementation of several store condition and quality initiatives designed
to enhance customer satisfaction. On a year-to-date basis, margins declined 60
basis points excluding the portfolio effect and the benefits of the fourth
quarter charge. In addition to the factors affecting the quarterly comparison,
the year-to-date results were also negatively impacted by volume declines at
Taco Bell.
23
<PAGE>
Operating profits from Core Businesses, excluding facilities action net
gain, increased $15 million in the quarter and $27 million year-to-date, or 9%
for both periods. This increase, both in the quarter and year-to-date, is
primarily a result of reduced general, administrative and other expenses, offset
by lower restaurant margin dollars and lapping the 1997 renewal fees related to
a special KFC U.S. franchise contract renewal program. Year-to-date also
benefited from higher franchise fees.
International
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
-------------------------------- -------------------------------
6/13/98 6/14/97 % B(W) 6/13/98 6/14/97 % B(W)
--------- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
SYSTEM SALES $ 1,497 $ 1,514 (1) $2,997 $ 3,102 (3)
========= ========== ======== =========
REVENUES
Company sales $ 432 $ 516 (16) $ 841 $ 986 (15)
Franchise and license fees 45 45 - 90 88 2
--------- ---------- -------- ---------
Total Revenues $ 477 $ 561 (15) $ 931 $ 1,074 (13)
========= ========== ======== =========
COMPANY RESTAURANT MARGINS $ 51 $ 56 (9) $ 102 $ 110 (7)
% of sales 11.8% 10.8% 1.0 point 12.1% 11.1% 1.0 point
OPERATING PROFIT, EXCLUDING
FACILITY ACTIONS NET GAIN
$ 35 $ 34 3 $ 77 $ 79 (3)
</TABLE>
------------------------------------------------------------------------------
INTERNATIONAL RESTAURANT UNIT ACTIVITY
<TABLE>
<CAPTION>
Joint
Company Venture Franchised Licensed Total
------------ --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 27, 1997 2,295 1,090 5,500 241 9,126
New Builds & Acquisitions 97 37 255 42 431
Refranchising & Licensing (67) (6) (4) 77 -
Closures (81) (28) (200) (39) (348)
------------ --------- ------------- ---------- ---------
Balance at June 13, 1998 2,244 1,093 5,551 321 9,209
============ ========= ============= ========== =========
% of Total 24.3% 11.9% 60.3% 3.5% 100.0%
============ ========= ============= ========== =========
</TABLE>
(a) Includes 107 units approved for closure, but not yet closed at June 13,
1998.
- --------------------------------------------------------------------------------
System sales decreased $17 million, or 1%, and $105 million, or 3%, for the
quarter and year-to-date, respectively. The impact of unfavorable foreign
currency translation, primarily in Asia, and store closures were partially
offset by new unit development in both the quarter and year-to-date. Excluding
the negative impact of foreign currency translation, system sales increased $102
million, or 7%, and $195 million, or 6%, in the quarter and year-to-date,
respectively.
Revenues decreased $84 million, or 15%, for the quarter and $143 million,
or 13%, year-to-date. Excluding the negative impact of foreign currency
translation, revenues decreased $39 million, or 7%, and $48 million, or 4%, for
the quarter and year-to-date, respectively. The decrease in the quarter and
year-to-date primarily reflects the absence of revenues due to portfolio actions
partially offset by new unit development and effective net pricing.
24
<PAGE>
Company sales decreased $84 million, or 16%, in the quarter and $145
million, or 15%, year-to-date. Excluding the negative impact of foreign currency
translation, company sales declined $41 million, or 8%, in the quarter and $54
million, or 5%, year-to-date. In the quarter, the effect of refranchising our
restaurants in New Zealand during the second quarter of 1997 and store closures
was partially offset by new unit development. The decrease year-to-date was
driven primarily by portfolio actions, including the New Zealand refranchising,
partially offset by unit development, higher effective net pricing, and
transaction increases in Canada, Mexico, and the U.K.
Company Restaurant Margins - International
12 Weeks Ended 24 Weeks Ended
---------------------- -----------------------
6/13/98 6/14/97 6/13/98 6/14/97
---------- ---------- ----------- ---------
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 35.7% 37.3% 35.8% 36.9%
Payroll and employee benefits 24.0% 23.1% 24.0% 23.3%
Occupancy and other operating
expenses 28.5% 28.8% 28.1% 28.7%
---------- ---------- ----------- ---------
Company restaurant margins 11.8% 10.8% 12.1% 11.1%
========== ========== =========== =========
The 100 basis point improvement in margins in the quarter and year-to-date
was primarily driven by the absence of depreciation relating to stores included
in the fourth quarter charge which contributed approximately 160 basis points in
the quarter and 120 basis points year-to-date. Excluding this benefit, quarter
and year-to-date margins have declined primarily due to increased labor costs
and the economic turmoil in Asia resulting in reduced transaction counts. In the
quarter, these declines were partially offset by new unit development, effective
net pricing and strong sales growth in higher margin markets, primarily Mexico
and Puerto Rico. Year-to-date these declines were partially offset by effective
net pricing in excess of cost increases and the strong sales growth in higher
margin markets, primarily Mexico and the U.K.
Operating profits, excluding facility actions net gain, increased $1
million, or 3%, and decreased $2 million, or 3%, for the quarter and
year-to-date, respectively. Excluding the negative impact of foreign currency
translation, operating profit increased $5 million, or 15%, and $8 million, or
10%, in the quarter and year-to-date. The increase in the quarter and
year-to-date was due to new unit development, improved restaurant margins and a
decline in general, administrative and other expenses.
Consolidated Cash Flows
Net cash provided by operating activities increased $45 million or 19% to
$276 million year-to-date. Excluding the net changes in working capital, net
cash provided by operating activities declined $73 million due to reduced income
before non-cash charges and credits. This decrease resulted primarily from the
decline in the number of Company stores in operation in the current year due to
our refranchising initiative. This decline was more than offset by lower
utilization of cash for working capital of $119 million, primarily related to
the absence of insurance premium deposits in 1998 and an increase in income
taxes payable.
Net cash provided by investing activities decreased by $208 million to $107
million year-to-date, due to lower proceeds from the refranchising of
restaurants and the prior year sale of the Non-core Businesses partially offset
by lower capital spending of $18 million.
Net cash used for financing activities decreased by $126 million to $446
million year-to-date. The decrease was due to lower net debt repayments during
the current year. The larger net repayments, including amounts paid to PepsiCo,
in the prior year were driven by the higher proceeds from restaurant
refranchisings, primarily New Zealand, and the sale of the Non-core Businesses.
25
<PAGE>
Financing Activities
In 1998, we planned to reduce our reliance on bank debt by up to $1 billion
by reducing term debt and/or canceling unused credit facilities. Term debt will
potentially be reduced through a combination of proceeds from the debt
securities offered under our shelf registration discussed below, proceeds from
refranchising activities and a draw against the Revolving Credit Facility. A key
component of our financing philosophy is to build balance sheet liquidity and to
diversify sources of funding. Consistent with that philosophy, which was
discussed with our lenders during syndication of the Term Loan Facility and
Revolving Credit Facility, we have taken steps to refinance a portion of our
existing bank credit facility referred to below. In that regard, in 1997 we
filed with the Securities and Exchange Commission a shelf registration statement
on Form S-3 with respect to offerings of up to $2 billion of senior unsecured
debt. In early May 1998, pursuant to our shelf registration, we issued $350
million 7.45% unsecured Notes due May 15, 2005 and $250 million 7.65% unsecured
Notes due May 15, 2008. The proceeds were used to reduce existing borrowings
under our unsecured Term Loan Facility and unsecured Revolving Credit Facility.
We may offer and sell from time to time additional debt securities in one or
more series, in amounts, at prices and on terms we determine based on market
conditions at the time of sale, as discussed in more detail in the registration
statement.
To fund the Spin-off, we negotiated a $5.25 billion bank credit agreement
comprised of a $2 billion senior, unsecured Term Loan Facility and a $3.25
billion senior, unsecured Revolving Credit Facility which mature on October 2,
2002. Interest is based principally on the London Interbank Offered Rate
("LIBOR") plus a variable margin as defined in the credit agreement. During the
24 weeks ended June 13, 1998, we made net payments of $587 million and $412
million under our unsecured bank Term Loan Facility and the unsecured Revolving
Credit Facility, respectively. As discussed in our 10-K, amounts outstanding
under the revolving credit facility are expected to fluctuate from time to time,
but term loan reductions cannot be reborrowed. Such payments reduced amounts
outstanding at June 13, 1998 to $1.38 billion and $2.02 billion from $1.97
billion and $2.44 billion at year end 1997, on the term facility and revolving
facility, respectively. At June 13, 1998, we had unused revolving credit
agreement borrowings available aggregating $1.08 billion, net of outstanding
letters of credit of $147 million. The credit facilities are subject to various
affirmative and negative covenants including financial covenants as well as
limitations on additional indebtedness including guarantees of indebtedness,
cash dividends, aggregate non-U.S. investments, among other things, as defined
in the credit agreement.
This substantial indebtedness subjects us to significant interest expense
and principal repayment obligations which are limited, in the near term, to
prepayment events as defined in the credit agreement. Our highly leveraged
capital structure could also adversely affect our ability to obtain additional
financing in the future or to undertake refinancings on terms and subject to
conditions that are acceptable to us.
At the end of the second quarter of 1998, we were in compliance with the
above noted covenants, and we will continue to closely monitor on an ongoing
basis the various operating issues that could, in aggregate, affect our ability
to comply with financial covenant requirements. Such issues include, among other
things, the ongoing economic issues faced by much of Asia as well as the
intensely competitive nature of the quick service restaurant industry.
We use various derivative instruments with the objective of reducing
volatility in our borrowing costs. We have utilized interest rate swap
agreements to effectively convert a portion of our variable rate (LIBOR) bank
debt to fixed rate. We have also entered into interest rate arrangements to
limit the range of effective interest rates on a portion of our variable rate
bank debt. At June 13, 1998, the weighted average interest rate on our variable
bank debt, including the effect of derivatives, was 6.4%. Other derivative
instruments may be considered from time to time as well to manage our debt
portfolio and to hedge foreign currency exchange exposures.
