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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 30, 2002
PHILIP MORRIS COMPANIES INC.
(Exact name of registrant as specified in its charter)
Virginia 1-8940 13-3260245
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
120 Park Avenue, New York, New York 10017-5592
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (917) 663-5000
(Former name or former address, if changed since last report.)
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Item 5. Other Events.
On May 30, 2002, Philip Morris Companies Inc., a Virginia corporation
("Philip Morris") announced an agreement with South African Breweries plc
("SAB") to merge Miller Brewing Company, a Wisconsin corporation and a wholly
owned subsidiary of Philip Morris ("Miller"), with a wholly owned subsidiary of
SAB (the "Transaction"). Upon completion of the Transaction, SAB will
be renamed "SABMiller." Subject to the terms and conditions set forth in the
transaction agreements described below, as a result of the Transaction, Miller
will become a wholly owned subsidiary of SAB, and Philip Morris will receive 430
million shares in SABMiller, representing an economic interest in SABMiller of
approximately 36% prior to an intended equity placing by SABMiller. Philip
Morris' total voting interest in SABMiller will be 24.99% of the votes
exercisable at a general meeting. The press release of Philip Morris announcing
the Transaction is incorporated herein by reference to Philip Morris' Form 8-K
filed May 30, 2002 and is listed herein as Exhibit 99.1.
The following is a summary of the principal contracts that have been or
will be entered into on or before completion of the Transaction in order to
implement the Transaction.
A. The Transaction Agreement
Pursuant to the Transaction Agreement, dated as of May 30, 2002, among
Philip Morris, SAB and Miller, (the "Transaction Agreement"), Philip Morris has
agreed to merge a subsidiary of SAB into Miller in consideration for the
issuance by SAB to Philip Morris of 430 million shares, consisting of
approximately 235 million ordinary shares and approximately 195 million low
voting participating shares (together the "Consideration Shares"). Miller will
be transferred to SAB with $2 billion of net debt.
The Transaction will be structured as follows:
(a) SAB will incorporate a wholly-owned subsidiary under the laws of
Wisconsin ("Merger Sub");
(b) upon the shareholders of SAB approving the Transaction and related
matters, the competition clearance conditions described below being
satisfied and provided the conditions described in paragraphs (e)
to (h) of the following paragraph are satisfied at that time,
Miller and Merger Sub will execute and file articles of merger with
the Wisconsin Department of Financial Institutions (the "Articles
of Merger") for the purposes of merging Merger Sub with and into
Miller, which will be the surviving corporation;
(c) upon admission of the new SAB ordinary shares to the official list
of the applicable listing authority in the United Kingdom (the
"UKLA") and admission of the new SAB ordinary shares to trading on
the London Stock Exchange ("Admission") becoming effective, Merger
Sub will automatically be merged into Miller and Miller will become
a wholly-owned subsidiary of SAB; and
(d) SAB will allot and issue the Consideration Shares to Philip Morris.
Assuming the Transaction is completed on or before September 30,
2002, Philip Morris will be
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entitled to receive a pro-rata proportion, based on the date of
completion of the Transaction, of any interim dividend in respect
of the Consideration Shares for the period ending September 30,
2002. If the Transaction is completed after September 30, 2002,
Philip Morris will similarly be entitled to a pro rata proportion,
based on the date of completion of the Transaction, of the final
dividend for the year ending March 31, 2003.
Completion of the Transaction is conditional upon, among other things:
(a) the giving of the necessary approvals by SAB's shareholders at the
extraordinary general meeting of SAB shareholders;
(b) requisite clearances having been obtained from specified
competition authorities;
(c) the filing of the Articles of Merger with the Wisconsin Department
of Financial Institutions;
(d) the Admission of the SAB ordinary shares to be issued to Philip
Morris;
(e) no material adverse change having occurred in relation to SAB or
Miller;
(f) no breach by SAB or Miller of their respective exclusivity
undertakings (described below) by entering into an agreement in
connection with a material transaction;
(g) no material breach by SAB or Philip Morris of certain undertakings
relating to, in the case of Philip Morris, the conduct of the
Miller business prior to completion of the Transaction and, in the
case of SAB, its share capital and any matter which may result in
the warranties given by SAB being incorrect or in SAB being
required to issue supplementary listing particulars;
(h) neither SAB nor Philip Morris becoming aware of any breach of their
respective warranties that would have a material adverse effect on
the Miller business or the SAB business respectively; and
(i) receipt by Miller of any permits required to be obtained prior to
completion of the Transaction under applicable alcoholic beverage
control laws where failure to obtain such permits would materially
and adversely affect the operations of Miller.
