As filed with the Securities and Exchange Commission on December 18, 2003
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: August 31, 2003
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: 1-31274
SODEXHO ALLIANCE, SA
(Exact name of Registrant as specified in its charter)
Republic of France
(Jurisdiction of incorporation or organization)
3, avenue Newton
78180 Montigny - le - Bretonneux
France
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class On which registered
American Depositary Shares,
Representing Common Shares New York Stock Exchange
Common Shares,
par value EUR 4 per share New York Stock Exchange*
* Not for trading, but only in connection with the registration of American
Depositary Shares, pursuant to the requirements of the Securities and
Exchange Commission.
Securities registered or to be registered pursuant
to Section 12(g) of the Act: None
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each class of
stock of Sodexho Alliance, SA at August 31, 2003 was:
Common Shares, par value EUR4 per share.................... 159,021,565
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
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
TABLE OF CONTENTS
Page
Forward-Looking Statements...............................................ii
PART I
Item 1. Identity of Directors, Senior Management and Advisers ........1
Item 2. Offer Statistics And Expected Timetable.......................1
Item 3. Key Information...............................................1
Item 4. Information on the Company....................................7
Item 5. Operating and Financial Review and Prospects.................21
Item 6. Directors, Senior Management and Employees...................43
Item 7. Major Shareholders and Related Party Transactions............55
Item 8. Financial Information........................................57
Item 9. The Offer and Listing........................................59
Item 10. Additional Information.......................................60
Item 11. Quantitative and Qualitative Disclosures about Market Risk...75
Item 12. Description of Securities Other than Equity Securities.......76
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies..............76
Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds..................................76
Item 15. Controls and Procedures......................................76
Item 16 A. Audit committee financial expert.............................76
Item 16 B. Code of Ethics...............................................76
ITem 16 C. Principal Auditor Fees and Services..........................77
PART III
Item 17. Financial Statements.........................................77
Item 18. Financial Statements.........................................77
Item 19. Exhibits.....................................................78
i
As used in this Annual Report, the terms "we," "our," "us," "Sodexho,"
"Sodexho Alliance" and "the Group" refer to Sodexho Alliance, SA and its
subsidiaries.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Annual Report contain information that
is forward-looking. Such statements include information regarding our beliefs,
estimates and current expectations concerning our future financial condition and
results of operations, including trends affecting our businesses. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors. The information contained in this
Annual Report including, without limitation, the information under the heading
"Item 3.D Key Information--Risk Factors" identifies important factors that could
cause such differences. It should be recognized that factors other than those
expressly set forth in this Annual Report, such as general economic factors and
business strategies, may be significant, and that the factors discussed herein
may affect us to a greater extent than indicated. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. All forward-looking statements attributable to us or to persons
acting on our behalf are expressly qualified in their entirety by the cautionary
statements appearing in this Annual Report. We do not undertake any obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ii
PART I
ITEM 1...IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not Applicable.
ITEM 2...OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3...KEY INFORMATION
A. Selected Financial Data
Please see the section entitled "Item 5. Operating and Financial Review and
Prospects" for a presentation of selected financial data.
Exchange Rates
Under the provisions of the Treaty on the European Union negotiated at
Maastricht in 1991 and signed by the then 12 member states of the European Union
in early 1992, a European Monetary Union, known as EMU, was implemented on
January 1, 1999 and a single European currency, the euro, was introduced. The
following 12 member states participate in EMU and have adopted the euro as their
national currency: Austria, Belgium, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, The Netherlands, Portugal and Spain. The legal rate of
conversion between French francs and the euro was fixed on December 31, 1998 at
EUR 1.00 = FF6.55957. All translations of French francs into euro herein have
been made at that rate.
The following tables set forth, for the periods and dates indicated,
certain information concerning the exchange rate for the French franc and euro
based on the 2 p.m. ECB time rates quoted by the European Central Bank. From
January 1, 1999, the European Central Bank has provided 2 p.m. ECB time rates
quoted for the euro only. No representation is made that franc or euro amounts
have been, could have been or could be converted into dollars at the 2 p.m. ECB
time buying rates indicated for any given date. Unless otherwise indicated
herein, exchange rates have been translated throughout this Annual Report on
Form 20-F at the end-of-period rate corresponding to the period for which the
translation has been made.
At end of Average
period(1) rate(2) High Low
Euro per U.S. dollar:
1999..................... 0.9458 0.9061 0.9878 0.8485
2000..................... 1.1228 1.0263 1.1268 0.9201
2001..................... 1.0919 1.1316 1.2118 1.0477
2002..................... 1.0170 1.0978 1.1658 0.9856
2003..................... 0.9152 0.9357 1.0364 0.8403
(1) All periods end August 31 of the stated year.
(2) The average of the rates on the last day of each month during the relevant
period.
Month ended
High Low
Euro per U.S. dollar:
June 30, 2003..................... 0.8762 0.8436
July 31, 2003..................... 0.8978 0.8663
August 31, 2003................... 0.9246 0.8778
September 30, 2003................ 0.9274 0.8582
October 31, 2003.................. 0.8636 0.8483
November 30, 2003................. 0.8754 0.8338
On December 17, 2003, the 2 p.m. ECB time rate quoted by the European
Central Bank was EUR 0.8106 = U.S. $1.0000, or U.S. $1.2337 = EUR 1.0000. This
rate may differ from certain of the actual rates used in the preparation of our
consolidated financial statements, which are prepared in euro, and therefore
dollar amounts appearing herein may differ slightly from the actual dollar
amounts which were translated into euro in the preparation of such consolidated
financial statements in accordance with accounting principles generally accepted
in France.
A substantial proportion of our assets, liabilities, revenues and expenses
are denominated in currencies other than euro, in particular, the U.S. dollar
and the British pound sterling. Accordingly, fluctuations in the value of the
euro relative to other currencies can have a significant effect on the
translation into euro of non-euro assets, liabilities, revenues and expenses.
For information with respect to the impact of fluctuations in exchange rates on
our operations, see "Item 11. Quantitative and Qualitative Disclosures About
Market Risk."
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the offer and use of proceeds
Not Applicable.
D. Risk Factors
You should consider the following risks with respect to an investment in us
and investments in our American Depositary Shares ("ADSs").
We depend on the retention and renewal of our existing client contracts and our
ability to attract new customers
Our success depends on our ability to retain and renew existing client
contracts and to obtain and successfully negotiate new client contracts. Our
ability to do so generally depends on a variety of factors, including the
quality, price and responsiveness of our services, as well as our ability to
market these services effectively and differentiate ourselves from our
competitors. Additionally, our growth in the Service Vouchers and Cards business
depends upon our geographic expansion, new product development, superior
branding and affiliate networks. We cannot assure you that we will be able to
renew existing client contracts or that our current customers will not turn to
competitors, cease operations, elect to self-operate or terminate contracts with
us as a result of merger or acquisition. We also cannot be certain that we will
obtain new contracts in any of our market segments, or that any new contracts
will be profitable. If we cannot continue to grow our operations through the
renewal of existing contracts or the negotiation of new contracts, our business,
financial condition and results of operations will be materially and adversely
affected.
We may be adversely affected if customers reduce their outsourcing or use of
preferred vendors
Our business and growth strategies depend in large part on the continuation
of a trend in business, education, healthcare and government markets toward
outsourcing services. The decision to outsource depends upon customer
perceptions that outsourcing may provide higher quality services at a lower
overall cost and permit customers to focus on core business activities. We
cannot be certain that this trend will continue or not be reversed or that
customers that have outsourced functions will not decide to perform these
functions themselves. In addition, labor unions representing employees of some
of our current and prospective customers have occasionally opposed the
outsourcing trend and sought to direct to union employees the performance of the
types of services we offer. Management has also identified a trend among some of
our customers toward the retention of a limited number of preferred vendors to
provide all or a large part of their required services. We cannot be certain
that this trend will continue or not be reversed or, if it does continue, that
we will be selected and retained as a preferred vendor to provide these
services. Adverse developments with respect to either of these trends would have
a material adverse effect on our business, results of operations and financial
condition.
Our business may suffer if we are unable to hire, train and retain sufficient
qualified personnel or if labor costs continue to increase
Certain trends in the global labor market, or in certain specific areas,
could adversely impact our business. The global economy has experienced reduced
levels of unemployment in recent years which have created a shortage of
qualified workers at all levels. Given that our workforce requires large numbers
of entry level, skilled and hourly workers, especially in the delivery of
services other than food services to our clients, low levels of unemployment
could compromise our ability in certain businesses to provide quality service or
compete for new business. A failure to hire, train and retain qualified
management personnel, particularly at the entry management level could also
jeopardize our continued success. Furthermore, increases in wages or employee
benefits whether regulatory or otherwise, could have an impact on profitability.
Moreover, labor laws in certain countries require us to retain employees of
businesses we acquire, which in turn may cause us to incur additional training
costs and increase headcount beyond optimal levels. Adverse developments
regarding the foregoing trends, individually or in the aggregate, could have a
material adverse effect on our results of operations.
We may be adversely affected if claims by employees in connection with their
employment are resolved against us
Due to the nature of our business and the large number of individuals we
employ around the world, and the risk of employment-related litigation, the
resolution of such claims against us could have a material adverse effect on our
business.
Food shortages, and increases in food or other indirect operating costs could
adversely affect our results of operations and financial condition
We face fluctuating food prices and limited availability of certain food
items during the year. Food price and availability also varies by geographic
location. In addition, broader trends in food consumption, such as the recent
concern about beef consumption in Europe, may from time to time disrupt our
business. Our typical contract allows for certain adjustments due to rising
prices or changed menus over time, but often we must accept a reduced margin for
a period of time to ensure the availability of certain required food groups and
to maintain customer satisfaction. Our experience has been that changes in food
preferences or shortages, when they occur, may adversely affect our
profitability at a given location. Although most of our contracts provide for
minimum annual price increases for products and services provided by us, we
could be adversely impacted during inflationary periods if the rates of
contractual increases are lower than the relevant inflation rate.
Our profitability could be adversely affected if we were faced with other
indirect cost increases, especially to the extent we were unable to recover such
increased indirect costs through increases in our prices for our products and
services. For example, in recent years there has been, in general, a rise in
insurance and related premiums. To the extent that food or other operating costs
increase, and to the extent we are unable to pass these costs on to our clients
for competitive or economic reasons, our profit margins will decrease.
The pricing terms of our services contracts may constrain our ability to recover
costs and to make a profit on our contracts
Fixed price contracts with our customers could expose us to losses if our
estimates of project costs are too low. A substantial portion of our services
contracts are fixed price contracts. The terms of these contracts require us to
guarantee the price of the services we provide and assume the risk that our
costs to perform the services and provide the materials will be greater than
anticipated. Our profitability on these contracts is therefore dependent on our
ability to accurately predict the costs associated with our services. These
costs may be affected by a variety of factors, some of which may be beyond our
control. If we are unable to accurately predict the costs of fixed price
contracts, certain projects could have lower margins than anticipated, which
could have a material adverse effect on our business.
Competition in our industry could adversely affect our results of operations
There is significant competition in the food and support services business
from local, regional, national and international companies of varying sizes, a
number of which have substantial financial resources. Our ability to
successfully compete depends on our ability to satisfy our clients by providing
quality services at a reasonable price. Certain of our competitors may be
willing to underbid us or accept a lower profit margin or expend more capital in
order to obtain or retain business. Existing or potential clients may also elect
to self-operate their food service, or to utilize other purchasing arrangements,
thereby reducing or eliminating the opportunity for us to serve them or compete
for the account.
Moreover, because our business is highly decentralized, it is imperative
that we keep pace with advances in technology and information services,
especially with respect to inventory, labor and cost management and the
communication of our best practices among our operations worldwide. If we do not
or cannot make necessary expenditures in these areas, we may be less competitive
and, consequently, less profitable.