26
<PAGE>
Though we anticipate that cash flows from both operating and refranchising
activities will be lower than prior year levels, we believe they will be
sufficient to support our expected increased capital spending and debt service
requirements.
Consolidated Financial Condition
Our operating working capital deficit, which excludes short-term
investments and short-term borrowings, is typical of restaurant operations where
the majority of sales are for cash. Our operating working capital deficit
increased 2% to $824 million at June 13, 1998 from $805 million at December 27,
1997. This increase primarily reflected an increase in income taxes payable
partially offset by an increase in accounts and notes receivable. This
receivable increase was primarily attributable to timing.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Our primary market risk exposure with regard to financial instruments is to
changes in interest rates, principally in the United States. In addition, an
immaterial portion of our debt is denominated in a currency other than the
functional currency of the respective country which exposes us to market risk
associated with exchange rate movements. Historically, we have not used
derivative financial instruments to manage our exposure to foreign currency rate
fluctuations since the market risk associated with our foreign currency
denominated debt was not considered significant.
At June 13, 1998, a hypothetical 100 basis point increase in short-term
interest rates would result in a reduction of $19 million in annual pre-tax
earnings. The estimated reduction is based upon the unhedged portion of our
variable rate debt and assumes no change in the volume or composition of debt at
June 13, 1998. In addition, the fair value to us of our interest rate derivative
contracts hedging the remaining portion of our variable rate bank debt would
increase approximately $25 million. Fair value was determined by discounting the
projected interest rate swap cash flows.
27
<PAGE>
Cautionary Statements
From time to time, in both written reports and oral statements, we present
"forward-looking statements" within the meaning of Federal and state securities
laws, including those identified by such words as "may," "will," "expect,"
"believe," "plan" and other similar terminology. These "forward-looking
statements" reflect our current expectations and are based upon data available
at the time of the statements. Actual results involve risks and uncertainties,
including both those specific to the Company and those specific to the industry,
and could differ materially from expectations.
Company risks and uncertainties include but are not limited to the lack of
experience of our management group in operating the Company as an independent,
publicly owned business; potentially substantial tax contingencies related to
the Spin-off, which, if they occur, require us to indemnify PepsiCo; our
substantial debt leverage and the attendant potential restriction on our ability
to borrow in the future, as well as the substantial interest expense and
principal repayment obligations; potential unfavorable variances between
estimated and actual liabilities including those related to the sale of the
Non-core Businesses; failures to achieve timely, effective Year 2000
remediation; and the potential inability to identify qualified franchisees to
purchase Company restaurants at prices we consider appropriate under our
strategy to reduce the percentage of system units we operate.
Industry risks and uncertainties include, but are not limited to, global
and local business and economic and political conditions; legislation and
governmental regulation; competition; success of operating initiatives and
advertising and promotional efforts; volatility of commodity costs and increases
in minimum wage and other operating costs; availability and cost of land and
construction; adoption of new or changes in accounting policies and practices;
consumer preferences, spending patterns and demographic trends; political or
economic instability in local markets; and currency exchange rates.
28
<PAGE>
Independent Accountants' Review Report
The Board of Directors
TRICON Global Restaurants, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of TRICON
Global Restaurants, Inc. and Subsidiaries ("TRICON") as of June 13, 1998 and the
related condensed consolidated statements of income and cash flows for the
twelve and twenty-four weeks ended June 13, 1998 and June 14, 1997. These
financial statements are the responsibility of TRICON's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of TRICON as of December 27, 1997, and
the related consolidated statements of operations, cash flows and shareholders'
(deficit) equity for the year then ended not presented herein; and in our report
dated February 12, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 27, 1997,
is fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Our report, referred to above, contains an explanatory paragraph that states
that TRICON in 1995 adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
KPMG Peat Marwick LLP
Louisville, Kentucky
July 24, 1998
29
<PAGE>
PART II - OTHER INFORMATION AND SIGNATURES
Item 2. Changes in Securities.
On July 21, 1998, our Board of Directors adopted a Shareholder
Rights Plan under which rights (the "Rights") will be distributed
as a dividend at the rate of one Right for each share of common
stock, without par value, of the Company held by shareholders of
record as of the close of business on August 3, 1998.
Each Right initially will entitle shareholders to buy one unit of
a share of a series of preferred stock for $130. The Rights
generally will be exercisable only if a person or group acquires
beneficial ownership of 15% or more of the Company's common stock
(or 20% or more if such person or group presently owns more than
10% of the Company's common stock) or commences a tender or
exchange offer upon consummation of which such person or group
would beneficially own 15% or more (or 20% or more, as the case
may be) of the Company's common stock. The Rights will expire on
July 21, 2008.
The Rights Agreement, dated as of July 21, 1998, between the
Company and BankBoston, N.A., as Rights Agent, specifying the
terms of the Rights and including the form of the Articles of
Amendment setting forth the terms of the preferred stock as an
exhibit thereto, and a form of Summary of Rights describing the
Rights are attached hereto as exhibits and are incorporated
herein by reference. The foregoing description of the Rights is
qualified in its entirety by reference to such exhibits. See
also Note 6 to the Condensed Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Shareholders was held on May 19, 1998. At
the meeting, shareholders elected four directors and ratified the
appointment of KPMG Peat Marwick LLP as our independent auditors.
Results of the voting in connection with each item were as
follows:
Election of Directors For Withheld
------------------------ ----------------- ---------------
Robert Holland, Jr. 132,933,876 1,346,664
Sidney Kohl 132,969,152 1,311,388
David C. Novak 132,939,334 1,341,206
Jackie Trujillo 132,974,765 1,305,775
The following directors did not stand for reelection at the
meeting (the year in which each director's term expires is
indicated in parenthesis):
James Dimon (1999), Massimo Ferragamo (1999), Robert J. Ulrich
(1999), Jeanette S. Wagner (1999), D. Ronald Daniel (2000),
Kenneth G. Langone (2000), Andrall E. Pearson (2000) and John L.
Weinberg (2000).
30
<PAGE>
For Against Abstain
------------- ---------- ---------
Ratification of Accountants 133,744,589 229,237 306,714
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
EXHIBITS
Exhibit 4.01 Rights Agreement, dated as of July 21, 1998, between
TRICON Global Restaurants, Inc. and BankBoston, N.A.,
as Rights Agent, including the form of Articles of
Amendment setting forth the terms of the Series A
Junior Participating Preferred Stock, par value $0.01
per share, as Exhibit A, the form of Rights Certificate
as Exhibit B and the Summary of Rights to Purchase
Preferred Stock as Exhibit C. Pursuant to the Rights
Agreement, printed Rights Certificates will not be
mailed until the Distribution Date (as such term is
defined in the Rights Agreement).
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 15 Letter from KPMG Peat Marwick LLP
regarding Unaudited Interim Financial
Information (Accountants' Acknowledgment)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K dated April 27, 1998
attaching our first quarter 1998 earnings release of April 27,
1998.
We filed a Current Report on Form 8-K dated April 30, 1998 with
respect to the filing of certain exhibits in connection with the
Registration Statement on Form S-3 (File No. 333-42969) declared
effective by the Securities and Exchange Commission on February
6, 1998 relating to an aggregate of $2,000,000 of senior debt
securities of TRICON Global Restaurants, Inc.
31
<PAGE>
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, duly authorized officer of the registrant.
TRICON GLOBAL RESTAURANTS, INC.
-------------------------------
(Registrant)
Date: July 27, 1998
/s/ Robert L. Carleton
--------------------------------
Senior Vice President and
Controller and Chief Accounting Officer
(Principal Accounting Officer)
32
<PAGE>
Exhibit 4.01
_________________________________________________________
TRICON GLOBAL RESTAURANTS, INC.
AND
BANKBOSTON, N.A.,
AS RIGHTS AGENT
__________________
Rights Agreement
Dated as of July 21, 1998
_________________________________________________________
<PAGE>
TABLE OF CONTENTS
Section Page
1. Certain Definitions....................................................1
2. Appointment of Rights Agent............................................7
3. Issuance of Rights Certificates........................................7
4. Form of Rights Certificates...........................................10
5. Countersignature and Registration.....................................11
6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates..........................................................12
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.........14
8. Cancellation and Destruction of Rights Certificates...................17
9. Reservation and Availability of Capital Stock.........................17
10. Preferred Stock Record Date...........................................19
11. Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights................................................................20
12. Certificate of Adjusted Purchase Price or Number of Shares............33
13. Consolidation, Merger or Sale or Transfer of Assets, Cash Flow or
Earning Power.........................................................33
14. Fractional Rights and Fractional Shares...............................37
15. Rights of Action......................................................39
16. Agreement of Rights Holders...........................................39
17. Rights Certificate Holder Not Deemed a Shareholder....................40
18. Concerning the Rights Agent...........................................41
19. Merger or Consolidation or Change of Name of Rights Agent.............41
i
<PAGE>
20. Duties of Rights Agent................................................42
21. Change of Rights Agent................................................45
22. Issuance of New Rights Certificates...................................46
23. Redemption and Termination............................................47
24. Exchange..............................................................48
25. Notice of Certain Events..............................................50
26. Notices...............................................................51
27. Supplements and Amendments............................................52
28. Successors............................................................53
29. Determinations and Actions by the Board of Directors, etc.............53
30. Benefits of this Agreement............................................53
31. Severability..........................................................54
32. Governing Law.........................................................54
33. Counterparts..........................................................54
34. Descriptive Headings..................................................54
EXHIBITS
Exhibit A -- Form of Articles of Amendment
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
ii
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of July 21, 1998 (the "Agreement"), between
Tricon Global Restaurants, Inc., a North Carolina corporation (the "Company"),
and BankBoston, N.A., as Rights Agent (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on July 21, 1998 (the "Rights Dividend Declaration Date"), the
Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of common
stock, without par value, of the Company (the "Common Stock") outstanding at the
close of business on August 3, 1998 (the "Record Date"), and has authorized the
issuance of one Right (as such number may hereinafter be adjusted pursuant to
the provisions of Section 11(p) hereof) for each share of Common Stock of the
Company issued between the Record Date (whether originally issued or delivered
from the Company's treasury) and the Distribution Date (as hereinafter defined)
each Right initially representing the right to purchase one one-thousandth of a
share of Series A Junior Participating Preferred Stock of the Company (the
"Preferred Stock") having the rights, powers and preferences set forth in the
form of the Articles of Amendment to the Restated Articles of Incorporation of
the Company attached hereto as Exhibit A, upon the terms and subject to the
conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of 15% or more of the shares of Common Stock then outstanding, but
shall not include (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan of the Company, or of any Subsidiary of the
Company, or any Person or entity organized, appointed or estab-
1
<PAGE>
lished by the Company for or pursuant to the terms of any such plan, (iv)
any Person who becomes such a Beneficial Owner as a result of a Qualifying
Offer, (v) any Person who becomes the Beneficial Owner of fifteen percent
(15%) or more of the shares of Common Stock then outstanding as a result of
a reduction in the number of shares of Common Stock outstanding due to the
repurchase of shares of Common Stock by the Company unless and until such
Person, after becoming aware that such Person has become the Beneficial
Owner of fifteen percent (15%) or more of the then outstanding shares of
Common Stock, acquires beneficial ownership of additional shares of Common
Stock representing one percent (1%) or more of the shares of Common Stock
then outstanding, (vi) any such Person who has reported or is required to
report such ownership (but less than 20%) on Schedule 13G under the
Securities and Exchange Act of 1934, as amended and in effect on the date
of this Agreement (the "Exchange Act") (or any comparable or successor
report) or on Schedule 13D under the Exchange Act (or any comparable or
successor report) which Schedule 13D does not state any intention to or
reserve the right to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of such
schedule (other than the disposition of the Common Stock) and, within ten
(10) Business Days of being requested by the Company to advise it regarding
the same, certifies to the Company that such Person acquired shares of
Common Stock in excess of 14.9% inadvertently or without knowledge of the
terms of the Rights and who, together with all Affiliates and Associates,
thereafter does not acquire additional shares of Common Stock while the
Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding; provided, however, that if the Person requested to so certify
fails to do so within ten (10) Business Days, then such Person shall become
an Acquiring Person immediately after such ten (10) Business Day period, or
(vii) any Person which beneficially owns 10% or more of Common Stock
outstanding on the date hereof, unless and until such time as such Person
together with its Affiliates and Associates, directly or indirectly,
becomes the Beneficial Owner of 20% or more of the Common Stock then
outstanding, in which event such Person shall immediately become an
Acquiring Person.