SAB and Philip Morris may jointly agree to waive all or any of the
competition clearance conditions referred to in paragraph (b) immediately above.
Each party may waive a condition referred to in paragraph (e), (f), (g) or (h)
immediately above at any time before completion of the Transaction or, if such
condition is not satisfied, the non-defaulting party may either waive the
condition or terminate the Transaction Agreement.
Completion of the Transaction will take place immediately upon
satisfaction of the last of the conditions to be satisfied. If the necessary
approvals by SAB's shareholders at their
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extraordinary general meeting have not been given by July 8, 2002 (or such later
date as Philip Morris may notify SAB) or if completion of the Transaction does
not occur on or before January 31, 2003, the Transaction Agreement will
terminate automatically.
SAB and Philip Morris have agreed that from May 30, 2002 until the date
of completion of the Transaction or the termination of the Transaction
Agreement:
(a) Philip Morris will not solicit or enter into any discussions or
negotiations, agreements or arrangements, or provide information in
respect of, any transaction relating primarily to Miller with a
value (whether alone or together with all other transactions
entered into since April 16, 2002) in excess of $650,000,000 or any
transaction (regardless of size) which may frustrate, impair, delay
or prevent completion of the Transaction;
(b) SAB and its subsidiaries will not enter into a transaction with a
value (whether alone or together with all other transactions
entered into since April 16, 2002) in excess of $650,000,000 or any
transaction (regardless of size) which may frustrate, impair, delay
or prevent completion of the Transaction, nor will SAB and its
subsidiaries solicit or enter into any discussions, or
negotiations, or provide information in respect of any transaction
which might lead to the acquisition of SAB or all or substantially
all of its assets, or a third party acquiring control of SAB or any
transaction (regardless of size) which may frustrate, impair, delay
or prevent completion of the Transaction; and
(c) Philip Morris will ensure that Miller operates its business in the
ordinary course consistent in all material respects with past
practice and, inter alia, that it will not, subject to certain
exceptions, sell or encumber any material assets, materially
increase benefits under the Miller employee benefit plans, settle
certain litigation matters for a material amount, incur significant
capital expenditure or amend or terminate its material contracts in
certain respects.
From and after completion of the Transaction, Miller will be the
successor employer of all Miller employees and their participation in any Miller
employee benefit plan that is sponsored by Philip Morris will cease other than
with respect to Philip Morris stock options previously granted. SAB has agreed
to maintain Miller compensation plans until December 31, 2004 and until such
time to continue or establish plans to provide all employee benefits previously
provided by Philip Morris, including pension plans, savings plans and a
long-term disability and survivor income benefit plan.
Among other covenants which will apply during the period pending
completion of the Transaction, SAB has agreed not to issue or allot any of its
ordinary shares (other than pursuant to the potential equity raising or the
conversion of SAB's 4.25% guaranteed convertible bonds due 2006 or under an
existing SAB stock option plan in the ordinary course).
Philip Morris has given certain warranties and indemnities to SAB in
respect of Miller, which warranties will be repeated at the completion of the
Transaction. These include warranties in respect of title to the shares in
Miller and its subsidiaries, facts relating to Miller contained in
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the circular to SAB shareholders in connection with the SAB extraordinary
general meeting (the "Circular"), Miller's indebtedness at completion of the
Transaction, accounts, assets, intellectual property, insurance, material
contracts, real property, environmental matters, employees and benefits,
liabilities, permits, litigation and tax matters.
The aggregate liability of Philip Morris in respect of any warranty
claims under the Transaction Agreement (other than under the warranties relating
to title to the shares in Miller and the authority and capacity of Philip
Morris, which are without financial limit) is limited to $1,000,000,000.