Unfavorable economic conditions could adversely affect our results of operations
and financial condition
Economic conditions in the United States and worldwide have resulted in
lower demand for our services from non-government sector business clients,
particularly private corporate clients in our Food and Management Services
business, with a negative impact on our revenues. Economic conditions may also
exert budgetary pressures on public sector clients. Further economic downturns
may reduce demand for our services as well as decrease occupancy rates in
certain segments of the facilities which we manage. These factors may cause us
to lose business, lose economies of scale, or contract for business on less
favorable terms than our current prevailing terms. Additionally, our Remote
Sites activity is heavily dependent on the oil industry, and therefore can be
cyclical and dependent upon oil prices.
Our semi-annual results may vary significantly as a result of factors beyond our
control
Our semi-annual results of operations may fluctuate significantly as a
result of a number of factors over which we have no control, including our
customers' budgetary constraints, school vacations, the timing and duration of
our customers' planned maintenance activities and shutdowns, changes in our
competitors' pricing policies and general economic conditions. Furthermore, some
operating and fixed costs which remain relatively constant throughout the fiscal
year may lead to fluctuations in semi-annual results when offset by differing
levels of revenues. For these reasons, a half-year to half-year comparison is
not a good indication of our current performance or how we will perform in the
future.
We are subject to governmental regulation
Due to the nature of our industry and our listings on the French and the
New York stock exchanges, our operations are subject to a variety of
international, federal, state, county and municipal laws, regulations and
licensing requirements, including regulations governing such areas as labor,
employment, immigration, health and safety, consumer protection and the
environment. The costs of compliance with these various regulatory regimes has a
significant impact on our bottom line, and violations of certain regulations
could result in the loss of a client contract or fines. There can be no
assurance that additional regulation in any of the jurisdictions in which we
operate would not limit our activities in the future or significantly increase
the cost of regulatory compliance.
In addition, the growth and success of our Service Vouchers and Cards
business depends to an extent upon the continued availability of domestic tax
and labor law incentives encouraging the use of service vouchers by employers
and employees. A reduction or elimination of these benefits in our more
significant markets, or across many of our markets, could have an adverse result
on our business and results of operations.
Claims of illness or injury associated with the service of food and beverages to
the public could adversely affect us
Claims of illness or injury relating to food quality or food handling are
common in the food service industry, and a number of these claims may exist at
any given time. As a result, we could be adversely affected by negative
publicity resulting from food quality or handling claims at one or more of the
facilities which we serve. In addition to decreasing our revenues and
profitability at our facilities, adverse publicity could negatively impact our
service reputation, hindering our ability to renew contracts on favorable terms
or to obtain new business.
Our international business results are influenced by currency fluctuations and
other factors that may be different from factors affecting the United States
market
A significant portion of our revenues is derived from international
markets. During fiscal 2003, approximately 72% and 65% of our revenues and
EBITA, respectively, were generated outside the euro zone. The operating results
of our international subsidiaries are translated into euro and such results are
affected by movements in foreign currencies relative to the euro, especially
movements in the value of the U.S. dollar.
Our business is also subject to risks whose effects may be more pronounced
in our international operations, including national and local regulatory
requirements; potential difficulties in staffing and labor disputes; failures to
obtain and manage support and distribution for local operations; significant
natural disasters such as electrical black-outs, floods or droughts;
fluctuations in local interest rates; inflation; credit risk or poor financial
condition of local customers; the potential imposition of restrictions on
investments; potentially adverse tax consequences, including imposition or
increase of withholding and other taxes on remittances and other payments by
subsidiaries; foreign exchange restrictions; and geo-political or social
conditions in certain sectors of our international markets. There can be no
assurance that the foregoing factors will not have a material adverse effect on
our international operations or on our consolidated financial condition and
results of operations.
Moreover, we expect that revenues from such emerging markets as Latin
America, Central Europe and Asia will continue to develop over the long term.
Emerging market operations present several risks, including volatility in gross
domestic production; credit risk; civil disturbances; economic and governmental
instability; changes in regulatory requirements; nationalization and
expropriation of private assets; significant fluctuations in interest rates,
currency exchange rates and inflation; the imposition of additional taxes or
other payments by foreign governments or agencies; and exchange controls and
other adverse actions or restrictions imposed by foreign governments.
We are subject to risks associated with our acquisitions of other businesses
We have acquired and may in the future acquire a substantial number of
businesses. Our acquisitions may not improve our financial performance in the
short or long term as we expect. Acquisitions enhance our earnings only if we
can successfully integrate the acquired businesses into our management
organization, purchasing operations, distribution network and information
systems. Our ability to integrate acquired businesses may be adversely affected
by factors that include customer resistance to our product brands and
distribution system, our failure to retain management and sales personnel,
difficulties in converting different information systems to our systems, the
size of the acquired business and the allocation of limited management resources
among various integration efforts. In addition, the benefits of synergy which we
expect at the time we select our acquisition candidates may not be as
significant as we originally anticipated. One or more of our acquisition
candidates may also have liabilities or adverse operating issues that we fail to
discover prior to the acquisition. Difficulties in integrating acquired
businesses, as well as liabilities or adverse operating issues relating to
acquired businesses, could have a material adverse effect on our business,
operating results and financial condition.
Even if acquired companies eventually contribute to an increase in our
profitability, the acquisitions may adversely affect our earnings in the short
term. Our earnings may decrease as a result of transaction-related expenses we
record for the quarter in which we complete an acquisition. Our earnings may be
further reduced by the higher operating and administrative expenses we typically
incur in the quarters immediately following an acquisition as we seek to
integrate the acquired business into our operations.
We currently have significant indebtedness and may incur additional indebtedness
in the future
At August 31, 2003, our percentage of total debt to total capitalization
was approximately 52%. Our total capitalization is the sum of our shareholders'
equity, minority interests and borrowings and long-term debt. Some lenders may
consider this ratio negatively in their credit decisions. Also, financial and
other covenants in our lending agreements may occasionally restrict our ability
to operate our business in certain ways. Specifically, our agreements limit our
ability to dispose of our assets, our subsidiaries' abilities to guarantee and
borrow money, our ability to incur certain types of debt, our ability to merge
or consolidate with other companies (subject to certain exceptions) and our
ability to alter the fundamental nature of our business (subject to certain
exceptions). In addition, we are obligated under these agreements to maintain
certain ratios of net debt to EBITDA and interest to EBITA which may also impair
our ability to enter into certain types of transactions.
We may incur additional indebtedness in the future, subject to limitations
contained in the instruments governing our indebtedness, to finance capital
expenditures or for other general corporate purposes, including acquisitions. We
cannot assure you that our business will continue to generate cash flow at or
above the levels required to service our indebtedness and meet our other cash
needs, or that we will be able to obtain credit on terms as favorable as those
we enjoy currently if our debt to total capitalization ratio increases. If our
business fails to generate sufficient operating cash flow in the future, or if
we fail to obtain cash from other sources such as asset sales or additional
financings, we will be restricted in our ability to continue to make
acquisitions for cash and to invest in expansion or replacement of our
facilities, information systems and equipment. Such a failure could have a
material adverse effect on our business, operating results and financial
condition.
Risks Related to an Investment in our American Depositary Shares ("ADSs")
The price of our ADSs and the U.S. dollar value of any dividends will be
affected by fluctuations in the U.S. dollar/euro exchange rate
The ADSs trade in U.S. dollars. Fluctuations in the exchange rate between
the euro and the U.S. dollar are likely to affect the market price of the ADSs.
For example, because our financial statements are reported in euro, a decline in
the value of the euro against the U.S. dollar would reduce our earnings as
reported in U.S. dollars. This could adversely affect the price at which the
ADSs trade on the U.S. securities markets. Any dividend we might pay in the
future would be denominated in euro. A decline in the value of the euro against
the U.S. dollar would reduce the U.S. dollar equivalent of any such dividend.
You may not be able to exercise preemptive rights for shares underlying your
ADSs
Under French law, shareholders have preemptive rights ("droits
preferentiels de souscription") to subscribe for cash for issuances of new
shares or other securities giving rights, directly or indirectly, to acquire
additional shares on a pro rata basis. Shareholders may waive their preemptive
rights specifically in respect of any offering, either individually or
collectively, at an extraordinary general meeting. Preemptive rights, if not
previously waived, are transferable during the subscription period relating to a
particular offering of shares and may be quoted on the exchange for such
securities in Paris. United States holders of ADSs may not be able to exercise
preemptive rights for the shares underlying their ADSs unless a registration
statement under the United States Securities Act of 1933, as amended, is
effective with respect to such rights or an exemption from the registration
requirements thereunder is available. We intend to evaluate at the time of any
rights offering the costs and potential liabilities associated with any such
registration statement, as well as the indirect benefits of enabling the
exercise by the holders of ADSs of the preemptive rights associated with the
shares underlying their ADS, and any other factors we consider appropriate at
the time, and then to make a decision as to whether to file such a registration
statement. We cannot guarantee that any registration statement would be filed,
or, if filed, that it would be declared effective. If preemptive rights cannot
be exercised by an ADS holder, The Bank of New York, as depositary, will, if
possible, sell such holder's preemptive rights and distribute the net proceeds
of the sale to the holder. If the depositary determines, in its discretion, that
such rights cannot be sold, the depositary may allow such rights to lapse. In
either case, ADS holders' interest in us will be diluted, and, if the depositary
allows rights to lapse, holders of ADSs will not realize any value from the
granting of preemptive rights.
Holders of ADSs may be subject to additional risks related to holding ADSs
rather than shares
Because holders of ADSs do not hold their shares directly, they will be
subject to certain additional risks, including those listed below.
In the event of a dividend or other distribution, if exchange rates
fluctuate during any period of time when the depositary cannot convert euro into
U.S. dollars, the ADS holder may lose some or all of the value of the
distribution. There can be no assurance that the depositary will be able to
convert any currency at a specified exchange rate or sell any property, rights,
shares or other securities at a specified price, or that any of such
transactions can be completed within a specified time period.
ADS holders will generally have the right to instruct the depositary to
exercise the voting rights for the shares represented by the ADSs if we ask the
depositary to ask the holders for instructions. There can be no guarantee,
however, that ADS holders will receive voting materials in time to instruct the
depositary to vote. It is possible that ADS holders, or persons who hold their
ADSs through brokers, dealers or other third parties, will not have the
opportunity to exercise a right to vote at all.
ADS holders may not receive copies of all reports from us or the
depositary; these holders may have to go to the depositary's offices to inspect
any reports issued.
You may not be able to effect claims or enforce judgments brought against us for
alleged violations of the U.S. securities laws
We are a societe anonyme organized under the laws of France. Almost all of
our directors and officers are not U.S. residents, and a substantial portion of
our assets and the assets of our directors and officers are and will be located
outside the United States. As a result, it may not be possible for you to effect
service of process within the United States upon us or most of these persons or
to enforce judgments against us or them in United States courts. Furthermore,
there is doubt as to the enforceability in France, in original actions or in
actions for the enforcement of judgments of United States courts, of civil
liabilities predicated solely upon the federal securities laws of the United
States. French courts may not have the requisite jurisdiction to grant the
remedies sought in an original action brought in France based solely upon the
U.S. federal securities laws.
In order to effectively enforce in France judgments of U.S. courts rendered
against our French officers and directors, these persons would have to waive
their rights under Article 15 of the French Civil Code, which provides that
citizens of France may be sued only in France unless they otherwise consent. We
believe that none of these persons has waived this right with respect to actions
predicated solely upon U.S. federal securities laws. Furthermore, actions in the
United States could be adversely affected under certain circumstances by the
French law of July 26, 1968, as modified by a law of July 16, 1980, which may
preclude or restrict the obtaining of evidence in France or from French persons
in connection with such actions.
ITEM 4...INFORMATION ON THE COMPANY
A. History and Development of the Company
We are a leading global provider of services in two primary business areas:
Food and Management Services and Service Vouchers and Cards. In prior years, we
reported our remote sites and river and harbor cruises activities separately.