2
<PAGE>
(b) "Act" shall mean the Securities Act of 1933 as amended and in
effect on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act.
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, owns or has the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," (A) securities
tendered pursuant to a tender or exchange offer made by such Person or
any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, (B) securities
issuable upon exercise of Rights at any time prior to the occurrence
of a Triggering Event (as hereinafter defined), or (C) securities
issuable upon exercise of Rights from and after the occurrence of a
Triggering Event which Rights were acquired by such Person or any of
such Person's Affiliates or Associates prior to the Distribution Date
(as hereinafter defined) or pursuant to Section 3(a) or Section 22
hereof (the "Original Rights") or pursuant to Section 11(i) hereof in
connection with an adjustment made with respect to any Original
Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose
of or has "beneficial ownership" of
3
<PAGE>
(as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this
subparagraph (ii) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General Rules
and Regulations under the Exchange Act, and (B) is not reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in the proviso to subparagraph (ii) of
this paragraph (d)) or disposing of any voting securities of the
Company; provided, however, that nothing in this paragraph (d) shall
cause a Person engaged in business as an underwriter of securities to
be the "Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after
the date of such acquisition, and then only if such securities
continue to be owned by such Person at such expiration of forty (40)
days.
(e) "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
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(f) "Close of business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
Business Day, it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(g) "Common Stock" shall mean the common stock, without par value, of
the Company, except that "Common Stock" when used with reference to any
Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(h) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(i) "Current Market Price" shall have the meaning set forth in Section
11(d)(i) hereof.
(j) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(k) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(l) "Equivalent Preferred Stock" shall have the meaning set forth in
Section 11(b) hereof.
(m) "Exchange Act" shall mean the Securities and Exchange Act of 1934
as amended and in effect on the date of this Agreement.
(n) "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
(o) "Expiration Date" shall have the meaning set forth in Section 7(a)
hereof.
(p) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(q) "Person" shall mean any individual, firm, corporation, partnership
or other entity.
(r) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, without
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par value, of the Company, and, to the extent that there are not a
sufficient number of shares of Series A Junior Participating Preferred
Stock authorized to permit the full exercise of the Rights, any other
series of preferred stock of the Company designated for such purpose
containing terms substantially similar to the terms of the Series A Junior
Participating Preferred Stock.
(s) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(t) "Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
(u) "Qualifying Offer" shall have the meaning set forth in Section
11(a)(ii) hereof.
(v) "Record Date" shall have the meaning set forth in the WHEREAS
clause at the beginning of this Agreement. (w).... "Rights" shall have the
meaning set forth in the WHEREAS clause at the beginning of this Agreement.
(x) "Rights Agent" shall have the meaning set forth in the parties
clause at the beginning of this Agreement.
(y) "Rights Certificate" shall have the meaning set forth in Section
3(a) hereof.
(z) "Rights Dividend Declaration Date" shall have the meaning set
forth in the WHEREAS clause at the beginning of this Agreement.
(aa) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
(bb) "Section 13 Event" shall mean any event described in clauses (x),
(y) or (z) of Section 13(a) hereof.
(cc) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
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(dd) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed or amended pursuant to Section 13(d)
under the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such other than pursuant to a Qualifying Offer.
(ee) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at
least a majority of the directors of such corporation is beneficially
owned, directly or indirectly, by such Person, or otherwise controlled by
such Person.
(ff) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(gg) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.
(hh) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(ii) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-rights agents as it may deem necessary or
desirable, upon ten (10) days' prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and in no event be liable for, the
acts or omissions of any such co-Rights Agent.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of (i) the close of business on the tenth
Business Day after the Stock Acquisition Date (or, if the tenth Business
Day after the Stock Acquisition Date occurs before the Record Date, the
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close of business on the Record Date), or (ii) the close of business on the
tenth Business Day (or such later date as the Board shall determine) after
the date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the
terms of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the
Exchange Act, if upon consummation thereof, such Person would become an
Acquiring Person, in either instance other than pursuant to a Qualifying
Offer (the earlier of (i) and (ii) being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock
(which certificates for Common Stock shall be deemed also to be
certificates for Rights) or by book-entry positions in the Direct
Registration System ("DRS") and not by separate certificates, and (y) the
Rights will be transferable only in connection with the transfer of the
underlying shares of Common Stock (including a transfer to the Company). As
soon as practicable after the Distribution Date, the Rights Agent will send
by first-class, insured, postage-prepaid mail, to each record holder of the
Common Stock as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, one or more
right certificates, in substantially the form of Exhibit B hereto (the
"Rights Certificates"), evidencing one Right for each share of Common Stock
so held, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per share of Common Stock has been made
pursuant to Section 11(p) hereof, at the time of distribution of the Rights
Certificates, the Company shall make the necessary and appropriate rounding
adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and
cash is paid in lieu of any fractional Rights. As of and after the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.
(b) The Company will make available, as promptly as practicable
following the Record Date, a copy
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of a Summary of Rights, in substantially the form attached hereto as
Exhibit C (the "Summary of Rights") to any holder of Rights who may so
request from time to time prior to the Expiration Date. With respect to
certificates for the Common Stock and DRS book-entry positions outstanding
as of the Record Date, until the Distribution Date, the Rights will be
evidenced by such certificates and DRS book-entry positions for the Common
Stock and the registered holders of the Common Stock shall also be the
registered holders of the associated Rights. Until the earlier of the
Distribution Date or the Expiration Date (as such term is defined in
Section 7(a) hereof), the transfer of any certificates and DRS book-entry
positions representing shares of Common Stock in respect of which Rights
have been issued shall also constitute the transfer of the Rights
associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or
the Expiration Date. Certificates representing such shares of Common Stock
shall also be deemed to be certificates for Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Tricon
Global Restaurants, Inc. (the "Company") and the Rights Agent
thereunder (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a
copy of the Rights Agreement, as in effect on the date of mailing,
without charge, promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring
Person or any Affiliate or
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Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
DRS book-entry positions shall bear the following legend on confirmation
statements:
There may be rights, privileges, restrictions or conditions
attached to the shares covered by this confirmation. A full copy of
these can be obtained by writing to the secretary of the company.
With respect to such certificates And DRS confirmation containing the respective
foregoing legends, until the earlier of (i) the Distribution Date or (ii) the
Expiration Date, the Rights associated with the Common Stock represented by such
certificates shall be evidenced by such certificates and DRS book-entry
positions alone and registered holders of Common Stock shall also be the
registered holders of the associated Rights, and the transfer of any of such
certificates and DRS book-entry positions shall also constitute the transfer of
the Rights associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange
on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the
Rights Certificates, whenever distributed, shall be dated as of the Record
Date and on their face shall entitle the holders thereof to purchase such
number of one one-thousandths of a share of Preferred Stock as shall be set
forth therein at the price set forth therein (such exercise price per one
one-thousandth of a share,
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the "Purchase Price"), but the amount and type of securities purchasable
upon the exercise of each Right and the Purchase Price thereof shall be
subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a), Section
11(i) or Section 22 hereof that represents Rights beneficially owned by:
(i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate
or Affiliate) who becomes a transferee after the Acquiring Person becomes
such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant
to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom such Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which the Board of Directors of the Company has determined is part
of a plan, arrangement or understanding which has as a primary purpose or
effect avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange,
replacement or adjustment of any other Rights Certificate referred to in
this sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of the Rights Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which
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<PAGE>
shall be attested by the Secretary or an Assistant Secretary of the
Company, either manually or by facsimile signature. The Rights Certificates
shall be countersigned by the Rights Agent, either manually or by facsimile
signature, and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the
Company, such Rights Certificates, nevertheless, may be countersigned by
the Rights Agent and issued and delivered by the Company with the same
force and effect as though the person who signed such Rights Certificates
had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at
the date of the execution of this Rights Agreement any such person was not
such an officer.