SAB has in turn given certain warranties and indemnities to Philip
Morris, which warranties will be repeated at the completion of the Transaction.
These include warranties in respect of facts relating to SAB contained in the
Circular, the shares in Merger Sub, accounts, intellectual property, insurance,
material contracts, real property, environmental matters, employees and
benefits, liabilities, permits, litigation and tax matters. The warranties
relating to capacity and title expire after six years; those relating to tax
expire after three months from the expiration of applicable statutory
limitations; and in all other cases the warranties expire after one year.
The aggregate liability of SAB in respect of any warranty claim under
the Transaction Agreement (other than under the warranties relating to the
shares in Merger Sub and the authority and capacity of SAB which are without
financial limit) is limited to $1,000,000,000. Any amounts due to Philip Morris
in respect of warranty claims are to be satisfied by SAB issuing a number of
ordinary shares (calculated by reference to the share price at the time and the
agreed amount of the warranty claim).
B. The Inducement Fee Letter
SAB and Philip Morris have entered into a letter agreement, dated May
30, 2002, under which SAB will pay Philip Morris a fee of $160 million if the
Transaction Agreement is terminated:
(a) If SAB shareholder approval is not obtained by July 8, 2002, or if
the Transaction is not completed by January 31, 2003, in either
case because (1) the SAB shareholders do not approve the
Transaction, or (2) any resolution is passed by the SAB
shareholders which modifies or varies the effect of the shareholder
resolutions set out in the notice of extraordinary general meeting
of SAB contained in the Circular in a manner which is reasonably
likely to prevent, frustrate, impair or materially delay the
Transaction, and in either case of (1) or (2):
(i) SAB has solicited, initiated, facilitated, or waived any
standstill provision in a manner which facilitated, or
encouraged, or made available any information or entered
into negotiations relating to, any person acquiring the
whole of SAB, all or substantially all of its assets or
control of SAB or entering into any other transaction
with SAB which is reasonably likely to prevent, frustrate,
impair or materially delay the Transaction; or
(ii) the Board of Directors of SAB withdraws or materially amends
the terms of the Board's recommendation to vote in favor of
the resolutions; or
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(iii) the third party has announced a firm intention to make an
offer for SAB;
or
(b) by reason of any person obtaining a holding, or aggregate holdings,
of SAB ordinary shares carrying 30 percent or more of the voting
rights attributable to the share capital of SAB which are currently
exercisable at a general meeting.
C. The Relationship Agreement
Philip Morris and SAB have agreed to enter into a Relationship
Agreement (the "Relationship Agreement") to regulate certain aspects of the
relationship between SAB and Philip Morris as a shareholder after completion of
the Transaction. A summary of the material terms of the Relationship Agreement
is set out below.
Philip Morris acknowledges the independence of SAB management from
Philip Morris' direct involvement in day to day governance, and the parties
agree that all transactions and relationships between (i) Philip Morris and its
affiliates and (ii) SAB and its group members will be at arm's length and on
normal commercial terms.
Philip Morris shall be entitled to nominate individuals for appointment
to the office of director on the Board of Directors of SAB so that:
(a) not more than three non-executive directors so nominated hold
office if Philip Morris' holding of SAB ordinary shares and SAB
participating shares, expressed as a percentage of all the issued
SAB ordinary shares and SAB participating shares other than shares
in SAB held by Safari Limited (a special purpose vehicle
established and financed by South African Breweries International
(Finance), a wholly-owned overseas subsidiary of SAB) ("Economic
Interest"), is 25 percent or more;
(b) not more than two non-executive directors so nominated hold office
if the Economic Interest of Philip Morris is 20 percent or more but
less than 25 percent; or
(c) not more than one non-executive director so nominated holds office
if the Economic Interest of Philip Morris is 10 percent or more
but less than 20 percent.
The total number of directors of SABMiller will initially be 13, and shall
include two executive directors (being the Chief Executive and CFO of SAB) and,
subject to agreement otherwise and the requirements of the principles of good
governance and code of best practice appended to the listing rules of the UKLA,
shall reduce to 11 within two years.