However, after a reallocation of management responsibilities for these
activities, they are now included in the applicable regions within the Food and
Management Services business, which is segmented into four geographic regions.
Accordingly, Food and Management Services in North America, the United Kingdom
and Ireland, and Continental Europe now include river and harbor cruise
activities in each of those regions. Likewise, Food and Management Services in
the Rest of the World now includes all remote site activities.
In the Food and Management Services business, which accounted for
approximately 98% of our total revenues in fiscal 2003, we are a leading global
provider of outsourced food and multiservices to businesses, public agencies and
institutions, long-term and short-term healthcare facilities, universities and
primary and secondary schools. Within our Food and Management Services business,
we also provide many of the foregoing services to temporary and remote sites of
our clients' operations, specifically those affiliated with oil and gas
recovery, major construction projects and mining. We formerly accounted for and
disclosed our remote sites activity as a separate business segment. Our river
and harbor cruises activity, also formerly a separately disclosed business
segment,operates in various markets and provides tourist excursions and upscale
dinner cruises for individuals and corporate consumers alike. In the fiscal year
ended August 31, 2003, we had revenues of approximately EUR 11.4 billion from
our Food and Management Services business, operating through approximately
23,900 individual outlets in more than 70 countries. Revenues for the former
remote sites and river and harbor cruises business, which are now included in
Food and Management Services, totaled EUR 543 million and EUR 87 million,
respectively for the fiscal year. Food services include food and beverage
procurement and preparation, as well as the operation and maintenance of food
service and catering facilities, generally on a client's premises. Multiservices
include physical plant operations and maintenance, energy management,
groundskeeping, housekeeping, custodial and janitorial, on-site laundry and an
evolving suite of other services for which our clients have identified a need.
Our Service Vouchers and Cards business, which had revenues of EUR 248 million
in fiscal 2003, primarily issues and manages the provision of paper and
debit-card vouchers to our clients' employees for food, products and services
and the provision of various welfare benefits from government clients to their
constituents.
Our chairman, Pierre Bellon, launched the company in 1966 in Marseille,
France, by providing food service to employee restaurants. Since our founding,
we have been focused on growth, especially organic growth. By 1968, we began
operating in the Paris area, and we expanded our operations internationally in
1971 with a food services contract in Belgium. We were incorporated on December
31, 1974 as Sodexho, SA (societe anonyme), a French limited liability company,
for a duration of 99 years from this date, the maximum allowed under French law.
Between 1971 and 1993, we continued our international growth with the
development of our Remote Sites business in Africa and the Middle East, the
extension of our Service Vouchers and Cards business into Belgium and Germany,
and the expansion of our food services business into other parts of Europe and
Asia and overseas into North America, Latin America and South Africa.
Since 1995, we have rapidly expanded our worldwide presence through organic
growth and acquisitions. Our acquisition of Gardner Merchant in 1995 made us the
world's largest contract food services company, based on annual revenues, gave
us a significant presence in the United Kingdom and the Netherlands and
strengthened our operations in North America. In January 1996, we acquired a
minority interest in Partena, strengthening our position in the Nordic
countries, a position which we further solidified by increasing our holding to
more than 90% of Partena's outstanding capital stock in 1999.
In Latin America, the acquisitions of Cardapio in Brazil in 1996, a stake
in Luncheon Tickets in Argentina in 1998 and Refeicheque in Brazil in 1999
increased our share of the worldwide service vouchers and cards market.
Globally, our annual revenues in this activity are second only to Accor.
In March 1997, we acquired 49% of Universal Services in the United States,
and in January 2000 we acquired the remaining stake, forming Universal Sodexho,
the world market leader in Remote Sites operations.
In 1998, our North American subsidiaries and Marriott Management Services
combined, with Sodexho Alliance holding just under half of the resulting
company's share capital. In connection with this transaction, Sodexho Alliance
contributed an additional U.S. $304 million. The transaction created the largest
North American food and management services company based on annual revenues,
known as Sodexho Marriott Services, Inc., and almost doubled the size of our
operations by adding annual revenues of $3.2 billion (based on 1997 stand-alone
revenues) and over 3,000 clients in North America.
In June 2001, we completed a transaction by which we acquired the remaining
interest in Sodexho Marriott Services, Inc. ("SMS", now known as Sodexho, Inc.)
for approximately EUR 1.3 billion. In the fourth quarter of fiscal 2001, we
acquired 100% of the capital stock of the Wood Company ("Wood Dining Services"),
a company doing business as Wood Dining Services, and 60% of the capital stock
of Sogeres. We exercised our option to purchase the additional 40% of the
capital stock of Sogeres in November 2001. The total cost for all of the capital
stock of both companies was EUR 521 million, a portion of which was paid in
the fourth quarter of fiscal 2001 and the balance of which was paid at the time
the remaining shares of Sogeres were acquired in the first quarter of fiscal
2002. Prior to the acquisition, Sogeres had been our fourth-largest competitor,
based on revenues, in the French outsourced catering market, operating primarily
in Paris, the French Riviera and the Rhone-Alps region. The acquisition of Wood
Dining Services brought a significant regional food service provider into our
network, adding over 500 clients and the management of over 10,000 employees
across 21 states in the United States.
Since 1983, our shares have been listed on Euronext Paris (formerly the
Paris Bourse), since 1998 we have been part of the benchmark index for that
exchange, the CAC 40 and on April 3, 2002, our ADSs were listed on the New York
Stock Exchange. In February 1997, our shareholders voted to change our name to
Sodexho Alliance, SA, and we were duly re-incorporated as such on February 25,
1997. We are subject to Book II of the French Code du Commerce and to Act No.
67-236 of March 23, 1967 concerning "les societes commerciales et des
groupements d'interet economique" (French company law). Except as mentioned
above, we and our subsidiaries have not been a party to any material
reclassifications, mergers or consolidations and there have been no material
changes in our mode of conducting business or in the types of products produced
or services we offer. As of the date of this Annual Report on Form 20-F, there
has been no indication of any public takeover offer by any third party
respecting our shares or by us respecting another company's shares, except as
described above.
We are headquartered in Paris, France and our registered office in France is
3, avenue Newton, 78180 Montigny-le-Bretonneux. Our general telephone number is
011-33-1-30-85-75-00. Our authorized U.S. representative is Michel Landel, and
our agent for service of process in the U.S. is Robert A. Stern, Sodexho, Inc.,
9801 Washingtonian Boulevard, Suite 1234, Gaithersburg, MD 20878.
Acquisition and Capital Expenditures
The following table sets forth our acquisition and capital expenditures (on
a consolidated basis) for fiscal 2001, 2002 and 2003.
Fiscal year ended August 31,
2003 2002 2001
(millions of euro)
Property, plant and equipment and
intangibles............................ 239 297 233
Acquisitions........................... 37 107 1,768
----- ----- -------
Total................................... 276 404 2,001
===== ===== =======
We estimate that our consolidated capital expenditures for fiscal 2004 will
be approximately 2% of our revenues. This estimate is set yearly and is based on
commercial, technical and economic factors such as client demand and the
availability of equipment and building space. Capital expenditure estimates
remain subject to the finalization of services and other client contractual
terms relating to these expenditures.
Property, Plant and Equipment
Approximately two-thirds of our property, plant and equipment capital
expenditures involve the purchase of catering equipment used on client premises
and certain boats used in our river and harbor cruises activity. The remaining
portion of our capital expenditures relates to internal items such as
information technology and vehicles used to support our operations. We generally
use our clients' premises for food services, and therefore our property, plant
and equipment capital expenditures are limited. We do, however, use trucks owned
or leased by us to deliver food to the premises of our clients in certain
markets.
Acquisitions and Divestitures
Our material acquisition expenditures and divestitures since August 31,
2000 are highlighted below.
In May 2002, we divested our entire interest in Lockhart Catering Equipment
Ltd for EUR 61 million in cash. Based in the United Kingdom, this subsidiary
was primarily engaged in the distribution of catering equipment, a non-core
activity for the Group.
In November 2001, we acquired 100% of the capital stock of Minesite
Catering Pty Ltd in Australia for EUR 10 million in cash.
In June and July 2001, we acquired 100% of the capital stock of Wood Dining
Services, a North American food and management services company, and 60% of the
capital stock of Sogeres, a French food and management services company. The
total cost for all the capital stock of both companies was EUR 521 million. In
November 2001, we acquired the remaining 40% of the shares of Sogeres which we
did not own from BNP Paribas for cash consideration of EUR 72 million.
Sogeres' contribution to Group net income for fiscal 2002 totaled EUR 4.9
million. In June 2001, after a negotiation process with a special committee of
independent directors formed by SMS's Board of Directors, we successfully
completed a tender offer for the 53% of SMS we did not already own, as
calculated on a fully-diluted basis, at a total cost of approximately EUR 1.3
billion. Following its merger into SMS Acquisition Corp., SMS became a
wholly-owned subsidiary of Sodexho Alliance, and was renamed Sodexho, Inc.
Funding for the June and July 2001 transactions was provided through a rights
offering in the amount of EUR 1.0 billion and the incurrence of an additional
EUR 0.8 billion in debt.
In May 2001, we sold our entire holding in Corrections Corporation of
America ("CCA"), which resulted in an exceptional loss of EUR 3 million, net
of tax benefits. Pursuant to the terms of the purchase and sale agreement, the
buyer of the shares paid us an additional amount totaling EUR 28.6 million
upon resale of some of the shares in May 2003.
Ongoing capital expenditures for property, plant and equipment are expected
to be funded from operating cash flows. Acquisition expenditures may be financed
through a combination of subsidiary operating cash flows, investment cash flows,
borrowings from financial institutions and other sources, including debt and
equity issuances.
Since 1996, we have made three bond issuances, two equity offerings and two
syndicated bank borrowings to aid in financing our acquisition expenditures. In
1996, we issued 400,000 bonds for a total of EUR 305 million, each of which
bears an annual interest rate of 6% and matures in 2004. Each of these bonds
carries a warrant entitling the bearer to purchase 16.66 of our shares on or
before the maturity date for EUR 411.61, which may result in further capital
issuances of up to EUR 154 million by 2004. In 1997, we raised EUR 306
million by issuing 835,770 new shares for cash. In March 1998, Sodexho, Inc.
(formerly SMS) raised U.S. $1.3 billion (approximately EUR 1.2 billion, based
on the August 31, 1998 U.S. dollar-to-French franc exchange rate then converted
into euro at the fixed rate of 6.55957 French francs per euro), of which
EUR 580 million was guaranteed by us. Outstanding balances on these facilities
were refinanced in the third quarter of fiscal 2001 (see further discussion
below). In 1999, we issued a total of EUR 300 million in bonds which bear an
annual interest rate of 4.625% and mature in 2009. In July 2001, we raised
additional capital of EUR 1.0 billion by issuing 22,498,729 new shares for
cash.
In the fourth quarter of 2001, in connection with the acquisitions of
Sodexho, Inc., Sogeres and Wood Dining Services and to refinance Sodexho, Inc.'s
existing debt, we entered into a credit agreement for total amounts of EUR 1.9
billion and U.S. $1.1 billion, divided among four facilities. The first and
second facilities, in the amount of EUR 1.9 billion, financed the
acquisitions. On July 5, 2001, EUR 0.9 billion of these facilities were repaid
out of the proceeds of our July 2001 share issuance. The balance was repaid with
the proceeds of the debt securities issued in March 2002, as described below.
The third and fourth facilities, in the amount of U.S. $1.1 billion, were used
to refinance Sodexho, Inc.'s existing debt and are repayable in quarterly
installments with a final maturity date of April 5, 2006. Our interest margin
for these facilities is 0.55% over LIBOR or EURIBOR, as appropriate, adjusted
over time to reflect fluctuations in our credit rating (these margins may range
from 0.45% to 1.50%). The facilities are subject to customary terms, financial
covenants and events of default. The Group has entered into various agreements
to convert variable interest rates to fixed rates.