(b) Following the Distribution Date, the Rights Agent will keep, or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights Certificates, the number of Rights
evidenced on its face by each of the Rights Certificates and the date of
each of the Rights Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the
Distribution Date, and at or prior to the close of business on the
Expiration Date, any Rights Certificate or Certificates (other than Rights
Certificates representing Rights that may have been exchanged pursuant to
Section 24 hereof) may be transferred, split up, combined or exchanged for
another Rights Certificate or Certificates, entitling the registered holder
to purchase a like number of one
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<PAGE>
one-thousandths of a share of Preferred Stock (or, following a Triggering
Event, Common Stock, other securities, cash or other assets, as the case
may be) as the Rights Certificate or Certificates surrendered then entitles
such holder (or former holder in the case of a transfer) to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate or Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Rights Certificate
or Certificates to be transferred, split up, combined or exchanged at the
principal office or offices of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such
surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on
the reverse side of such Rights Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e), Section 14 hereof and Section 24 hereof, countersign
and deliver to the Person entitled thereto a Rights Certificate or Rights
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and
reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will
execute and deliver a new Rights Certificate of like tenor to the Rights
Agent for countersignature and delivery to the registered owner in lieu of
the Rights Certificate so lost, stolen, destroyed or mutilated.
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Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) Subject to Section 7(e) hereof, at any time after the Distribution
Date the registered holder of any Rights Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein including,
without limitation, the restrictions on exercisability set forth in Section
9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part upon
surrender of the Rights Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the
Rights Agent at the principal office or offices of the Rights Agent
designated for such purpose, together with payment of the aggregate
Purchase Price with respect to the total number of one one-thousandths of a
share (or other securities, cash or other assets, as the case may be) as to
which such surrendered Rights are then exercisable, at or prior to the
earlier of (i) 5:00 P.M., New York City time, on July 21, 2008, or such
later date as may be established by the Board of Directors prior to the
expiration of the Rights (such date, as it may be extended by the Board,
the "Final Expiration Date"), or (ii) the time at which the Rights are
redeemed or exchanged as provided in Section 23 and Section 24 hereof (the
earlier of (i) and (ii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be
$130, and shall be subject to adjustment from time to time as provided in
Section 11 and Section 13(a) hereof and shall be payable in accordance with
paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-thousandth of a share of Preferred Stock
(or other shares, securities, cash or other assets, as the case may be) to
be
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<PAGE>
purchased as set forth below and an amount equal to any applicable transfer
tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the shares of
Preferred Stock (or make available, if the Rights Agent is the transfer
agent for such shares) certificates for the total number of one
one-thousandths of a share of Preferred Stock to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) if the Company shall have elected to deposit the
total number of shares of Preferred Stock issuable upon exercise of the
Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one one-thousandths
of a share of Preferred Stock as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu
of fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depositary receipts, cause the same to be
delivered to or, upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder, and (iv) after receipt thereof, deliver such cash, if any, to or
upon the order of the registered holder of such Rights Certificate. The
payment of the Purchase Price (as such amount may be reduced pursuant to
Section 11(a)(iii) hereof) shall be made in cash or by certified bank check
or bank draft payable to the order of the Company. In the event that the
Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section
11(a) hereof, the Company will make all arrangements necessary so that such
other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate. The Company reserves the
right to require prior to the occurrence of a Triggering Event that, upon
any exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the
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Rights evidenced thereby, a new Rights Certificate evidencing Rights
equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to, or upon the order of, the registered holder
of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate
of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of
any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration)
from the Acquiring Person to holders of equity interests in such Acquiring
Person or to any Person with whom the Acquiring Person has any continuing
agreement, arrangement or understanding regarding the transferred Rights or
(B) a transfer which the Board of Directors of the Company has determined
is part of a plan, arrangement or understanding which has as a primary
purpose or effect the avoidance of this Section 7(e), shall become null and
void without any further action and no holder of such Rights shall have any
rights whatsoever with respect to such Rights, whether under any provision
of this Agreement or otherwise. The Company shall use all reasonable
efforts to insure that the provisions of this Section 7(e) and Section 4(b)
hereof are complied with, but shall have no liability to any holder of
Rights Certificates or any other Person as a result of its failure to make
any determinations with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of
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election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All Rights
Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred
Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or
out of its authorized and issued shares held in its treasury), the number
of shares of Preferred Stock (and, following the occurrence of a Triggering
Event, Common Stock and/or other securities) that, as provided in this
Agreement including Section 11(a)(iii) hereof, will be sufficient to permit
the exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities)
issuable and deliverable upon the exercise of the Rights may be listed
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on any national securities exchange, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all
shares reserved for such issuance to be listed on such exchange upon
official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, a registration statement under the Act, with
respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the earlier of (A) the date as
of which the Rights are no longer exercisable for such securities, and (B)
the date of the expiration of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the
securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a
period of time not to exceed ninety (90) days after the date set forth in
clause (i) of the first sentence of this Section 9(c), the exercisability
of the Rights in order to prepare and file such registration statement and
permit it to become effective. Upon any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such
time as the suspension has been rescinded. In addition, if the Company
shall determine that a registration statement is required following the
Distribution Date, the Company may temporarily suspend the exercisability
of the Rights until such time as a registration statement has been declared
effective. Notwithstanding any provision of this Agreement to the contrary,
the Rights shall not be exercisable in any jurisdiction if the requisite
qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law, or a
registration statement shall not have been declared effective.
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(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all one one-thousandths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event,
Common Stock and/or other securities) delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares (subject
to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-thousandths of
a share of Preferred Stock (or Common Stock and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Rights Certificates to a Person other than, or the
issuance or delivery of a number of one one-thousandths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may
be) in respect of a name other than that of the registered holder of the
Rights Certificates evidencing Rights surrendered for exercise or to issue
or deliver any certificates for a number of one one-thousandths of a share
of Preferred Stock (or Common Stock and/or other securities, as the case
may be) in a name other than that of the registered holder upon the
exercise of any Rights until such tax shall have been paid (any such tax
being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction
that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name any
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
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(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate shall not be entitled to any rights of a shareholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification
of the Preferred Stock (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a)
and Section 7(e) hereof, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock or capital stock, as the case may be, issuable on such
date, shall be proportionately
20
<PAGE>
adjusted so that the holder of any Right exercised after such time shall be
entitled to receive, upon payment of the Purchase Price then in effect, the
aggregate number and kind of shares of Preferred Stock or capital stock, as
the case may be, which, if such Right had been exercised immediately prior
to such date and at a time when the Preferred Stock transfer books of the
Company were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment
under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition to,
and shall be made prior to, any adjustment required pursuant to Section
11(a)(ii) hereof.
(ii) In the event any Person shall, at any time after the Rights
Dividend Declaration Date, become an Acquiring Person, unless the
event causing such Person to become an Acquiring Person is a
transaction set forth in Section 13(a) hereof, or is an acquisition of
shares of Common Stock pursuant to a tender offer or an exchange offer
for all outstanding shares of Common Stock at a price and on terms
determined by at least a majority of the members of the Board of
Directors who are not officers of the Company and who are not
representatives, nominees, Affiliates or Associates of an Acquiring
Person, after receiving advice from one or more investment banking
firms, to be (a) at a price which is fair to shareholders and not
inadequate (taking into account all factors which such members of the
Board deem relevant, including, without limitation, prices which could
reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (b) otherwise in
the best interests of the Company and its shareholders (a "Qualifying
Offer"),
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then, promptly following the occurrence of such event, proper
provision shall be made so that each holder of a Right (except as
provided below and in Section 7(e) hereof) shall thereafter have the
right to receive, upon exercise thereof at the then current Purchase
Price in accordance with the terms of this Agreement, in lieu of a
number of one one-thousandths of a share of Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-thousandths of a share of Preferred Stock
for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event, and (y) dividing that product
(which, following such first occurrence, shall thereafter be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the Current Market Price (determined pursuant to
Section 11(d) hereof) per share of Common Stock on the date of such
first occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common Stock
which are authorized by the Company's Restated Articles of
Incorporation, but which are not outstanding or reserved for issuance
for purposes other than upon exercise of the Rights, are not
sufficient to permit the exercise in full of the Rights in accordance
with the foregoing subparagraph (ii) of this Section 11(a), the
Company shall (A) determine the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), and (B)
with respect to each Right (subject to Section 7(e) hereof), make
adequate provision to substitute for the Adjustment Shares, upon the
exercise of a Right and payment of the applicable Purchase Price, (1)
cash, (2) a reduction in the Purchase Price, (3) Common Stock or other
equity securities of the Company (including, without limitation,
shares, or units of shares, of preferred stock, such as the Preferred
Stock, which the Board has deemed to have essentially the same value
or economic rights as shares of Common Stock (such shares of preferred
stock being referred to as "Common Stock Equivalents")), (4) debt
securities of the Company,
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<PAGE>
(5) other assets, or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value (less the amount of any
reduction in the Purchase Price), where such aggregate value has been
determined by the Board based upon the advice of a nationally
recognized investment banking firm selected by the Board; provided,
however, that if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Section 11(a)(ii)
Event and (y) the date on which the Company's right of redemption
pursuant to Section 23(a) expires (the later of (x) and (y) being
referred to herein as the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, shares
of Common Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the
Spread. For purposes of the preceding sentence, the term "Spread"
shall mean the excess of (i) the Current Value over (ii) the Purchase
Price. If the Board determines in good faith that it is likely that
sufficient additional shares of Common Stock could be authorized for
issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary, but
not more than ninety (90) days after the Section 11(a)(ii) Trigger
Date, in order that the Company may seek shareholder approval for the
authorization of such additional shares (such thirty (30) day period,
as it may be extended, is herein called the "Substitution Period"). To
the extent that action is to be taken pursuant to the first and/or
third sentences of this Section 11(a)(iii), the Company (1) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek such shareholder approval for such
authorization of addi-
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<PAGE>
tional shares and/or to decide the appropriate form of distribution to
be made pursuant to such first sentence and to determine the value
thereof. In the event of any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect. For purposes of
this Section 11(a)(iii), the value of each Adjustment Share shall be
the current market price per share of the Common Stock on the Section
11(a)(ii) Trigger Date and the per share or per unit value of any
Common Stock Equivalent shall be deemed to equal the current market
price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling
them to subscribe for or purchase (for a period expiring within forty-five
(45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of
Preferred Stock ("Equivalent Preferred Stock")) or securities convertible
into Preferred Stock or Equivalent Preferred Stock at a price per share of
Preferred Stock or per share of Equivalent Preferred Stock (or having a
conversion price per share, if a security convertible into Preferred Stock
or Equivalent Preferred Stock) less than the Current Market Price (as
determined pursuant to Section 11(d) hereof) per share of Preferred Stock
on such record date, the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock outstanding on such record
date, plus the number of shares of Preferred Stock which the aggregate
offering price of the total number of shares of Preferred Stock and/or
Equivalent Preferred Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would
purchase at such Current Market Price, and the denominator of which shall
be the number of shares of Preferred Stock outstanding on such record date,
plus the number of additional shares of Preferred Stock and/or
24
<PAGE>
Equivalent Preferred Stock to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially
convertible). In case such subscription price may be paid by delivery of
consideration, part or all of which may be in a form other than cash, the
value of such consideration shall be as determined in good faith by the
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Shares of Preferred Stock owned
by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that
such rights or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of
the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
evidences of indebtedness, or of subscription rights or warrants (excluding
those referred to in Section 11(b) hereof), the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price (as
determined pursuant to Section 11(d) hereof) per share of Preferred Stock
on such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company, whose determination shall
be described in a statement filed with the Rights Agent) of the portion of
the cash, assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to a share of Preferred
Stock, and the denominator of which shall be such Current Market Price (as
determined pursuant to Section 11(d) hereof) per share of Preferred Stock.