For so long as Philip Morris has the right to nominate at least one
non-executive director, a proportionate number of non-executive directors on the
nomination and audit committees of the SAB Board, and on any other key
committees of the Board that include non-executive Directors, shall be
non-executive directors nominated by Philip Morris.
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Philip Morris shall not, prior to December 31, 2004, acquire any SAB
ordinary shares or SAB participating shares as a result of which Philip Morris'
voting rights in SAB, expressed as a percentage of the total voting rights in
SAB, calculated (in the case of participating shares) on the basis of one-tenth
of a vote for every participating share ("Voting Shareholding"), would exceed
24.99 percent of the total Voting Shareholding unless a third party announces a
firm intention to make a takeover offer for SAB, which would (were such offer to
become or be declared unconditional in all respects) result in the Voting
Shareholding of the third party being more than 30 percent of the total Voting
Shareholding. Notwithstanding the foregoing sentence, Philip Morris may,
however, acquire SAB shares by (1) participating in certain future issuances of
securities by SAB described below; (2) restoring its Economic Interest to
previous levels if its Economic Interest has been reduced as a result of any
other issuance by SAB of ordinary shares; or (3) receiving additional SAB shares
pursuant to the Transaction Agreement. In the event that Philip Morris is
permitted to purchase SAB Shares where such purchase would otherwise result in
Philip Morris' Voting Shareholding exceeding 24.99 percent, SAB has agreed to
exchange such number of SAB ordinary shares owned by Philip Morris for SAB
participating shares to maintain such Voting Shareholding.
Philip Morris shall not, prior to June 30, 2005, dispose of or (other
than in favor of financial institutions) pledge or grant any SAB ordinary shares
or SAB participating shares, unless a third party has made a takeover offer for
SAB subject to and in accordance with the provisions of the City Code on
Takeovers and Mergers (the "City Code") and either:
(a) any such offer has been recommended (or not opposed) by the SAB
Board; or
(b) any such offer has been accepted by a sufficient number of holders
of SAB ordinary shares such that the third party either holds or
has received acceptances in respect of more than 50 percent of
those issued SAB ordinary shares which are not then held by Philip
Morris or any of its affiliates, or by the directors of SAB, and
such offer is not, or has ceased to be, subject to any conditions
other than as to acceptances.
The UK Panel on Takeovers and Mergers (the "Panel") has indicated to
SAB and Philip Morris that the standstill and lock up provisions in the
Relationship Agreement, together with the proposed changes to the Articles of
Association of SAB, may give rise to a deemed concert party between Philip
Morris and persons connected with Philip Morris on the one hand and SAB and the
SAB Board and persons connected with them on the other hand. Accordingly, the
Relationship Agreement provides that if circumstances arise where any interest
in shares in SAB is acquired by SAB or persons connected with SAB, such that
(when taken together with the shares in SAB in which SAB and persons connected
with SAB are then interested aggregated with the shares in SAB then held by
Philip Morris and persons connected with Philip Morris) the total voting
interest of all those persons exceeds 29.99 percent, the standstill and lock up
restrictions on Philip Morris described above will cease to apply. SAB and
Philip Morris have confirmed to the Panel that they will advise the Panel if
they become aware that such circumstances are likely to arise or have arisen.
Philip Morris may dispose of, pledge or grant any SAB ordinary shares
or SAB participating shares on or after June 30, 2005, but any disposal must be
in accordance with
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orderly marketing arrangements, which primarily involve Philip Morris'
obligation to consult with SAB prior to a disposal of SAB shares and to use a
nominated agent of SAB as part of the selling group for a general offering to
investors or to effect a block trade through an investment bank or broker who
regularly publishes research on, or trades, SAB ordinary shares.
If SAB determines to issue any ordinary shares or participating shares
for cash, it shall, for so long as the Economic Interest of Philip Morris is
24.99 percent, or more, offer to Philip Morris the right to subscribe, on no
less favorable terms than to others to whom such ordinary shares or
participating shares are offered for subscription, for such number of those
ordinary shares or participating shares as is equal to Philip Morris'
percentage ownership of ordinary shares or participating shares immediately
prior to such issue.