In addition, on March 6, 2002, we finalized the terms of an issuance of
EUR 1 billion of debt securities in the European markets, which closed on
March 25, 2002. We used the net proceeds from the sale of these debt securities,
approximately EUR 1 billion, to refinance the credit facility referred to
above. The debt is issued in 5.875% notes due March 25, 2009.
B. Business Overview
General
Our operations can be divided into two broad businesses: Food and
Management Services, which now includes the remote sites and river and harbor
cruises activities, and Service Vouchers and Cards. Food and Management Services
is our most significant business and accounted for 98% of our revenues for the
fiscal year ended August 31, 2003. Approximately half of our revenues in this
business were generated from our North American subsidiary, Sodexho, Inc.
(formerly SMS). Remote sites and river and harbor cruises accounted for 5% and
less than 1%, respectively, of our revenues in fiscal 2003. The Service Vouchers
and Cards business accounted for 2% of our revenues in fiscal 2003. Within the
Food and Management Services business, we separate our operations into four
geographic regions: North America, Continental Europe, the United Kingdom and
Ireland, and the rest of the world.
The tables set forth below summarize certain financial information for
these activities for the fiscal years ended August 31, 2003, 2002 and 2001.
2003 2003 2002(6) 2002(6) 2001(6) 2001(6)
Current Prior Current Prior Current Prior
presen- presen- presen- presen- presen- presen-
tation tation tation tation tation tation
Revenues by Activity (1)
(in millions of euro)
Food and Management Services
North America (1)...... 5,427 5,387 6,039 5,995 5,719 5,657
Continental
Europe (1)(3)......... 3,585 3,501 3,491 3,413 3,099 3,034
United Kingdom
and Ireland (1)....... 1,453 1,444 1,681 1,671 1,727 1,717
Rest of the
World (2)(3).......... 974 477 1,119 566 1,134 581
Total Food and ------ ------ ------ ------ ------ ------
Management Services.... 11,439 10,809 12,330 11,645 11,679 10,989
Remote Sites (2)
North America.......... 0 163 0 195 0 180
Continental Europe..... 0 51 0 51 0 52
United Kingdom
and Ireland........... 0 83 0 81 0 74
Rest of the World...... 0 246 0 263 0 273
------ ------ ------ ------ ------ ------
Total Remote Sites...... 0 543 0 590 0 579
Service Vouchers and Cards
Continental Europe..... 128 128 124 124 105 105
United Kingdom
and Ireland........... 12 12 10 10 4 4
Rest of the World...... 108 108 145 145 140 140
Total Services ------ ------ ------ ------ ------ ------
Vouchers and Cards..... 248 248 279 279 249 249
River and Harbor Cruises (1)
North America.......... 0 40 0 44 0 62
Continental Europe..... 0 38 0 41 0 39
United Kingdom
and Ireland........... 0 9 0 10 0 10
Total River and ------ ------ ------ ------ ------ ------
Harbor Cruises......... 0 87 0 95 0 111
------ ------ ------ ------ ------ ------
Total revenues.......... 11,687 11,687 12,609 12,609 11,928 11,928
====== ====== ====== ====== ====== ======
EBITA by Activity(4)
(in millions of euro)
Food and Management
Services
North America(1)....... 268 270 293 297 294 295
Continental
Europe(1) (3)......... 167 158 150 140 139 129
United Kingdom
and Ireland(1)........ 21 22 9 11 87 87
Rest of the
World(2) (3).......... 18 6 31 7 28 0
Total Food and ------ ------ ------ ------ ------ ------
Management Services.... 474 456 483 455 548 511
Remote Sites(2)......... 0 22 0 26 0 30
Service Vouchers
and Cards.............. 68 68 77 77 61 61
River and Harbor
Cruises(1)............. 0 7 0 2 0 7
------ ------ ------ ------ ------ ------
EBITA, excluding
corporate expenses..... 542 553 560 560 609 609
Corporate expenses(5)... (28) (39) (35) (35) (38) (38)
------ ------ ------ ------ ------ ------
Total................... 514 514 525 525 571 571
====== ====== ====== ====== ====== ======
(1) Effective for fiscal 2003, ourFood and Management Services activities in
North America, Continental Europe, and United Kingdom and Ireland include
the river and harbor cruises activities in each of those regions. The river
and harbor cruises activity was formerly reported separately. Prior periods
have been restated to reflect the current presentation.
(2) Effective for fiscal 2003, Food and Management Services - Rest of the World
includes the formerly separate remote sites activity. Prior periods have
been restated to reflect the current presentation.
(3) The French overseas territories, with revenues totaling EUR 46 million,
EUR 38 million, and EUR 26 million, for fiscal 2003, 2002 and 2001,
respectively, are now included in Continental Europe. Prior periods have
been restated to reflect the current presentation.
(4) EBITA represents net income before interest expense, exceptional items,
income taxes, income from equity method investees, goodwill amortization
and minority interests. EBITA is a line item from our French GAAP financial
statements, similar to operating income.
(5) Refers to corporate holding company level overhead expenses. Effective for
the fiscal 2003 presentation, certain of these expenses have been allocated
to the activities.
(6) Certain amounts for the years ended August 31, 2002 and 2001 differ from
the corresponding amounts for the same periods reported in the Company's
Document de Reference filed with the Commission des Operations en Bourse.
See note 1 to the Consolidated Financial Statements for further
information.
Strategy
Since our founding in 1966, our ambition has been to satisfy the
expectations of clients, employees and shareholders alike. Accordingly, we have
focused on a growth strategy to meet and match each of these expectations.
Further, our vision is to improve the quality of daily life. In pursuing this
vision, we have focused on the following key priorities:
Accelerate organic growth. Organic growth represents our preferred and most
profitable growth alternative as the outsourced food and management services
market in which we operate continues to expand rapidly. This expansion stems
from the worldwide trend towards outsourcing of non-core functions, including
food and management services, as enterprises increasingly make strategic
decisions to focus on their core businesses and seek cost efficiencies. We seek
to be in close proximity to our clients, thereby allowing us to anticipate and
satisfy their needs promptly with service solutions tailored to their specific
situation.
We expect to find opportunities for organic growth by
o segmenting and sub-segmenting our client base,
o expanding our food services offering beyond traditional food service sales
points into vending, trolley and take-out sales points, directors' tables
and executive dining, branded concepts, merchandising and other programs,
o expanding our offering beyond food services to "multiservice" solutions
such as building management and maintenance, business support services and
ancillary services to individuals,
o continuing our expansion into the public sector, and
o strengthening our large multinational account capabilities as we build our
organization throughout the world.
To supplement organic growth, we may also from time to time, across our
business segments, acquire and integrate low-capital intensive, cash-generative
businesses.
Improve operational management. We are able to provide and continue to
develop more cost-effective services than local, regional and national
participants as a result of our economies of scale, our broader range of
services and our national and international coverage of large clients. These
factors help us at all levels in the management of our purchasing and delivery
logistics.
By leveraging our size across many markets we also
o increase the exchange and transfer within our organization of "best
practices" pertaining to inventory and personnel management and quality
control and delivery techniques, as well as leverage experience gained
across the various client segments and markets throughout our operations,
o leverage our experience and brand through cross-segment teamwork between
our Food and Management Services and our Service Vouchers and Cards
businesses,
o are able to better coordinate labor scheduling practices and share
training costs across markets, and
o streamline the use of ingredients we use and coordinate menu planning
across closely-situated sites.
Improve our human resource planning. We are strongly committed to the
development and promotion of our staff and invest in our human capital. The
human resources department has prepared plans and programs to detect, prepare,
train and globalize tomorrow's executive teams. It is supported in this role by
the Sodexho Management Institute, our internal management training program,
which currently has capacity for 500 executives a year.
Diversity is a business imperative and responsibility grounded in our values
of service, progress and teamwork. By valuing and managing workforce and
supplier diversity, we endeavor to leverage the skills and abilities of all
employees and suppliers in order to increase employee, client and customer
satisfaction.
Improve cash flow. We seek to minimize working capital requirements and
maximize free cash flow. To this end, we implement measures to control internal
capital spending, set targets for lower client credit, manage inventories and
link bonuses for executives and management teams to the achievement of clearly
stated targets at all levels of our organization.
Reinforce control. Reporting on controls and risk management to the Audit
Committee of our Board of Directors, Group management continues to reinforce our
internal controls, including the intensity and frequency of internal audits. We
are in the process of reinforcing our central audit function, which reports to
our Chairman and Chief Executive Officer. Our internal procedures, delegation
and contract review policies are regularly evaluated and updated. A summary of
risks and financial commitments is presented regularly to the Audit Committee.
In October 2002, a disclosure committee was formed to evaluate our disclosure
controls and to review annual and semi-annual reports, financial press releases,
our Annual Report on Form 20-F, and other information presented to shareholders.
As a consequence, existing disclosure procedures and controls are evaluated and
updated regularly as appropriate.
Encourage transparency and communication. We have made, and will continue
to make, significant investments in our information technology systems because
we believe that menu planning and the accurate measurement and reporting of
client and consumer activity, as well as inventory, labor and performance
reporting, are central to our continued success. We are developing a global
intranet aimed at facilitating the exchange of best practices, ideas and
procedures throughout the entire network of our operations. Through our
technology infrastructure, we intend to continue to provide our unit managers
with tools that help them manage operations efficiently, thereby enhancing the
value for our clients of the services we provide.
Food and Management Services
Overview
We are a global food and management services contractor. In the fiscal year
ended August 31, 2003, our revenues in this activity were approximately
EUR 11.4 billion. In fiscal 2003, we operated through approximately 23,900
individual outlets in more than 70 countries. None of our clients is responsible
for more than 2% of our total revenues.
To serve our clients and increase revenues, we pursue a market segmentation
strategy based on client needs. The industry markets in which we operate are
Business and Industry (which includes both corporate clients and government
entities), Healthcare and Education. Within each of these three industry
markets, we have identified sub-segments which permit us to target and address
client requirements promptly and efficiently. Effective for fiscal 2003, the
remote sites and river and harbor Cruises markets are also included in the Food
and Management Services business.
Business and Industry. The Business and Industry market accounted for
EUR 4.7 billion of our Food and Management Services business revenues in
fiscal 2003, delivered at over 12,000 sites, representing 41% of our total Food
and Management Services business revenues. Traditionally, this market has been
comprised of corporate customers, whom we provide with food services as well as
vending, reception, mailroom, cleaning and facilities maintenance. Over the last
35 years, we have expanded the range and depth of our services and clients to
include
o providing food and management services to government agencies and other
public clients, such as the defense sectors in the United States, the
United Kingdom and Australia;
o providing food service at prestige occasions, which include some of the
world's most prominent tourist, sports and recreational events like the
Royal Ascot horse races, the British Open Golf Tournament, the Tour de
France, the Davis Cup in France, the Paris-Bercy and Roland-Garros
Tennis Tournaments and the 2000 Summer Olympic Games in Sydney,
Australia;
o providing a full range of executive dining services and the management
of conference centers and private clubs for our corporate clients; and
o providing food service and custodial services, maintenance, transportation,
professional training, and rehabilitation services to correctional
facilities in many locations outside of North America.
Healthcare. For fiscal 2003, revenues in the Healthcare market totaled
EUR 2.2 billion at nearly 3,500 sites, representing 19% of our total Food and
Management Services business revenues. In this market, we provide catering
services, vending, meal delivery, patient transport, room upkeep, cleaning,
groundskeeping, laundry and maintenance services, to hospitals, clinics, nursing
homes, retirement and care centers around the world. In order to better address
our clients' needs, we have sub-segmented the Healthcare market into long-term
care facilities, primarily for seniors, and acute care facilities, providing
services primarily to hospitals and outpatient clinics. Historically, a larger
proportion of our business has come from the acute care facilities, but
restructuring in the healthcare industry in recent years has resulted in fewer
hospitals as well as in shorter patient stays, leading the short-stay market to
contract by approximately one percent each year. By contrast, shifting trends in
caring for the elderly have led the long-stay market to expand by approximately
1.5% each year. The Healthcare market has traditionally been more insulated from
economic downturns than the Business and Industry market, lending stability to
our revenue base.