Such adjustments shall be made successively whenever such a record date is
fixed,
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<PAGE>
and in the event that such distribution is not so made, the Purchase Price
shall be adjusted to be the Purchase Price which would have been in effect
if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days immediately prior to such date, and
for purposes of computations made pursuant to Section 11(a)(iii) hereof,
the Current Market Price per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of such
Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the Current
Market Price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such
Common Stock or securities convertible into shares of such Common Stock
(other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification shall not have occurred prior to the
commencement of the requisite thirty (30) Trading Day or ten (10) Trading
Day period, as set forth above, then, and in each such case, the Current
Market Price shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the shares of Common Stock are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities
26
<PAGE>
exchange on which the shares of Common Stock are listed or admitted to
trading or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or such other
system then in use, or, if on any such date the shares of Common Stock are
not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
the Common Stock selected by the Board. If on any such date no market maker
is making a market in the Common Stock, the fair value of such shares on
such date as determined in good faith by the Board shall be used. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to
trading is open for the transaction of business or, if the shares of Common
Stock are not listed or admitted to trading on any national securities
exchange, a Business Day. If the Common Stock is not publicly held or not
so listed or traded, Current Market Price per share shall mean the fair
value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the Current
Market Price per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of
this Section 11(d) (other than the last sentence thereof). If the
Current Market Price per share of Preferred Stock cannot be determined
in the manner provided above or if the Preferred Stock is not publicly
held or listed or traded in a manner described in clause (i) of this
Section 11(d), the Current Market Price per share of Preferred Stock
shall be conclusively deemed to be an amount equal to 1,000 (as such
number may be appropriately adjusted for such events as stock splits,
stock dividends and recapitalizations
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<PAGE>
with respect to the Common Stock occurring after the date of this
Agreement) multiplied by the Current Market Price per share of the
Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, Current Market Price per share
of the Preferred Stock shall mean the fair value per share as
determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes. For all purposes of this Agreement, the
Current Market Price of a Unit shall be equal to the Current Market
Price of one share of Preferred Stock divided by 1,000.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require
an increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest ten-thousandth of a
share of Common Stock or other share or one-ten-millionth of a share of
Preferred Stock, as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section 11 shall be
made no later than the earlier of (i) three (3) years from the date of the
transaction which mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the Preferred Stock
contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and
(m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect
28
<PAGE>
to the Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
of a share of Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of
the calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number
of one one-thousandths of a share of Preferred Stock (calculated to the
nearest one-ten-millionth) obtained by (i) multiplying (x) the number of
one one-thousandths of a share covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-thousandths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be
exercisable for the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one-one-hundred-thousandth) obtained by dividing the Purchase Price
in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This
record date
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<PAGE>
may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued, shall be at
least ten (10) days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company,
new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the
adjusted Purchase Price) and shall be registered in the names of the
holders of record of Rights Certificates on the record date specified in
the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one
one-thousandth of a share and the number of one one-thousandths of a share
which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of
one one-thousandths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable such number of one
one-thousandths of a share of Preferred Stock at such adjusted Purchase
Price.
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<PAGE>
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such
record date the number of one one-thousandths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon
such exercise over and above the number of one one-thousandths of a share
of Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that in their good faith judgment the Board of Directors of
the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly
for cash of any shares of Preferred Stock at less than the Current Market
Price, (iii) issuance wholly for cash of shares of Preferred Stock or
securities which by their terms are convertible into or exchangeable for
shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights,
options or warrants referred to in this Section 11, hereafter made by the
Company to holders of its Preferred Stock shall not be taxable to such
shareholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof), (ii) merge with or into any other Person (other than
a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell
or transfer), in one transaction, or a series of related transactions,
assets, cash flow or earning power aggre-
31
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gating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each
of which complies with Section 11(o) hereof), if (x) at the time of or
immediately after such consolidation, merger or sale there are any rights,
warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights or (y) prior to,
simultaneously with or immediately after such consolidation, merger or
sale, the shareholders of the Person who constitutes, or would constitute,
the "Principal Party" for purposes of Section 13(a) hereof shall have
received a distribution of Rights previously owned by such Person or any of
its Affiliates and Associates.
(o) Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23 or Section 26 hereof, take (or
permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded
by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend
on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of
shares, the number of Rights associated with each share of Common Stock
then outstanding, or issued or delivered thereafter but prior to the
Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any
such event shall equal the result obtained by multiplying the number of
Rights associated with each share of Common Stock immediately prior to such
event by a fraction the numerator which shall be the total number of shares
of Common Stock outstanding immediately prior to the occurrence of the
event and the denominator of which shall be the total number of shares
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of Common Stock outstanding immediately following the occurrence of such
event.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 and Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate and (c) if a
Distribution Date has occurred, mail a brief summary thereof to each holder of a
Rights Certificate in accordance with Section 27 hereof. The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets, Cash Flow
or Earning Power.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and
into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company
shall not be the continuing or surviving corporation of such consolidation
or merger, (y) any Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related transactions, assets, cash flow or
earning power aggregating more than 50% of the assets, cash flow or earning
power of the Company and its Subsidiaries (taken as a whole) to any Person
or Persons (other than the Company or any Subsidiary of the Company in one
or more transactions each of which complies with Section 11(o) hereof),
then, and in each such case (except as may be contemplated by Section 13(d)
hereof), proper provision shall be made so
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<PAGE>
that: (i) each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price in accordance with the terms of
this Agreement, such number of validly authorized and issued, fully paid,
non-assessable and freely tradeable shares of Common Stock of the Principal
Party (as such term is hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall be
equal to the result obtained by (1) multiplying the then current Purchase
Price by the number of one one-thousandths of a share of Preferred Stock
for which a Right is exercisable immediately prior to the first occurrence
of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior
to the first occurrence of a Section 13 Event, multiplying the number of
such one one-thousandths of a share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event by
the Purchase Price in effect immediately prior to such first occurrence),
and dividing that product (which, following the first occurrence of a
Section 13 Event, shall be referred to as the "Purchase Price" for each
Right and for all purposes of this Agreement) by (2) 50% of the Current
Market Price (determined pursuant to Section 11(d)(i) hereof) per share of
the Common Stock of such Principal Party on the date of consummation of
such Section 13 Event; (ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof
shall apply only to such Principal Party following the first occurrence of
a Section 13 Event; (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to
its shares of Common Stock thereafter deliverable upon the exercise of the
Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no
effect following the first occurrence of any Section 13 Event.
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b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), the Person that is the issuer
of any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such merger or
consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets, cash flow or earning
power transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such
Person is not at such time and has not been continuously over the preceding
twelve (12) month period registered under Section 12 of the Exchange Act,
and such Person is a direct or indirect Subsidiary of another Person the
Common Stock of which is and has been so registered, "Principal Party"
shall refer to such other Person; and (2) in case such Person is a
Subsidiary, directly or indirectly, of more than one Person, the Common
Stocks of two or more of which are and have been so registered, "Principal
Party" shall refer to whichever of such Persons is the issuer of the Common
Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number
of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and
such Principal Party shall have executed and delivered to the Rights Agent
a supplemental agreement providing for the terms set forth in paragraphs
(a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets
mentioned in paragraph (a) of this Section 13, the Principal Party will
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(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of
the Rights on an appropriate form, and will use its best efforts to
cause such registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date; and
(ii) take such all such other action as may be necessary to
enable the Principal Party to issue the securities purchasable upon
exercise of the Rights, including but not limited to the registration
or qualification of such securities under all requisite securities
laws of jurisdictions of the various states and the listing of such
securities on such exchanges and trading markets as may be necessary
or appropriate; and
(iii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event that a
Section 13 Event shall occur at any time after the occurrence of a Section
11(a)(ii) Event, the Rights which have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock which is a Qualified Offer as such term is defined in Section
11(a)(ii) hereof (or a wholly owned subsidiary of any such Person or
Persons), (ii) the price per share of
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Common Stock offered in such transaction is not less than the price per
share of Common Stock paid to all holders of shares of Common Stock whose
shares were purchased pursuant to such tender offer or exchange offer and
(iii) the form of consideration being offered to the remaining holders of
shares of Common Stock pursuant to such transaction is the same as the form
of consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this Section 13(d),
all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof,
or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, the Company shall pay to the registered
holders of the Rights Certificates with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal to the same
fraction of the current market value of a whole Right. For purposes of this
Section 14(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the
date on which such fractional Rights would have been otherwise issuable.