During the period commencing on the date of the Relationship Agreement
and ending on the fourth anniversary of such date, if SAB determines to issue
any ordinary shares or participating shares by way of a rights issue, it shall,
for so long as the Economic Interest of Philip Morris is 24.99 percent or more,
offer to Philip Morris the right to take up not only its full pro rata
entitlement to ordinary shares or participating shares under the rights issue
but also the other right to subscribe for any ordinary shares or participating
shares not taken up by other holders of ordinary shares or participating shares
on the same terms, provided that the Voting Shareholding and the Economic
Interest of Philip Morris shall not exceed 24.99 percent of the total Voting
Shareholding and 40 percent of the total Economic Interest respectively.
If, prior to December 31, 2004, the Economic Interest of Philip Morris
has been reduced as a result of any issue by SAB of ordinary shares other than
pursuant to an issuance for cash or a rights offering described immediately
above, then Philip Morris shall be entitled to restore the Economic Interest of
Philip Morris to what it was immediately prior to such issue whether by
acquisition, subscription, conversion or alternative method.
Philip Morris shall be entitled to require SAB to convert participating
shares into ordinary shares and vice versa if the Voting Shareholding of a third
party is more than 24.99 per cent, provided that:
(a) the number of ordinary shares held by Philip Morris following such
conversion shall be limited to one ordinary share more than the
number of ordinary shares held by the third party; and
(b) such conversion shall not result in Philip Morris being required to
make a mandatory offer in terms of Rule 9 of the City Code for all
of the ordinary shares not then held by Philip Morris.
Philip Morris shall be entitled to require SAB to convert participating
shares into ordinary shares so as to maintain Philip Morris' percentage
shareholding at 24.99 percent of the total Voting Shareholding, and Philip
Morris shall be entitled, if it so elects, to require SAB to convert ordinary
shares into participating shares so as to ensure that Philip Morris' Voting
Shareholding does not exceed 24.99 percent of the total Voting Shareholding.
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SAB shall not undertake any new business activity which is not a
beverages business or an allied business unless a majority of the non-executive
directors on the SAB Board nominated by Philip Morris agree to such
diversification.
Subject to certain exceptions, Philip Morris shall not:
(a) for a period of five years (the "Restricted Period"), engage in any
beer or flavored alcoholic beverage business which competes with
SAB's beer business (a "Competing Business") in the territories
where SAB's beer business is conducted at the date of the
Relationship Agreement (the "Restricted Territory") other than as a
shareholder in SAB; or
(b) during the Restricted Period, hold or acquire any interest in any
undertaking which is engaged in any Competing Business within the
Restricted Territory.
The 24.99 percent limit on Philip Morris' Voting Shareholding referred
to above may be increased where Philip Morris and SAB agree or subsequent to a
change in the Ground Rules for the Management of the UK Series of the FTSE
Actuaries Share Indices.
For so long as the Economic Interest of Philip Morris is 10 percent or
more, Philip Morris shall have the right to receive copies of certain financial
information regarding SAB.
The Relationship Agreement shall continue in full force and effect for
so long as Philip Morris' Voting Shareholding is 10 percent or more of the total
Voting Shareholding, except that Philip Morris has ten business days to remedy
any inadvertent decrease to less than 10 percent.
D. The Transitional Services Agreement
Pursuant to a transitional services agreement (the "Transitional
Services Agreement") to be entered into between Philip Morris Management Corp.
("PMMC") and Miller on the day immediately preceding completion of the
Transaction, PMMC shall provide Miller with certain services for a transitional
period of up to 30 months from completion of the Transaction. Among the services
to be provided by PMMC are external affairs and media relations in the United
States; government affairs including coverage and advocacy on US Federal
(including international trade), state and local governmental and regulatory
issues affecting Miller's business and products; and information technology.
Under the Transitional Services Agreement, services are to be provided
on a basis comparable to that which the services have historically been provided
to Miller. Each service is to be provided at a cost equal to PMMC's actual
internal cost plus a management fee of five percent plus actual third party
costs. The period of notice to terminate each particular service is 60 days or
as provided in the schedule to the Transitional Services Agreement.