Education. In fiscal 2003, revenues in the Education market totaled EUR 2.8
billion at over 4,700 sites, representing 26% of our total Food and Management
Services business revenues. This portion of our business provides food and
management services to educational institutions ranging from nursery schools to
universities. Clients choose us to design, manage and equip their food service
facilities and to provide a wide range of incidental services. Besides food, we
offer vending, laundry, maintenance, groundskeeping, environmental services, day
care, mealtime supervision and hospitality services. Like the Healthcare market,
the Education market is relatively unresponsive to changing economic conditions
and thus contributes to reducing volatility in our revenues.
Remote Sites. As of the end of fiscal 2003, we operated this activity in
1,049 sites around the world and generated revenues of EUR 543 million. Our
primary clients in this activity are oil and gas, construction and mining
businesses, to which we offer a wide range of food, hotel, cleaning, technical
maintenance, security, groundskeeping, medical surveillance and leisure
services, as well as the management of on-site clubs and retail outlets. Clients
in the oil and gas industry currently represent approximately two-thirds of our
business in this activity. This business tends to be cyclical, depending upon
the price of oil and gas, which drives exploration efforts, and the extent of
economic growth, which drives the construction market. We estimate the worldwide
remote services market, which spans five continents, to be approximately
EUR 10 billion per year, and our only global competitor currently is Compass.
We believe that new opportunities will develop for service providers as prices
for raw materials stabilize and the depletion of natural reserves in some
countries leads to prospecting in new onshore and offshore areas.
River and Harbor Cruises. We operate our river and harbor cruises activity
with 55 boats and it generated revenues of EUR 87 million in fiscal 2003. We
have selectively built an international presence as a premier boat operator in
France, the United States and the United Kingdom, rendering us the largest
operator of river and harbor cruises in the world, based on annual revenues.
This activity is more capital intensive than the remainder of our businesses.
Services Mix
Most of our revenues are generated from food services, but our revenues in
the Food and Management Services business increasingly arise from providing
ancillary support services to our clients, which, together with food service, we
refer to as "multiservices." The multiservices market is underpenetrated; we
estimate the not-yet-outsourced portion to be EUR 380 billion annually
worldwide. We expect that the proportion of non-food services we provide will
increase relative to our food services in the future.
Food Services. The food services industry is broadly divided among the
areas of contract catering, concessions, vending and restaurants. The food
services we provide can generally be described as contract catering - that is,
the preparation and provision of meals to third parties on behalf of a client,
usually on the premises of the client in cafeterias or other on-site facilities.
The third parties to whom we supply our food services tend to be either
employees of our clients or consumers of other services provided by our clients.
Corporate clients request food services for their staff employees and
executives, hospitals do so for their patients and visitors, retirement
communities for their residents, and schools for their students.
Capital requirements in this business are minimal because of
o low capital expenditures, as operations are generally conducted at client
sites;
o low fixed costs; and
o predictable cash flow from client and customer payments, which reduces
working capital needs.
For certain clients, such as primary and secondary schools in France, we
use central kitchen areas financed or owned by our clients where we prepare
foods for delivery to client sites. We then arrange for delivery of these
prepared foods to locations where either our employees or, depending on the
contract arrangement, workers hired by the client serve the food to its ultimate
consumers. In the majority of cases, however, we prepare and serve the food
on-site.
Within this core business, we also provide advice and technical support
with respect to the design and installation of food service facilities and the
training of catering and other service personnel. Innovation in this activity is
crucial to meeting demand and enhancing our client base. We have, for instance,
expanded our core food service business from basic on-site food preparation and
service to event catering, take-out, office delivery, off-site meal delivery,
and vending. New vending concepts allow teams working during non-business hours
to get hot meals at any time during the day or night at a reasonable cost. Small
companies without cafeteria facilities can have meals delivered to them on-site
or have vending machines installed.
Our ability to attract and retain clients depends not only on the cost,
quality and efficiency of our service but also on our ability to gauge and
address the preferences of the consumers for the food we serve. Consequently, we
see the design, tailoring and innovation of our menu options as a key aspect of
the services we provide. In the Education market, we have profiled and analyzed
different age groups through parent and child interviews, independent market
studies and other methods in order to develop optimal food service packages for
students. In the Healthcare market, in connection with the long-term healthcare
business, we have designed a broader range of purpose-designed services to meet
the needs of an ever-growing number of seniors based on an international profile
of seniors and their lifestyles we developed, the first of its kind in our
industry. In the Business and Industry market, we have adapted the practices of
food stations and theme menus to the particular needs of our clients and their
employees using our customer profiling system, Conviv'styles(R).
Multiservices. Recognizing significant value added to our clients in
service areas that are not directly related to food is a focus area of our
growth strategy. We believe that providing these additional services is key to
our expansion. As consumers' needs become more sophisticated, clients will
continue to seek service contractors who are able to provide solutions for all
of their non-core food and management services on a quality, efficient,
cost-effective basis. The ancillary services we provide are complementary to our
food services and fall into three main categories.
o People services, which are tailored to end-users and provided on the
client's premises. These include our retail food services as well as dry
cleaning, newsstands, leisure services and the on-site management of health
club facilities and day care centers.
o Business support services, which add value to our clients through the
management of peripheral activities. Reception, mailroom, switchboard,
groundskeeping, housekeeping, custodial and janitorial services, security
and surveillance and transportation are among the tasks which we perform
to ensure the smooth operation of our clients' businesses.
o Building management and maintenance services, which comprise the technical
maintenance operations required to deliver electricity, water, other
utilities, heating and ventilation to the various areas on a particular
site. In Europe, for example, our subsidiary Altys provides building
services to large client accounts such as Cisco in France, Belgium and
Germany.
The Market for Outsourced Food and Management Services
We estimate that approximately two-thirds of food management services
worldwide currently remain self-operated, and an even greater proportion of
other ancillary services is not outsourced. We believe that over the past ten
years, the portion of outsourced Food and Management services has increased
steadily and we further believe that this trend will be reinforced by the
growing advantages of outsourcing peripheral activities in favor of large,
experienced contractors capable of providing higher quality services at a lower
cost. Specifically, outsourcing support functions allows potential clients to:
o improve the quality and consistency of support services through
professional management;
o benefit from current, innovative trends in procurement and delivery of
these services; and
o improve cost effectiveness through the economies of scale and operational
synergies that a specialized provider can achieve.
Outsourcing recently has grown particularly in the Education and Healthcare
markets, where a large number of the services we provide had historically been
undertaken by the government or other public institutions. Governments have
found outsourcing to be a useful tool in attempting to reduce central expenses
and budget deficits.
Healthcare represents the largest potential market for food and management
services with outsourcing rates still comparatively low. We estimate that
roughly half of this market is in short-stay care centers (public and private
hospitals) and half in long-term care facilities for the elderly and dependent.
On average, we estimate that about one quarter of this market is currently
outsourced, with short-stay facilities generally more likely to outsource than
long-stay facilities by a ratio of almost two-to-one. A multiservice approach is
especially important in the Healthcare market, where pressure on cost structures
combined with greater life expectancy and increasingly sophisticated medical
technologies has led clients to seek to reduce the cost of services that are not
an integral part of their business.
We estimate that the Education market is about one-third outsourced, with
about half of private sector institutions and about one-fourth of public
institutions outsourcing food service. Much of the opportunity for outsourcing
in the Education market is concentrated in ten countries. The campus dining
marketplace, principally colleges and universities, continues to shift from
residential board plans to more retail-oriented operations driven by the growing
proportion of non-resident day and evening students on campuses, the changing
taste and service preferences of young consumers, and colleges' and
universities' desire to provide their students with greater flexibility.
Traditional cafeterias are being replaced by food courts and similar retail
operations providing greater variety of food selection. We believe that these
trends, coupled with cost pressures, lead public and private institutions to
consider outsourcing. Over the past three years, outsourcing in the Education
market has increased steadily.There are significant growth opportunities also in
the Business and Industry market, especially in public sectors such as defense
in developed countries and across all sectors in emerging markets. The market
for multi-service national providers (food and facilities) is growing as large
corporations are moving toward outsourcing all of their non-core services on a
multisite and multiservice basis. We estimate that only about half of such
services are outsourced on average, but substantial differences exist from one
country to another.
We estimate the outsourcing potential for multiservices as a whole to be
two and one-half times greater than that for food services alone. We believe
this potential reflects not only low independent contractor penetration but also
an increasing trend ofclients seeking a single-source solution for their
facilities and on-site needs.
Contracts
We use two broad contract types in our Food and Management Services
business: profit and loss contracts and management fee contracts. However, many
of our contracts contain characteristics of both types of contract. The primary
distinguishing feature of each contract type is the amount of financial risk we
bear and, conversely, our profit or loss potential. Our revenues under each type
of contract may vary substantially depending upon such factors as the type of
client facility involved, whether hourly workers are employed by us or by our
client, the services requested and the amount of capital, if any, invested by
us.
In profit and loss contracts, we generally receive all revenue derived from
and bear all expenses incurred in providing our services. Expenses under profit
and loss contracts generally include labor and food costs, but they can also
include commissions paid to the client, typically calculated as a percentage of
revenues made on the client's premises. In some cases, we may agree to pay
minimum guaranteed commissions to our clients. We may also receive client
subsidies to cover our fixed operating costs. Profit and loss contracts are
generally indexed for inflation, although our ability to change prices in
response to significant variations in cost may be limited. We believe, however,
that the existence of a captive on-site customer group, the relative ease of
determining sales volumes and operating margins, standard termination provisions
and our broad institutional client base limits and diversifies our risk with
respect to these contracts.
In management fee contracts, we receive a fee, which is generally fixed,
and we are reimbursed for the operational and administrative expenses we incur.
These contracts have varying terms and may in some instances provide for the
client to purchase food and labor directly or for us to make such purchases and
re-invoice the costs to the client. In either case, our profit potential and
risk of loss are generally fixed.
In the Business and Industry market, a reduction in client subsidies
combined with pressure on costs has resulted in a move from management fee to
profit and loss contracts. In the Healthcare market, industry trends, especially
in the United States, away from fee-for-service payments and towards a managed
care environment has shifted the risk and burden of cost control from insurance
providers to the health care institutions themselves, forcing them to focus not
only on the cost component of clinical care but also on the cost of all
services, including food and facilities management. These cost pressures are
driving the trend toward consolidation of healthcare institutions and fixed-cost
(profit and loss) contracts for hospital services. Many contracts with
healthcare clients condition a portion of our compensation on financial
performance objectives as well as other measurements by third parties, such as
patient satisfaction.
The length of contracts that we enter into with clients varies. The
majority of our services are provided under contracts of indefinite term, which
are generally subject to termination on three months' notice by either party
without cause. Certain client contracts, such as those with universities,
hospitals and event catering, which require capital investments on our part,
tend to have fixed terms, generally between three and ten years. When we enter
into these contracts, we may negotiate a capital investment to help finance
facility construction or renovation. Contractually required investments
typically take the form of an investment in leasehold improvements and food
service equipment. At the end of the contract term or its earlier termination,
assets such as equipment and leasehold improvements typically become the
property of the client, but generally the client must reimburse us for any
undepreciated or unamortized capital expenditures.
Food and Management Services contracts are generally obtained and renewed
either through a competitive process or on a negotiated basis. We selectively
bid on contracts to provide services at facilities within the private and public
sectors with contracts in the public sector frequently being awarded on a
competitive bid basis under the requirements of applicable law. Contracts for
food services with school districts and other public clients are typically
awarded through a formal bid process.