The closing price of the Rights for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted to
trading, or if the Rights are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if on
any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market
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maker making a market in the Rights, selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in
the Rights, the fair value of the Rights on such date as determined in good
faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights
or to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock). In lieu of fractional shares
of Preferred Stock that are not integral multiples of one one-thousandth of
a share of Preferred Stock, the Company may pay to the registered holders
of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one one-thousandth of a share of Preferred Stock. For purposes of
this Section 14(b), the current market value of one one-thousandth of a
share of Preferred Stock shall be one one-thousandth of the closing price
of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the
time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one (1) share of Common
Stock. For purposes of this Section 14(c), the current market value of one
share of Common Stock shall be the closing price of one share of Common
Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading
Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive
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any fractional Rights or any fractional shares upon exercise of a Right,
except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer
and with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem
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and treat the person in whose name a Rights Certificate (or, prior to the
Distribution Date, the associated Common Stock certificate or DRS
book-entry position) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Rights Certificates or the associated Common Stock
certificate made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights Agent,
subject to the last sentence of Section 7(e) hereof, shall be required to
be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any
holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or
otherwise restraining performance of such obligation; provided, however,
the Company must use its best efforts to have any such order, decree or
ruling lifted or otherwise overturned as soon as possible.
Section 17. Rigths Certificate Holder Not Deemed a Shareholder. No holder,
as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the number of one one-thousandths of
a share of Preferred Stock or any other securities of the Company which may at
any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Rights Certificate be construed to
confer upon the holder of any Rights Certificate, as such, any of the rights of
a shareholder of the Company or any right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Cer-
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tificate shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to
time, on demand of the Rights Agent, its reasonable expenses and counsel
fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability,
or expense, incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by
the Rights Agent in connection with the acceptance and administration of
this Agreement, including the costs and expenses of defending against any
claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any
Rights Certificate, certificate for Common Stock or DRS book-entry position
representing shares of Common Stock or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or
other paper or document believed by it to be genuine and to be signed,
executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust, stock transfer or other shareholder
services business of the Rights Agent or any successor Rights Agent, shall
be the
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successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties
hereto; but only if such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created
by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt
the countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent
may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such
cases such Rights Certificates shall have the full force provided in the
Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates
shall not have been countersigned, the Rights Agent may countersign such
Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided
in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
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(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and
the determination of Current Market Price) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor shall it be responsible for any adjustment
required under the provisions of Section 11, Section 13 or Section 24
hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such
adjustment); nor shall it by any act hereunder be deemed to make any
representation or
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warranty as to the authorization or reservation of any shares of Common
Stock or Preferred Stock to be issued pursuant to this Agreement or any
Rights Certificate or as to whether any shares of Common Stock or Preferred
Stock will, when so issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for
any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct; provided, however, reasonable
care was exercised in the selection and continued employment thereof.
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(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is
not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has
either not been completed or indicates an affirmative response to clause 1
and/or 2 thereof, the Rights Agent shall not take any further action with
respect to such requested exercise or transfer without first consulting
with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and, if such resignation occurs after the Distribution Date, to
the registered holders of the Rights Certificates by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and, if such removal occurs
after the Distribution Date, to the holders of the Rights Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his Rights Certificate for inspection by the Company),
then any registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any
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successor Rights Agent, whether appointed by the Company or by such a court,
shall be a legal business entity organized and doing business under the laws of
the United States or of the State of New York or of any other state of the
United States, in good standing, having an office in the State of New York,
which is authorized under such laws to exercise corporate trust or stock
transfer or shareholder services powers and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an affiliate of a legal business entity described in clause
(a) of this sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and, if such appointment occurs after
the Distribution Date, mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by the Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the issuance
or sale of shares of Common Stock following the Distribution Date and prior to
the redemption or expiration of the Rights, the Company (a) shall, with respect
to shares of Common Stock so issued or sold pursuant to the exercise of stock
options or under any
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employee plan or arrangement, granted or awarded as of the Distribution Date, or
upon the exercise, conversion or exchange of securities hereinafter issued by
the Company, and (b) may, in any other case, if deemed necessary or appropriate
by the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth
Business Day following the Stock Acquisition Date (or, if the Stock
Acquisition Date shall have occurred prior to the Record Date, the close of
business on the tenth Business Day following the Record Date), or (ii) the
Final Expiration Date, redeem all but not less than all of the then
outstanding Rights at a redemption price of $.01 per Right, as such amount
may be appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"). Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not
be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired.
The Company may, at its option, pay the Redemption Price in cash, shares of
Common Stock (based on the Current Market Price, as defined in Section
11(d)(i) hereof, of the Common Stock at the time of redemption) or any
other form of consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and
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without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the action of the
Board of Directors ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at each
holder's last address as it appears upon the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 7(e) hereof)
for Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio
being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors of the Company shall not be empowered to
effect such exchange at any time after any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or
any such Subsidiary, or any entity holding Common Stock for or pursuant to
the terms of any such plan), together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of 50% or more of the Common
Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of
Common Stock equal to
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the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice
shall not affect the validity of such exchange. The Company promptly shall
mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights
Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such
notice of exchange will state the method by which the exchange of the
Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other
than Rights which have become void pursuant to the provisions of Section
7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock (or Equivalent Preferred Stock, as
such term is defined in paragraph (b) of Section 11 hereof) for Common
Stock exchangeable for Rights, at the initial rate of one one-thousandth of
a share of Preferred Stock (or Equivalent Preferred Stock) for each share
of Common Stock, as appropriately adjusted to reflect stock splits, stock
dividends and other similar transactions after the date hereof.
(d) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
shares of Company shall take all such action as may be necessary to
authorize additional shares of Common Stock for issuance upon exchange of
the Rights.
(e) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares
of Common Stock. In lieu of such fractional shares of Common Stock, there
shall be paid to the registered holders of the Rights Certificates with
regard to which such fractional shares of Common Stock would otherwise be
issuable, an amount in cash equal to the same fraction of the current
market value of a whole share of Common
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Stock. For the purposes of this subsection (e), the current market value of
a whole share of Common Stock shall be the closing price of a share of
Common Stock (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to
the holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a regular quarterly cash dividend
out of earnings or retained earnings of the Company), or (ii) to offer to
the holders of Preferred Stock rights or warrants to subscribe for or to
purchase any additional shares of Preferred Stock or shares of stock of any
class or any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision of outstanding shares of Preferred Stock),
or (iv) to effect any consolidation or merger into or with any other Person
(other than a Subsidiary of the Company in a transaction which complies
with Section 11(o) hereof), or to effect any sale or other transfer (or to
permit one or more of its Subsidiaries to effect any sale or other
transfer), in one transaction or a series of related transactions, of more
than 50% of the assets, cash flow or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each
of which complies with Section 11(o) hereof), or (v) to effect the
liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of
such stock dividend, distribution of rights or warrants, or the date on
which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if
any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii)
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above at least twenty (20) days prior to the record date for determining
holders of the shares of Preferred Stock for purposes of such action, and
in the case of any such other action, at least twenty (20) days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of the shares of Preferred Stock whichever shall be
the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii)
hereof, and (ii) all references in the preceding paragraph to Preferred
Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Rights Agent with the Company) as follows:
a) Tricon Global Restaurants, Inc.
1441 Gardiner Lane
Louisville, KY 40213
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing by the Rights Agent with the Company) as follows:
BankBoston, N.A.
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, MA 02021
Attention: Client Administration
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Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date, the
Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement without the approval of any holders of
certificates or DRS book-entry positions representing shares of Common Stock.
From and after the Distribution Date, the Company and the Rights Agent shall, if
the Company so directs, supplement or amend this Agreement without the approval
of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii)
to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, (iii) to shorten or lengthen
any time period hereunder, or (iv) to change or supplement the provisions
hereunder in any manner which the Company may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Rights
Certificates (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); provided, this Agreement may not be supplemented or amended
to lengthen any time period hereunder, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock. Notwithstanding
anything herein to the contrary, this Agreement may not be amended at a time
when the Rights are not redeemable.
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Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company shall have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board or to the Company, or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board or any of the directors on the Board to any liability to the
holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Rights Certificates (and, prior to the Distribution Date,
registered holders of the Common Stock).
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Section 31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth Business Day following the date of such determination by the Board of
Directors. Without limiting the foregoing, if any provision requiring a specific
group of Directors of the Company to act is held to by any court of competent
jurisdiction or other authority to be invalid, void or unenforceable, such
determination shall then be made by the Board of Directors of the Company in
accordance with applicable law and the Company's Restated Articles of
Incorporation and By-laws.
Section 32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of North Carolina and for all purposes shall be governed by
and construed in accordance with the laws of such State applicable to contracts
made and to be performed entirely within such State, except that the rights and
obligations of the Rights Agent shall be governed by the laws of the State of
Massachusetts.
Section 33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: TRICON GLOBAL
RESTAURANTS, INC.
By: /s/ Matthew M. Preston By: /s/ Christian L. Campbell
------------------------- ---------------------------
Name: Matthew M. Preston Name: Christian L. Campbell
Title: Assistant Secretary Title: Senior Vice President,
General Counsel and
Secretary
Attest: BANKBOSTON, N.A.
By: /s/ Francis G. Arren By: /s/ Charles V. Rossi
--------------------------- ----------------------------
Name: Francis G. Arren Name: Charles V. Rossi
Title: Director, Client Services Title: Authorized Officer
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Exhibit A
ARTICLES OF AMENDMENT
OF
TRICON GLOBAL RESTAURANTS, INC.
The undersigned Corporation hereby submits these Articles of Amendment
(these "Articles of Amendment" or this "Certificate") for the purpose of
amending its Restated Articles of Incorporation pursuant to Section 55-6-02 of
the North Carolina Business Corporation Act.
1. The name of the Corporation before amendment: TRICON Global Restaurants,
Inc.
2. The name of the Corporation after amendment: TRICON Global Restaurants,
Inc.
3. The Restated Articles of Incorporation of the Corporation (the "Restated
Articles of Incorporation") are hereby amended by adding the following Section
(c) to Article SECOND:
(c) Series A Junior Participating Preferred Stock. A series of Preferred
Shares of the Corporation is hereby created, and the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 750,000.