PMMC is not liable to Miller under any circumstances other than as a
result of PMMC's gross negligence, willful misconduct or (in relation to a
provision of the Transitional Services Agreement other than the provision of the
Services) material breach. Neither party is liable to the other in any
circumstances for indirect, special or consequential damages. Each party has
agreed to indemnify the other and its affiliates against third party claims
arising as a result of gross negligence or willful misconduct. There is no
limit to this liability. No party is liable for non-performance as a result
of an event constituting force majeure.
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To the extent that third party consents or licenses may be required for
the services, PMMC and Miller have agreed to split equally any costs which may
be incurred in procuring such third party consents or licenses in accordance
with the Transaction Agreement provided that any costs in excess of $6 million
will be borne by Miller.
Each party may terminate the Transitional Services Agreement for
material breach and PMMC may terminate on a change of control of Miller or SAB.
PMMC has agreed to provide transition assistance in relation to
transition of the services to Miller.
E. The Tax Matters Agreement
Philip Morris and SAB entered into a tax matters agreement (the "Tax
Matters Agreement") on May 30, 2002, to regulate the conduct of tax matters
between them with regard to the Transaction and to allocate responsibility for
certain actual and contingent tax costs. The Tax Matters Agreement contains
certain tax-related indemnities, warranties and representations by Philip Morris
in favor of SAB and certain tax-related indemnities, warranties and
representations by SAB in favor of Philip Morris. A summary of the Tax Matters
Agreement is set out below.
Philip Morris and SAB have each agreed to comply with certain reporting
and record-keeping requirements related to the Transaction, to cooperate in
preparing tax returns and to provide each other with certain information in
relation to tax matters.
Philip Morris has generally agreed to be liable for taxes applicable to
Miller and its affiliates attributable to taxable periods ending on or prior to
the Transaction, and SAB has generally agreed to be liable for taxes applicable
to Miller and its affiliates attributable to taxable periods ending after the
Transaction.
SAB has agreed to indemnify Philip Morris against any taxes, losses,
liabilities and costs that Philip Morris incurs arising out of or in connection
with a breach by SAB of any representation, agreement or covenant in the Tax
Matters Agreement, subject to certain exceptions. This indemnity provision
relates principally to the Transaction's expected treatment as a tax-free
reorganization for Philip Morris.
In connection with the indemnity described in the paragraph immediately
above, SAB has agreed not to take any action, fail to take any action or allow
any condition under its control to exist that results in the tracing of assets
provided by SAB, directly or indirectly, to payments with respect to Miller's
indebtedness on the date of the Transaction for any refinancing thereof, if the
action, failure to act or condition would result in a tax to Philip Morris with
respect to the Transaction. The agreement prescribes certain actions and
conditions that will not, subject to certain conditions, result in a breach. In
connection with the indemnity described in the paragraph immediately above, SAB
has also agreed (i) to ensure that Miller repays such indebtedness and
refinanced indebtedness only with cash flow generated by its operations or from
sales of assets to third parties; and (ii) not to take a number of other
specified actions with respect to Miller and its indebtedness.
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SAB has also agreed not to make any actual or deemed disposals of
Miller for five years after the Transaction, if such a disposal would cause
Philip Morris to incur a retroactive tax liability under a gain recognition
agreement to be entered into by Philip Morris with respect to Miller.
Philip Morris has also agreed to indemnify SAB against any taxes,
losses, liabilities and costs that SAB incurs arising out of or in connection
with a breach by Philip Morris of any representation, agreement or covenant in
the Tax Matters Agreement, subject to certain exceptions.
The Tax Matters Agreement also contains various other tax-related
representations and warranties by SAB and Philip Morris regarding Miller and the
Transaction.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
99.1 Press Release, dated May 30, 2002 (incorporated by reference
to Philip Morris' Form 8-K filed on May 30, 2002).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 10, 2002
PHILIP MORRIS COMPANIES INC.
By: /s/ G. PENN HOLSENBECK
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Name: G. Penn Holsenbeck
Title: Vice President, Associate General
Counsel and Corporate Secretary
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EXHIBIT LIST
Exhibit
No. Description
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99.1 Press Release, dated May 30, 2002 (incorporated by reference to
Philip Morris' Form 8-K filed on May 30, 2002).
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