Competition
We face significant competition in the Food and Management Services
business from local, regional, national and international outsourced service
providers, as well as from businesses, healthcare and educational institutions,
and government agencies and institutions that choose to operate their own
services following the expiration or termination of contracts with us or with
our competitors. We compete on the basis of both price and quality of service
and product, although in some cases, generally involving large multinational
companies or the government sector, clients put a greater emphasis on price. Our
mission is to improve the quality of daily life, and hence create value for our
clients, and our strategy is to avoid the commoditization of our service
offering. Accordingly, we may lose some business to competitors on the basis of
price.
Within the outsourced portion of the global market there is a high level of
fragmentation. Only the top two companies, we and Compass (headquartered in the
United Kingdom), can be considered truly global enterprises. The next two
largest contract caterers, Aramark (headquartered in the United States) and
Elior (headquartered in France), are pursuing expansion outside of their home
countries through acquisitions, but they still remain largely focused on their
domestic or continental markets, with less than 40% of their revenues coming
from overseas operations in each case (40% for Elior).
The following table shows the ranking of the three leading contract caterers,
in terms of revenues, in different market segments, as of August 2003.
Business &
Industry Education Healthcare Total
No. 1............Compass Sodexho Sodexho Sodexho
No. 2............Sodexho Aramark Compass Compass
No. 3............Aramark Compass Aramark Aramark
Source: Broker reports, GIRA
On a national scale, competition levels vary significantly, though
concentration is generally higher than on the global stage. High concentration
levels are found in some countries such as France, where we, Compass and Elior
have over 75% of the outsourced market, and the Netherlands, where we, Compass
and Albron, a national provider, have approximately 77%. By contrast, more
fragmented environments tend to exist in some of the other countries in which we
operate.
While the markets in which we operate continue to be highly fragmented, in
recent years the contract food service industry has experienced consolidation
and multinational expansion. Drivers for consolidation come from both the client
and supplier side. A larger entity with international coverage is able to tender
for the larger contracts and can negotiate better terms from its suppliers. In
addition, larger companies can obtain economies of scale and implement best
practices across sites. As a result of these benefits of scale, consolidation in
the industry has been accelerating, both in terms of the number and size of
deals, with the most recent significant examples being the acquisition of
Servicemaster by Aramark in 2001 and the merger between Compass and Granada in
the United Kingdom which was completed in 2000.
Service Vouchers and Cards
In our Service Vouchers and Cards business, we have operations in 26
countries, mainly in Europe and Latin America, and our vouchers are used by
nearly 11.5 million people. As of the end of fiscal 2003, this activity issued
over 1.5 billion vouchers on behalf of more than 285,000 clients and generated
revenues of EUR 248 million. Our vouchers were accepted at over 825,000
locations and the total nominal value, which is not included in our revenues, of
vouchers issued in fiscal 2003 was EUR 4.6 billion. This business generates
negative working capital and requires only a modest level of capital investment.
Our Service Vouchers and Cards business, which focused originally on managing
employee fringe benefits for companies, has expanded into controlling and
managing welfare benefits allocated by federal authorities and local
communities. The business currently comprises three product families: daily
life, incentive and assistance, which are used to pay for a wide range of social
and fringe benefits, including healthcare and household bills, and to purchase
everything from gas and groceries to clothing and medications. Our clients are
generally commercial enterprises and community and governmental entities.
Revenues from service vouchers and cards activities include the commissions paid
by our customers who buy the service vouchers and cards from us and commissions
from our affiliated retail outlets where the service vouchers and cards are
redeemed. Customer commission revenues are recorded at the time of issuance of
the service voucher or card. Affiliate commission revenues are recorded at the
time of redemption. Revenues also include interest income from the investment of
proceeds from the time of sale of the vouchers to our customers until the time
of their redemption, when we must repay our affiliates, generally a
one-to-three-month period. Service vouchers are used by businesses of all sizes,
primarily in large urban centers, and they frequently carry tax or labor law
benefits.
To meet new needs and enhance quality, we are constantly expanding our
range of services through research and development in card technology, data
processing, security and control systems. In fiscal 2000 and 2001, new order
processing software was rolled out, and custom-designed affiliation programs
were introduced. Express voucher delivery and personalized voucher pick-up from
restaurants both significantly contributed to the efficient handling of nearly
one billion issued vouchers. We are also developing card technology in Europe
and Latin America to offer an advanced solution to client businesses and
government agencies which require a more secure, comprehensive alternative to
vouchers.
The current market for service vouchers and cards is estimated at more than
EUR 15 billion worldwide, but we estimate that the potential market for
existing products in countries where we are already present totals more than
EUR 30 billion, making it our fastest-growing activity. Between 2001 and 2002,
organic growth in this activity approached 20%, and organic growth between 2002
and 2003 was 11%. We are the second-largest service vouchers and cards business
in the world, based on annual revenues. We have only one significant global
competitor, Accor. Significant drivers in the industry include product
development, geographical expansion, name recognition (branding) and the synergy
effects of building large networks of affiliates. Our current objectives in this
activity are to (i) consolidate our number two position by offering the best
perceived quality services in the market; (ii) enhance our capabilities in new
technologies, with a focus on smart card technology; and (iii) innovate and
develop new products and services to capture a greater share of the market.
Raw Materials
Raw materials essential to the operation of our business are obtained
principally through local and national food distributors in each of the
jurisdictions in which we operate. As such, we are subject to fluctuating food
prices and availability, both of which can vary by location. Furthermore,
because of the relatively short storage life of inventories, especially produce,
limited storage facilities at customer locations and our client requirements for
freshness, a minimum amount of inventory is maintained at customer locations at
any given time. All materials and services that we purchase are available from
more than one supplier, and we believe that the loss of any supplier would not
have a material impact on our business.
Since our inception in 1966, we have been highly proactive in addressing
food safety and health concerns. For example, in November 1999, we formed a Food
Safety Committee in France to anticipate and manage food safety risk. Comprising
four prominent professors and medical doctors specialized in nutrition and food
safety, this committee is supported by the technical resources of the Institut
Pasteur de Lille, a Sodexho partner for more than 20 years, and the French Food
Safety Agency. Similar food safety programs are continuously being developed and
extended across Europe and in other countries. End-to-end traceability has been
introduced in all of the procurement channels, whether for meat or other
products.
Seasonality
Although revenues of our business as a whole do not tend to fluctuate
significantly by season, certain market segments have been characterized
historically by seasonal fluctuations in overall demand for services, notably
the Education market of our Food and Management Services business and our River
and Harbor Cruises operations. In the Education market, revenues and operating
performance depends on the school, college and university calendar in each
country, with low activity levels during the long vacation periods, principally
in our fiscal fourth quarter. Our River and Harbor Cruises operations generally
benefit from increased tourism levels in the fourth quarter and may be reduced
to restricted operating levels in our fiscal second and third quarters as a
result of inclement weather.
Regulation
The following description of the regulations to which we are subject does
not purport to be complete and is qualified by reference to the relevant
provisions of applicable law in the jurisdictions in which we operate.
We are subject to various governmental regulations throughout the world in
the course of our operations. These regulations govern such matters as
employment, including wages; environmental protection; human health and safety;
and the bidding for and performance of contracts with governmental entities. To
ensure compliance with these regulations, our facilities and products are
subject to periodic inspection by authorities at a local and national level in
many jurisdictions in which we operate.
The most significant of the regulations which apply to our business relate
to the handling, preparation and serving of food, and impose standards for food
temperature, kitchen cleanliness and employee hygiene, among other things. In
addition, certain of our operations are subject to licensing requirements with
respect to serving alcoholic beverages, including restrictions on individuals to
whom alcoholic beverages may be served. Various state agencies and governmental
entities have also imposed nutritional guidelines and other requirements on us
at some of the education and corrections facilities we serve.
Many of our subsidiaries, especially those in countries which are members
of the European Union, must comply with employment regulations designed to
protect hourly, part-time and full-time employees. These regulations govern
working hours, wages, unfair dismissal and discrimination. Furthermore, pursuant
to European Union regulation and subject to certain limitations and exceptions,
in the event we are assigned a contract for food service at a site within the
European Union from another contractor or from a client, we are required to hire
all workers who were employed at that site and were on the previous employer's
payroll to provide food services.
We have installed various internal controls and procedures designed to
maintain a high level of compliance with these regulations, but we cannot assure
you that we are in full compliance at all times with all applicable laws and
regulations. The cost of our compliance programs is not material, but it is
subject to additions to or changes in legislation, changes in regulatory
implementation, and changes in the interpretation of applicable regulations. If
we fail to comply with applicable laws in any jurisdiction in which we operate,
we could be subject to civil remedies, including fines and injunctions, as well
as potential criminal sanctions.
Marketing
In those countries in which we have significant operations, our sales teams
are focused on developing particular client sectors by identifying and pursuing
potential new business opportunities, analyzing and evaluating such
opportunities together with our operational and financial management and
developing specific contract proposals. In addition to our professionals
dedicated exclusively to sales efforts, our food and support field management
shares responsibility for identifying and pursuing new sales opportunities, both
with the clients for which they are directly responsible and for potential
clients in their geographic area of responsibility. In addition, in several of
our major operating territories we also have dedicated sales retention teams.
Our sales retention teams participate directly with our operational management
teams in client retention, including conducting client satisfaction surveys and
the review and implementation of account management procedures. We estimate that
approximately 760 people are involved in sales, sales support and marketing, of
which approximately 40% are located in North America.
Our marketing efforts are directed both toward increasing our business with
existing clients as well as obtaining business from new clients. We regularly
develop and offer innovations in products and services for our clients that
allow us to grow revenues at existing locations while enhancing value provided
to those clients and improving service quality to their customers or employees
by tailoring new offerings to their needs. We have a specific process in each
country to promote and subsequently implement innovations on a broad scale.
C. Organizational Structure
As of August 31, 2003, we had 243 subsidiaries in 76 countries. Our
operations are managed locally through these subsidiaries, although our central
management is at the level of Sodexho Alliance, SA. For a complete list of our
subsidiaries and a description of our interests in them, please see note 4 to
our Consolidated Financial Statements.
D. Property, Plant and Equipment
Our principal property and equipment consists of our service equipment and
fixtures, computer and office equipment, delivery vehicles and cruise vessels.
Our service equipment and fixtures include vending, commissary, janitorial,
maintenance and laundry equipment used primarily in the Food and Management
Services business. The vehicles comprise automobiles and delivery trucks used in
the Food and Management Services business and cruise vessels used in the
operation of the river and harbor cruises activity. The service equipment and
fixtures, computer and office equipment, delivery and other vehicles and cruise
vessels had an aggregate net book value as of August 31, 2003 of EUR 208
million.
Our real estate is comprised primarily of office space in several
countries, notably France, the United Kingdom and the United States, and had an
aggregate net book value of approximately EUR 99.3 million as of August 31,
2003. No individual parcel of real estate we own is of material significance to
our total assets.
In certain circumstances, we lease office space, computer software and
other equipment (primarily kitchen equipment). A discussion of our capital lease
policy can be found in note 1 to our Consolidated Financial Statements.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The selected consolidated financial data as of and for the years ended
August 31, 2001, 2002 and 2003 have been derived from and should be read in
conjunction with the consolidated financial statements of Sodexho Alliance
included elsewhere in this Annual Report on Form 20-F. The selected consolidated
financial data as of and for the years ended August 31, 1999 and 2000 have been
derived from consolidated financial statements that are not included in this
Annual Report on Form 20-F. Our consolidated financial statements for each of
the years ended August 31, 2001, 2002 and 2003 were audited by
PricewaterhouseCoopers Audit.