2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
Preferred Shares ranking prior and superior to the shares of Series A
Junior
<PAGE>
Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Junior Participating Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on
the first day of January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $10.00 or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all
cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a
dividend payable in Common Shares or a subdivision of the outstanding
Common Shares (by reclassification or otherwise), declared on the Common
Shares of the Corporation since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series A Junior Participating Preferred Stock. In the event the
Corporation shall at any time after July 21, 1998 (the "Rights Declaration
Date") (i) declare any dividend on Common Shares payable in Common
Shares,(ii) subdivide the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares, then in each
such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of Common
Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in Paragraph (A)
above immediately after it declares a dividend or distribution on the
Common Shares (other than a dividend
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payable in Common Shares); provided that, in the event no dividend or
distribution shall have been declared on the Common Shares during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $10.00 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Junior Participating Preferred
Stock in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
3
<PAGE>
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Shares payable in Common Shares, (ii) subdivide the outstanding Common
Shares, or (iii) combine the outstanding Common Shares into a smaller
number of shares, then in each such case the number of votes per share to
which holders of shares of Series A Junior Participating Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number
of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
Common Shares shall vote together as one class on all matters submitted to
a vote of shareholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on
all shares of Series A Junior Participating Preferred Stock then
outstanding shall have been declared and paid or set apart for payment.
During each default period, all holders of Preferred Shares (including
holders of the Series A Junior Participating Preferred Stock) with
dividends in arrears in an amount equal to six (6) quarterly dividends
thereon, voting as a class, irrespective of series, shall have the right to
elect two (2) directors.
4
<PAGE>
(ii) During any default period, such voting right of the holders
of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii)
of this Section 3(C) or at any annual meeting of shareholders, and
thereafter at annual meetings of shareholders, provided that neither
such voting right nor the right of the holders of any other series of
Preferred Shares, if any, to increase, in certain cases, the
authorized number of directors shall be exercised unless the holders
of ten percent (10%) in number of Preferred Shares outstanding shall
be present in person or by proxy. The absence of a quorum of the
holders of Common Shares shall not affect the exercise by the holders
of Preferred Shares of such voting right. At any meeting at which the
holders of Preferred Shares shall exercise such voting right initially
during an existing default period, they shall have the right, voting
as a class, to elect directors to fill such vacancies, if any, in the
Board of Directors as may then exist up to two (2) directors or, if
such right is exercised at an annual meeting, to elect two (2)
directors. If the number which may be so elected at any special
meeting does not amount to the required number, the holders of the
Preferred Shares shall have the right to make such increase in the
number of directors as shall be necessary to permit the election by
them of the required number. After the holders of the Preferred Shares
shall have exercised their right to elect directors in any default
period and during the continuance of such period, the number of
directors shall not be increased or decreased except by vote of the
holders of Preferred Shares as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with
the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Shares shall, during an
existing default period, have previously exercised their right to
elect directors, the Board of Directors may order, or any shareholder
or shareholders owning in the aggregate not less than ten percent
(10%) of the total number of shares of Preferred Shares outstanding,
irrespective of
5
<PAGE>
series, may request, the calling of a special meeting of the holders
of Preferred Shares, which meeting shall thereupon be called by the
President, a Vice-President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which holders of
Preferred Shares are entitled to vote pursuant to this Paragraph
(C)(iii) shall be given to each holder of record of Preferred Shares
by mailing a copy of such notice to him at his last address as the
same appears on the books of the Corporation. Such meeting shall be
called for a time not earlier than 20 days and not later than 60 days
after such order or request or in default of the calling of such
meeting within 60 days after such order or request, such meeting may
be called on similar notice by any shareholder or shareholders owning
in the aggregate not less than ten percent (10%) of the total number
of shares of Preferred Shares outstanding. Notwithstanding the
provisions of this Paragraph (C)(iii), no such special meeting shall
be called during the period within 60 days immediately preceding the
date fixed for the next annual meeting of the shareholders.
(iv) In any default period, the holders of Common Shares, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of directors until
the holders of Preferred Shares shall have exercised their right to
elect two (2) directors voting as a class, after the exercise of which
right (x) the directors so elected by the holders of Preferred Shares
shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided
in Paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining directors theretofore elected by the holders
of the class of stock which elected the director whose office shall
have become vacant. References in this Paragraph (C) to directors
elected by the holders of a particular class of stock shall include
directors elected by such directors to fill vacan-
6
<PAGE>
cies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Shares as a class to elect directors
shall cease, (y) the term of any directors elected by the holders of
Preferred Shares as a class shall terminate, and (z) the number of
directors shall be such number as may be provided for in the Restated
Articles of Incorporation or By-laws of the Corporation (the
"By-laws") irrespective of any increase made pursuant to the
provisions of Paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law
or in the Restated Articles of Incorporation or By-laws. Any vacancies
in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the
remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to
vote with holders of Common Shares as set forth herein) for taking any
corporate action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Junior Participating Preferred Stock outstanding shall have been paid in
full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
7
<PAGE>
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Junior Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under Paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
8
<PAGE>
5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after
the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued Preferred Shares and may be reissued as
part of a new series of Preferred Shares to be created by resolution
or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received an amount equal to
$1,000 per share of Series A Participating Preferred Stock, plus an
amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the
holders of Common Shares shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 1,000 (as appropriately
adjusted as set forth in subparagraph (C) below to reflect such events
as stock splits, stock dividends and recapitalizations with respect to
the Common Shares) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Junior Participating Preferred Stock
and Common Shares, respectively, holders of Series A Junior
Participating Preferred Stock and holders of Common Shares shall
receive their ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number to 1 with
respect to such Pre-
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<PAGE>
ferred Shares and Common Shares, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of Preferred Shares, if
any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to
the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Shares.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Shares payable in
Common Shares, (ii) subdivide the outstanding Common Shares, or (iii)
combine the outstanding Common Shares into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such event.
(D) Notwithstanding the other provisions of this Section 6, no holder
of shares of Series A Junior Participating Preferred Stock shall be
authorized or entitled to receive upon the involuntary liquidation of the
Corporation an amount in excess of $100.00 per share.
7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the Common Shares are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the
shares of Series A Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share (subject to
the provision for
10
<PAGE>
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each Common Share is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Share payable in Common
Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Junior Participating Preferred
Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of Common Shares outstanding immediately
after such event and the denominator of which is the number of Common
Shares that were outstanding immediately prior to such event.
8. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
9. Ranking. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Shares, if
any, as to the payment of dividends and the distribution of assets, unless
the terms of any such series shall provide otherwise.
10. Amendment. At any time when any shares of Series A Junior
Participating Preferred Stock are outstanding, the Restated Articles of
Incorporation of the Corporation shall not be amended in any manner which
would materially alter or change the powers, preferences or special rights
of the Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of a majority or more
of the outstanding shares of Series A Junior Participating Preferred Stock,
voting separately as a class.
11. Fractional Shares. Series A Junior Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all
11
<PAGE>
other rights of holders of Series A Junior Participating Preferred Stock.
4. These Articles of Amendment were adopted by the Board of Directors of
the Corporation on July 21, 1998 prior to issuance of any shares of Series A
Junior Participating Preferred Stock in accordance with Section 55-6-02 of the
North Carolina Business Corporation Act. Shareholder action was not required.
5. These Articles of Amendment will be effective upon filing.
IN WITNESS WHEREOF, we have executed and subscribed these Articles of
Amendment and do affirm the foregoing as true under the penalties of perjury
this 21st day of July, 1998.
/s/ Christian L. Campbell
-----------------------------------
Name: Christian L. Campbell
Title: Senior Vice President,
General Counsel and Secretary
Attest:
/s/ Matthew M. Preston
- ------------------------------------
Name: Matthew M. Preston
Title: Assistant Secretary
12
<PAGE>
Exhibit B
[Form of Rights Certificate]
Certificate No. R-
________ Rights
NOT EXERCISABLE AFTER JULY 21, 2008 UNLESS EXTENDED PRIOR THERETO BY THE BOARD
OF DIRECTORS OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT)
AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]*
Rights Certificate
TRICON GLOBAL RESTAURANTS, INC.
This certifies that --------------, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of July 21, 1998 (the "Rights Agreement"), between Tricon
Global Restaurants, Inc., a North Carolina corporation (the "Company"), and
BankBoston, N.A., as Rights Agent (the "Rights Agent"), to purchase from the
Company at any time prior to 5:00 P.M. (New York City time) on July 21, 2008
(unless such date is extended prior thereto by the Board of Directors) at the
office or offices of the Rights Agent designated for such purpose, or its
successors as
- --------------------------
* The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
Rights Agent, one one-thousandth of a fully paid, non-assessable share of Series
A Junior Participating Preferred Stock (the "Preferred Stock") of the Company,
at a purchase price of $130.00 per one one-thousandth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The number
of Rights evidenced by this Rights Certificate (and the number of shares which
may be purchased upon exercise thereof) set forth above, and the Purchase Price
per share set forth above, are the number and Purchase Price as of July 21, 1998
based on the Preferred Stock as constituted at such date. The Company reserves
the right to require prior to the occurrence of a Triggering Event (as such term
is defined in the Rights Agreement) that a number of Rights be exercised so that
only whole shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Rights Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii)
under certain circumstances specified in the Rights Agreement, a transferee of a
person who, after such transfer, became an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of shares of Preferred Stock or other securities, which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the
2
<PAGE>
Rights Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under the specific circumstances
set forth in the Rights Agreement. Copies of the Rights Agreement are on file at
the above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office or offices of the Rights Agent designated for
such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right at any time prior to the earlier of the close of
business on (i) the tenth Business Day following the Stock Acquisition Date (as
such time period may be extended pursuant to the Rights Agreement), and (ii) the
Final Expiration Date. In addition, under certain circumstances following the
Stock Acquisition Date, the Rights may be exchanged, in whole or in part, for
shares of the Common Stock, or shares of preferred stock of the Company having
essentially the same value or economic rights as such shares. Immediately upon
the action of the Board of Directors of the Company authorizing any such
exchange, and without any further action or any notice, the Rights (other than
Rights which are not subject to such exchange) will terminate and the Rights
will only enable holders to receive the shares issuable upon such exchange.
No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash
3
<PAGE>
payment will be made, as provided in the Rights Agreement. The Company, at its
election, may require that a number of Rights be exercised so that only whole
shares of Preferred Stock would be issued.
No holder of this Rights Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of shares of Preferred Stock
or of any other securities of the Company which may at any time be issuable on
the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give consent to or withhold consent from any corporate action, or, to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
4
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of _________ __, ____
ATTEST: TRICON GLOBAL RESTAURANTS, INC.
By:
------------------------------------ ------------------------------
Secretary Name:
Title:
Countersigned:
BANKBOSTON, N.A.