Except as described in note 1 to the consolidated financial statements, our
consolidated financial statements have been prepared in accordance with French
generally accepted accounting principles ("GAAP"), which differ in certain
significant respects from U.S. GAAP. Note 5 to our consolidated financial
statements describes the principal differences between French GAAP and U.S.
GAAP, as they relate to us, and reconciles our net income to U.S. GAAP for each
of the years ended August 31, 2003, 2002 and 2001, and our shareholders' equity
to U.S. GAAP as of August 31, 2003 and 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in compliance with relevant French
law and in conformity with accounting principles generally accepted in the
United States of America, requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities, including judgments
related to the selection of appropriate accounting policies as well as the
appropriate application of those policies. Actual results could differ from
those estimates. Our significant accounting policies are described in the notes
to the consolidated financial statements included in this Annual Report on Form
20-F. However, we have identified a number of those accounting policies and
estimates which we believe are the most significant to our business operations
and to an understanding of our financial statements and related footnotes.
Revenue Recognition
Our revenue recognition policies are substantially the same for both French
and U.S. GAAP.
In the Food and Management Services business (which now includes remote
site and river and harbor cruise activities), revenue is recognized in the
period in which services are provided pursuant to the terms of the contractual
relationships with clients.
Revenues for service voucher activities include commissions received from
customers, which are recorded upon issuance of the vouchers to the customers;
commissions received from affiliates, which are recorded upon redemption of the
vouchers by the affiliates; and interest income realized on the nominal value of
the vouchers during the period from their issuance through redemption
(generally, one to three months).
Business Combinations and Impairment of Intangible Assets and Goodwill
Accounting policies for business combinations and impairment of intangible
assets and goodwill differ between French and U.S. GAAP.
Under French GAAP, all of our business combinations are accounted for as
purchases. The cost of an acquired company is assigned to the tangible and
intangible assets acquired and liabilities assumed on the basis of their fair
values at the date of acquisition. Any excess of purchase price over the fair
value of the tangible and intangible assets acquired is allocated to goodwill,
which is amortized over its estimated useful life. Where we have established a
strong presence in a geographic market through an acquisition, an additional
intangible asset, market share, is recorded in the allocation of purchase price
(within intangible assets in our consolidated balance sheet). Market share is
principally determined based on an average of multiples of revenues and EBITA
achieved by the acquired companies in the applicable countries as compared to
unrelated recent transactions in the marketplace and is reviewed annually for
diminution in value. Initial allocations to market share require management to
exercise judgment in the choice of unrelated recent transactions in the
marketplace. If management believes there has been a significant diminution in
the market share value for more than two consecutive years, as determined based
on actual results of the applicable subsidiary as compared to the original
calculation, it is written down by the amount of the diminution in value. This
valuation of market shares on a historical basis is also supported by a
calculation of the current value of these assets as of August 31, 2003 and based
on discounted future cash flows. Market share intangibles are not amortized in
the consolidated financial statements, and no deferred taxes are recorded on
market share intangibles.
Under French GAAP, intangible assets (other than market share) and goodwill
are written down to estimated net realizable value when negative conditions are
identified. Impairment is determined based on an estimation of value and future
benefits of the intangible assets. Should this determination indicate than an
intangible asset or goodwill is impaired, the related amortization period is
revised or a write-down is recognized. Impairment for market share intangible
assets is recognized as a diminution in value in accordance with the policy
described above.
Under U.S. GAAP, all of our business combinations are accounted for as
purchases. In accordance with SFAS No. 141, "Business Combinations" (APB 16,
"Business Combinations," for transactions consummated prior to June 30, 2001),
the cost of an acquired company was assigned to the tangible and identifiable
intangible assets acquired and liabilities assumed on the basis of their fair
values at the date of acquisition. In accordance with U.S. GAAP, customer
relationships, trademarks, assembled workforce (for transactions consummated
prior to June 30, 2001 only), and software intangible assets have been
identified with respect to our acquisitions. As such, for U.S. GAAP purposes, a
portion of the amount allocated to market share and goodwill under French GAAP
is allocated to these identified intangible assets. The remaining excess of the
cost of the acquired company over the fair value of the net assets acquired is
recorded as goodwill. The allocation of purchase price to intangible assets
other than goodwill requires management to make estimates with respect to the
fair value of those intangible assets, which fair value is largely dependent on
assumptions utilized in the valuation methodology, including estimates of future
cash flows and appropriate discount rates. A deferred tax liability is recorded
with respect to all intangible assets except goodwill, and the amount assigned
to goodwill is increased by an amount equal to the deferred tax liability
recorded, if any.
For U.S. GAAP purposes, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which required us to reclassify (into goodwill) the carrying
value of assembled workforce intangibles and those customer relationship
intangibles which did not meet the criteria of SFAS 141 for recognition apart
from goodwill. Intangible assets representing assembled workforce and certain
customer relationship intangibles, totaling EUR 138 million and EUR 17
million, respectively, were reclassified from intangible assets to goodwill as
of the date of adoption of SFAS 142 which, for the Group, was September 1, 2001.
Related deferred tax liabilities totaling EUR 55 million were also
reclassified to goodwill. None of the identifiable intangible assets recognized
apart from goodwill were considered to have indefinite lives. In connection with
the transitional goodwill impairment evaluation required by SFAS 142, we
determined that there was no impairment and, accordingly, no transitional
impairment loss was recorded in the fiscal 2002 U.S. GAAP income statement. The
transitional goodwill evaluation required management to make assumptions with
respect to the identification of its reporting units. In addition, it required
management to make certain assumptions and estimates, including estimates of
future cash flows and appropriate discount rates, in order to determine the fair
value of the reporting units so identified. Upon adoption of SFAS 142, we ceased
amortizing goodwill (including that portion of goodwill which was generated by
the reclassification of assembled workforce and certain customer relationship
intangibles as of September 1, 2001). All other intangible assets, including
customer contracts, trademarks and software, are amortized over their estimated
useful lives.
SFAS 142 also requires us to evaluate our goodwill (and identifiable
intangible assets with indefinite lives, if any) for impairment at least
annually and more frequently if specific events indicate that an impairment in
value may have occurred. Similar to the transitional impairment evaluation, this
evaluation requires management to make assumptions with respect to the
identification of its reporting units as well as the determination of the fair
value of the reporting units so identified.
SFAS 144 (SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" through fiscal 2003) requires that we
review our identifiable intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable (a "triggering event"). The review for recoverability requires us
to estimate the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the undiscounted future cash flows
is less than the carrying amount of the asset, an impairment loss may be
recognized, which is measured based on the fair value of the asset. Management
is required to exercise judgment in the determination of whether a triggering
event has occurred as well as in the development of the assumptions used to
estimate future cash flows and determine fair value, as needed.
Provisions for contingencies and losses
Under French GAAP, provisions for contingencies and losses may be
recognized when there is a possibility of loss and prudence is an important,
although not the only, consideration. In general, provisions for risks and
charges represents liabilities which have not been settled, or for which the
settlement amount or other pertinent information is unknown, as of the balance
sheet date. Such amounts are reflected as charges in the income statement in the
period in which they are provisioned.
Under U.S. GAAP, provisions for contingencies and losses (contingent
liabilities) are recognized for specific existing risks when the related loss is
both probable and estimable and, in certain specific situations such as business
combinations and restructurings, when certain additional criteria are met. If a
loss is determined to have been incurred and management is able to reasonably
estimate the amount of the loss, an amount must be accrued for the loss. Where
the amount of the probable loss is determined within a range of possible
outcomes and no single amount within the range is considered to be a better
estimate than any other amount within the range, that amount is accrued.
However, when no amount within the range is considered to be a better estimate
than any other amount, the minimum amount in the range is required to be
accrued.
Under both French and U.S. GAAP, the recording of provisions requires
management to exercise significant judgment in determining the timing of
recognition and amount of recorded provisions.
Actuarially-Determined Liabilities
Included in other liabilities are liabilities established using actuarial
methods, notably for pensions and postretirement benefits in some of our
subsidiaries located in France and the United Kingdom. In French GAAP, there are
no specific requirements pertaining to accounting for pension and
post-retirement benefits. For subsidiaries located in France, the projected unit
credit valuation method is used to evaluate the pension and post-retirement
liabilities under French GAAP. In the United Kingdom, our pension plans are
administered by a third-party insurance company. Under French GAAP, premiums
paid to the insurance company are recorded as an expense in the period in which
they are made. Under U.S. GAAP, pension and post-retirement benefits are
accounted for using the methodologies prescribed by SFAS 87 and SFAS 106,
respectively. Both the projected unit credit valuation method and the
methodologies prescribed by SFAS 87 and SFAS 106, which are substantially
similar, require the use of actuarial assumptions, including the discount rate,
the rate of compensation increase and expected long-term rate of return on plan
assets. These assumptions are determined by management and require management to
exercise considerable judgment.
Also included in other liabilities are liabilities for workers'
compensation, principally in the United States. These liabilities are estimated
using actuarial methods for both French and U.S. GAAP based on assumptions made
by management with respect to the expected development of known and incurred but
not reported claims.
Derivative Financial Instruments
Under French GAAP, our derivative financial instruments, which consist
primarily of interest rate and cross-currency swap agreements on debt
instruments, are considered to hedge the underlying debt. Any interest rate
differential is recognized as an adjustment to interest expense over the term of
the related underlying debt. For swaps negotiated on inter-company debt, the
difference between the amount of the debt at the period end rates and the
swapped rates is recorded as debt. Where the hedge is of a net investment in a
foreign subsidiary, the resulting foreign currency translation difference is
recorded in the currency translation adjustment account in shareholders equity.
Under U.S. GAAP, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which was effective for the Group September 1, 2000,
requires all derivative instruments to be recorded on the balance sheet at their
fair value. Changes in fair value are recorded currently in earnings unless the
item is designated, qualifies, and is effective as a hedge. Fair value is
defined as the amount that would be paid or received to terminate the derivative
instrument at the balance sheet date. Changes in the fair value of derivatives
designated as part of a hedge transaction are recorded each period in current
earnings or other comprehensive income, depending on the type of hedge
transaction. For cash flow hedge transactions in which we are hedging the
variability of cash flows related to a variable rate asset, liability, or a
forecasted transaction, changes in the fair value of the derivative instrument
is reported in other comprehensive income. The gains and losses on the
derivative instrument that are reported in other comprehensive income are
reclassified to earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The ineffective portion of all
hedges is recognized in current period earnings. For certain derivative
financial instruments, as permitted by SFAS 133 and as described below, we have
elected not to prepare the documentation required by SFAS 133 in order to meet
hedge accounting criteria. Had we met and appropriately documented the hedge
accounting criteria required by the standard, reported earnings under U.S. GAAP
might have been different in each of the periods presented.
Under U.S. GAAP, we have accounted for all of our derivative financial
instruments (other than those of Sodexho, Inc., as described below), which
consist primarily of interest rate and cross-currency swap agreements, both
prior and subsequent to the adoption of SFAS No. 133 at fair value with changes
in fair value of instruments recognized currently in earnings. The aggregate
adjustment reflected in the reconciliation of consolidated shareholders' equity
and consolidated net income (loss) to U.S. GAAP as of and for the years ended
August 31, 2003, 2002 and 2001 for "Derivative financial instruments" is
attributable entirely to derivative financial instruments accounted for at fair
value. The fair value of our derivative financial instruments is generally
obtained from third party financial institutions.
Under U.S. GAAP, Sodexho, Inc.'s interest rate agreements have been
designated as cash flow hedges in accordance with SFAS No. 133. As of August 31,
2003 and 2002, and for the fiscal years then ended, these cash flow hedges were
determined to be effective hedges and, accordingly, changes in their fair value
are reflected in the statement of comprehensive income (recorded directly in
shareholders' equity).