By:
------------------------------------
Authorized Signature
5
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ------------------------------------------- hereby
sells, assigns and transfers unto --------------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
- -------------------------------------------------------------------------------
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________ Attorney,
to transfer the within Rights Certificate on the books of the within named
Company, with full power of substitution.
Dated: __________________, _____
--------------------------------
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: _______________, _____ -----------------------------
Signature
Signature Guaranteed:
<PAGE>
NOTICE
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the Rights Certificate.)
To: Tricon Global Restaurants, Inc.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security
or other identifying number
- -------------------------------------------------------------------------------
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dated: _______________, _____
-----------------------------------
Signature
Signature Guaranteed:
<PAGE>
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or became an Acquiring Person or an Affiliate or Associate of
an Acquiring Person.
Dated: ______________, _____ ---------------------------------
Signature
Signature Guaranteed:
<PAGE>
NOTICE
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On July 21, 1998, the Board of Directors of Tricon Global Restaurants, Inc.
(the "Company") declared a dividend distribution of one Right for each
outstanding share of Company Common Stock to shareholders of record at the close
of business on August 3, 1998 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-thousandth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, without par value (the "Preferred Stock") at a Purchase Price of $130 per
Unit, subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company and
BankBoston, N.A., as Rights Agent.
Initially, the Rights will be attached to all Common Stock certificates and
DRS book-entry positions representing shares then outstanding, and no separate
Rights Certificates will be distributed. Subject to certain exceptions specified
in the Rights Agreement, the Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 business days following
a public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 15% or more, or 20%
or more if such person or group owned 10% or more on the Plan's adoption date,
of the outstanding shares of Common Stock (the "Stock Acquisition Date"), other
than as a result of repurchases of stock by the Company or certain inadvertent
actions by institutional or certain other shareholders or (ii) 10 business days
(or such later date as the Board shall determine) following the commencement of
a tender offer or exchange offer that would result in a person or group becoming
an Acquiring Person. Until the Distribution Date, (i) the Rights will be
evidenced by the Common Stock certificates or DRS book-entry positions and will
be transferred with and only with such Common Stock certificates or DRS
book-entry positions, (ii) new Common Stock certificates and DRS book-entry
positions issued after the Record Date will contain a notation incorporating the
Rights Agreement by reference and (iii) the surrender for transfer of any
certificates for Common Stock outstanding will also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate.
Pursuant to the Rights Agreement, the Company reserves the right
<PAGE>
to require prior to the occurrence of a Triggering Event (as defined below)
that, upon any exercise of Rights, a number of Rights be exercised so that only
whole shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will expire
at 5:00 P.M. (New York City time) on July 21, 2008, unless such date is extended
or the Rights are earlier redeemed or exchanged by the Company as described
below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that a Person becomes an Acquiring Person, except pursuant to
an offer for all outstanding shares of Common Stock which the independent
directors determine to be fair and not inadequate to and to otherwise be in the
best interests of the Company and its shareholders, after receiving advice from
one or more investment banking firms (a "Qualifying Offer"), each holder of a
Right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Right.
Notwithstanding any of the foregoing, following the occurrence of the event set
forth in this paragraph, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person will be null and void. However, Rights are not exercisable following the
occurrence of the event set forth above until such time as the Rights are no
longer redeemable by the Company as set forth below.
For example, at an exercise price of $130 per Right, each Right not owned
by an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $260 worth
of Common Stock (or other consideration, as noted above) for $130. Assuming that
the Common Stock had a per share value of $33 at such time, the holder of each
valid Right would be entitled to purchase approximately 8 shares of Common Stock
for $130.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company engages in a
2
<PAGE>
merger or other business combination transaction in which the Company is not the
surviving corporation (other than with an entity which acquired the shares
pursuant to a Qualified Offer), (ii) the Company engages in a merger or other
business combination transaction in which the Company is the surviving
corporation and the Common Stock of the Company is changed or exchanged, or
(iii) 50% or more of the Company's assets, cash flow or earning power is sold or
transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the exercise price of the Right. The events set forth in this paragraph
and in the second preceding paragraph are referred to as the "Triggering
Events."
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of fifty percent (50%) or more of the
outstanding Common Stock, the Board may exchange the Rights (other than Rights
owned by such person or group which have become void), in whole or in part, at
an exchange ratio of one share of Common Stock, or one one-thousandth of a share
of Preferred Stock (or of a share of a class or series of the Company's
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
At any time until ten business days following the Stock Acquisition Date,
the Company may redeem the Rights in whole, but not in part, at a price of $.01
per Right (payable in cash, Common Stock or other consideration deemed
appropriate by the Board of Directors). Immediately upon the action of the Board
of Directors ordering redemption of the Rights, the Rights will terminate and
the only right of the holders of Rights will be to receive the $.01 redemption
price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company or in the event of the redemption of the
Rights as set forth above.
Any of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company
3
<PAGE>
prior to the Distribution Date. After the Distribution Date, the provisions of
the Rights Agreement may be amended by the Board in order to cure any ambiguity,
to make changes which do not adversely affect the interests of holders of
Rights, or to shorten or lengthen any time period under the Rights Agreement.
The foregoing notwithstanding, no amendment may be made at such time as the
Rights are not redeemable.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
4
<PAGE>
EXHIBIT 12
TRICON Global Restaurants, Inc.
Ratio of Earnings to Fixed Charges Years Ended 1997-1993
and 24 Weeks Ended June 13, 1998 and June 14, 1997
(in millions except ratio amounts)
<TABLE>
52 Weeks 53 Weeks 52 Weeks 24 Weeks
------------------------------- ------------ ---------- -----------------------
1997 1996 1995 1994 1993 6/13/98 6/14/97
-------- -------- -------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before income taxes and cumulative
effect of accounting changes (35) 72 (103) 241 416 294 263
Unconsolidated affiliates' interests,
net (a) (1) (6) - (1) (3) - (3)
Interest expense (a) 290 310 368 349 238 136 131
Interest portion of net rent expense (a) 109 109 109 108 87 42 47
-------- -------- -------- ------------ ---------- ---------- ----------
Earnings available for fixed charges 363 485 374 697 738 472 438
======== ======== ======== ============ ========== ========== ==========
Fixed Charges:
Interest Expense (a) 290 310 368 349 238 136 131
Interest portion of net rent expense 109 109 109 108 87 42 47 (a)
-------- -------- -------- ------------ ---------- ---------- ----------
Total Fixed Charges 399 419 477 457 325 178 178
======== ======== ======== ============ ========== ========== ==========
Ration of Earnings to Fixed
Charges (b) (c) (d) .91x 1.16x .78x 1.53x 2.27x 2.65x 2.46x
</TABLE>
(a)Included in earnings for the years 1993 through 1997 are certain allocations
related to overhead costs and interest expense from PepsiCo. For purposes
of these ratios, earnings are calculated by adding to (subtracting from)
income from continuing operations before income taxes and cumulative effect
of accounting changes the following: fixed charges, excluding capitalized
interest; and losses and (undistributed earnings) recognized with respect
to less than 50% owned equity investments. Fixed charges consist of
interest on borrowings, the allocation of PepsiCo's interest expense and
that portion of rental expense that approximates interest. For a
description of the PepsiCo allocations, see the notes to the consolidated
financial statements included in the 10-K.
(b)Included the impact of unusual, disposal and other charges of $174 million
($159 million after tax) in 1997, $246 million ($189 million after tax) in
1996, $457 million ($324 million after tax) in 1995 and $39 million ($22
million after tax) for the 24 weeks ended June 14, 1997. Excluding the
impact of such charges, the ratio of earnings to fixed charges would have
been 1.35x, 1.74x, 1.74x and 2.68x for the fiscal years ended 1997, 1996
and 1995, respectively and the 24 weeks ended June 14, 1997.
(c)The Company is contingently liable for obligations of certain franchisees and
other unaffiliated parties. Fixed charges associated with such obligations
aggregated approximately $17 million during the fiscal year 1997. Such
fixed charges, which are contingent, have not been included in the
computation of the ratios.
(d)For the fiscal years December 27, 1997 and December 30, 1995, earnings were
insufficient to cover fixed charges by approximately $36 million and $103
million, respectively. Earnings in 1997 includes a charge of $530 million
($425 million after-tax) taken in the fourth quarter to refocus our
business. Earnings in 1995 included the noncash charge of $457 million
($324 million after-tax) for the initial adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
<PAGE>
EXHIBIT 15
Accountants' Acknowledgment
The Board of Directors
TRICON Global Restaurants, Inc.:
We hereby acknowledge our awareness of the use of our report dated July 24, 1998
included within the Quarterly Report on Form 10-Q of TRICON Global Restaurants,
Inc. for the twelve and twenty-four weeks ended June 13, 1998, and incorporated
by reference in the following Registration Statements:
Description Registration Statement Number
Form S-3
Initial Public Offering of Debt Securities 333-42969
Form S-8s
Restaurant Deferred Compensation Plan 333-36877
Executive Income Deferral Program 333-36955
TRICON Long-Term Incentive Plan 333-36895
Share Power Stock Option Plan 333-36961
TRICON Long-Term Savings Program 333-36893
Pursuant to Rule 436(c) of the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Louisville, Kentucky
July 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from TRICON
Global Restaurants, Inc. Condensed Consolidated Financial Statements for
the 12 and 24 Weeks ended June 13, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001041061
<NAME> TRICON Global Restaurants, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-27-1997
<PERIOD-START> Dec-28-1998
<PERIOD-END> Mar-21-1998
<EXCHANGE-RATE> 1.000
<CASH> 202
<SECURITIES> 76
<RECEIVABLES> 206
<ALLOWANCES> 16
<INVENTORY> 67
<CURRENT-ASSETS> 723
<PP&E> 5,858
<DEPRECIATION> 2,809
<TOTAL-ASSETS> 4,829
<CURRENT-LIABILITIES> 1,560
<BONDS> 4,134
0
0
<COMMON> 1,274
<OTHER-SE> (2,759)
<TOTAL-LIABILITY-AND-EQUITY> 4,829
<SALES> 3,657
<TOTAL-REVENUES> 3,922
<CGS> 2,253
<TOTAL-COSTS> 3,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> 294
<INCOME-TAX> 128
<INCOME-CONTINUING> 166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.07
</TABLE>