Currency Translation
For subsidiaries located in foreign countries, assets and liabilities are
translated using the end of period exchange rate. Income statement and cash flow
statement line items are translated using the average exchange rate for the
year, calculated using monthly averages. Exchange rates used are obtained from
the Bourse de Paris and other international financial markets. The difference
between the translation of the income statement at average and period end rates,
as well as the difference between the opening balance sheet accounts as
translated at beginning and end of period rates is recorded in shareholders'
equity, except with respect to countries considered highly inflationary, where
this difference is included in net financial expense. Foreign exchange gains and
losses resulting from intragroup transactions in foreign currencies during the
year are recorded in the income statement.
BALANCE SHEET AND INCOME STATEMENT DATA
Our consolidated financial statements and the selected financial data
presented below are reported in euro. For periods prior to January 1, 1999, our
financial statements were prepared in French francs and translated into euro
using the official fixed exchange rate of EUR 1.00 = FF6.55957, applicable
since December 31, 1998 (see note 1 to our consolidated financial statements).
As of and for the year ended August 31,
2003 2003 2002 2001 2000 1999
USD EUR EUR EUR EUR EUR
(3) (5) (5)
Income Statement Data
(in millions, except per-share amounts)
French GAAP amounts
Revenues............ 14,017 11,687 12,609 11,928 10,496 9,027
Earnings before
interest,
exceptional items,
income taxes, income
from equity method
investees, goodwill
amortization and
minority interests
(EBITA)............ 616 514 525 571 530 448
Financial expense,
net................ (188) (152) (166) (122) (118) (131)
Minority interests
in net income of
consolidated
subsidiaries....... (11) (9) (13) (67) (69) (56)
Net income.......... 194 162 202 128 79 128
Earnings per share
(basic)............ 1.22 1.02 1.27 0.93 0.59 0.95
Earnings per share
(diluted).......... 1.20 1.00 1.22 0.89 0.56 0.92
Dividends per
share.............. 0.73 0.61 0.61 0.56 0.56 0.45
U.S. GAAP amounts
Revenues............ 14,020 11,690 12,618 7,557 5,648
Operating income.... 480 400 404 153 195
Net income (loss)... 176 147 136 (34) 24
Earnings (loss) per
share (basic)...... 1.13 0.94 0.86 (0.25) 0.18
Earnings (loss) per
share (diluted).... 1.13 0.94 0.85 (0.25) 0.17
Balance Sheet Data
French GAAP amounts
Intangible assets,
including
acquisition
goodwill........... 5,011 4,178 4,556 4,731 3,527 3,111
Tangible fixed
assets, including
non-working capital,
financial investments
and other assets... 756 614 584 519 538 556
Working capital(1).. (1,511) (1,260) (1,275) (1,208) (1,016) (753)
Cash and cash
equivalents(2)..... 1,533 1,278 1,307 1,213 897 758
Total assets........ 9,724 8,108 8,544 8,638 6,951 6,026
Total borrowings.... 2,984 2,488 2,693 2,781 2,009 2,047
Provisions for
contingencies and
losses............. 107 89 99 93 115 124
Minority interests. 88 67 73 131 525 333
Total shareholders'
equity.............. 2,697 2,249 2,398 2,386 1,402 1,276
U.S. GAAP amounts
Total assets........ 9,701 8,089 8,503 8,820 4,397
Total shareholders'
equity............. 2,082 1,736 1,880 2,029 1,095
(1) Working capital is calculated as the net of an asset component (current
assets, loans receivable and deposits and other and prepaid expenses less
cash, cash equivalents and restricted cash) and a liability component
(accounts payable, vouchers payable and other liabilities).
(2) Cash and cash equivalents includes restricted cash. See note 1 to our
consolidated financial statements for an explanation of restricted cash.
(3) The consolidated financial statements are prepared and presented in euro.
The U.S. dollar amounts presented in the table above have been translated
solely for the convenience of the reader using the November 30, 2003 2 p.m.
ECB time rate quoted by the European Central Bank of $1 = EUR 0.8338.
(4) See Note 1 to the consolidated financial statements for a discussion of the
impact of changes in accounting principles.
(5) Certain amounts for the years ended August 31, 2002 and 2001 differ from
the corresponding amounts for the same periods reported in the Company's
Document de Reference filed with the Commission des Operations en Bourse.
See note 1 to the Consolidated Financial Statements for further
information.
A. Operating Results
The balance sheets of subsidiaries located outside of the euro zone that
operate in a stable currency environment are translated into euro using exchange
rates in effect at the balance sheet dates. The income statements of these
subsidiaries are translated at average exchange rates for the period. The
difference between the translation of the income statement at average and period
end rates, as well as the difference between the opening balance sheet account
as translated at beginning and end of period rates, are recorded in
shareholders' equity. Transactions in foreign currencies are translated using
the exchange rate in effect at the time of the transaction and the related
impact is reflected in the income statement.
We have no significant operations in countries with highly inflationary
economies.
Subject to certain de minimis exceptions discussed below, entities managed
by us, including entities in which we own at least 40% equity interest and are
the single largest shareholder, are fully consolidated. Fully consolidated
subsidiaries that have a year-end that is different from our year-end prepare
balance sheets as of August 31 for consolidation purposes. The foregoing
conditions notwithstanding, subsidiaries with (i) annual revenues of less than
EUR 2 million, (ii) annual profits or losses of less than EUR 0.1 million
and (iii) net assets of less than EUR 2 million, are excluded from the
consolidation. Entities not meeting any of the foregoing conditions, but over
which we are able to exercise significant influence, are consolidated using the
equity method of accounting.
After reallocating management responsibilities for the remote sites and
river and harbor cruises activities to the applicable regions within the Food
and Management Services business in fiscal 2003, the Group changed the manner in
which it reports its operating segments. Accordingly, the Group now reports two
principal operating segments, which are Food and Management Services and
Services Vouchers and Cards. The Food and Management Services business is
further segmented into four geographic regions. The Group reports the following
principal and secondary segments:
Food and Management Services
o North America, which now includes river and harbor cruise activities in the
North American region.
o United Kingdom and Ireland, which now includes river and harbor cruise
activities in the United Kingdom and Ireland.
o Continental Europe, which now includes river and harbor cruise activities in
Continental Europe.
o Rest of the World, which now includes activities on remote sites.
Service Vouchers and Cards
Prior year amounts have been restated to conform to the fiscal 2003
presentation. Following is a reconciliation of the current and prior
presentations for each of the years presented:
Fiscal Year Ended August 31,
2003 2003 2002 2002 2001 2001
Current Prior Current Prior Current Prior
presen- presen- presen- presen- presen- presen-
tation tation tation tation tation tation
Revenues by Activity (1)
(in millions of euro)
Food and Management Services
North America (1)....... 5,427 5,387 6,039 5,995 5,719 5,657
Continental Europe (1).. 3,585 3,501 3,491 3,413 3,099 3,034
United Kingdom and
Ireland (1)............ 1,453 1,444 1,681 1,671 1,727 1,717
Rest of the World (2)... 974 477 1,119 566 1,134 581
Total Food and ------ ------ ------ ------ ------ ------
Management Services..... 11,439 10,809 12,330 11,645 11,679 10,989
Remote Sites (2)......... 0 543 0 590 0 579
Service Vouchers
and Cards............... 248 248 279 279 249 249
River and Harbor
Cruises (1)............. 0 87 0 95 0 111
------ ------ ------ ------ ------ ------
Total revenues........... 11,687 11,687 12,609 12,609 11,928 11,928
====== ====== ====== ====== ====== ======
(1) Effective for fiscal 2003, our Food and Management Services activities
in North America, Continental Europe, and United Kingdom and Ireland
include the River and Harbor Cruises activities in each of those
regions. The River and Harbor Cruises activity was formerly reported
separately. Prior periods have been restated to reflect the current
presentation.
(2) Effective for fiscal 2003, Food and Management Services - Rest of the
World includes the formerly separate Remote Sites activity. Prior
periods have been restated to reflect the current presentation.
Fiscal Year Ended August 31,
2003 2003 2002 2002 2001 2001
Current Prior Current Prior Current Prior
presen- presen- presen- presen- presen- presen-
tation tation tation tation tation tation
EBITA by Activity
(in millions of euro)
Food and Management Services
North America............ 268 270 293 297 294 295
Continental Europe....... 167 158 150 140 139 129
United Kingdom
and Ireland............. 21 22 9 11 87 87
Rest of the World....... 18 6 31 7 28 0
------ ------ ------ ------ ------ ------
Total..................... 474 456 483 455 548 511
Remote Sites.............. 0 22 0 26 0 30
Service Vouchers
and Cards................ 68 68 77 77 61 61
River and Harbor
Cruises.................. 0 7 0 2 0 7
------ ------ ------ ------ ------ ------
EBITA, excluding
corporate expenses....... 542 553 560 560 609 609
Corporate expenses........ (28) (39) (35) (35) (38) (38)
------ ------ ------ ------ ------ ------
EBITA..................... 514 514 525 525 571 571
====== ====== ====== ====== ====== ======
Overview
Food and Management Services is our most significant activity, and
accounted for approximately 98% of our revenues and 87% of EBITA (before
corporate expenses) for the fiscal year ended August 31, 2003. It consists of
the supply of food and management services to companies, public agencies and
institutions, hospitals, clinics, retirement homes, schools, colleges and
universities, as well as remote site services to oil and gas operations, both on
land and on offshore oil rigs, major construction projects and mining
facilities. River and harbor cruises, formerly a separately disclosed segment,
represented less than 1% of this activity's revenues and EBITA in fiscal 2003.
Approximately half of our fiscal 2003 revenues in the Food and Management
Services business were generated in North America. The Service Vouchers and
Cards business comprised 2% of our revenues and 13% of EBITA (before corporate
expenses) in fiscal 2003.
Fiscal Year Ended August 31, 2003 Compared with Fiscal Year Ended
August 31, 2002
Consolidated Overview of Revenues and EBITA
Revenues for fiscal 2003 totaled EUR 11.7 billion, a 7.3% decrease from
fiscal 2002. Organic growth of 3.1% was offset by the unfavorable impact of
foreign currency translation of 10%, principally arising on revenues denominated
in U.S. dollars or reliant on the U.S. dollar exchange rate. The impact of
acquisitions (net of divestitures) of negative 0.4% principally reflected the
sale of the Lockhart subsidiary in the United Kingdom in May 2002. Organic
growth reflected the impact of three significant new defense contracts in the
United States and Sweden. Nonetheless, organic growth continued to be hampered
by the worldwide economic situation, which weighed on the Business and Industry
segment of our Food and Management Services business. We expect our organic
growth rate in fiscal 2004 to be at least comparable to that in fiscal 2003 on a
consolidated basis.
EBITA decreased by 2.6% to EUR 514 million in fiscal 2003. However, at
constant exchange rates EBITA increased by 9.8%. The operating margin improved
moderately to 4.4% as a result of the initial favorable effects of our action
plans in the United Kingdom and an improved performance in both North America
and Continental Europe.
Analysis of Revenues and EBITA
The following table presents, for the periods stated, the variation in
revenues and EBITA by activity.
Fiscal Year Ended August 31, Change in Revenues
2003 2002 EUR %
Revenues by Activity
(in millions of euro, except percentages)
Food and Management Services
North America...... 5,427 6,039 (612) (10)
Continental Europe. 3,585 3,491 94 3
United Kingdom
and Ireland....... 1,453 1,681 (228) (14)
Rest of the World,
including Remote
Sites............. 974 1,119 (145) (13)
------ ------ ------ ------
Total............... 11,439 12,330 (891) (7)
Service Vouchers
and Cards.......... 248 279 (3) (11)
------ ------ ------ ------
Total revenues...... 11,687 12,609 (922) (7)
====== ====== ====== ======
Fiscal Year Ended August 31, Change in Revenues
2003 2002 EUR %
EBITA by Activity
(in millions of euro, except percentages)
Food and Management Services
North America...... 268 293 (25) (9)
Continental Europe. 167 150 17 11
United Kingdom
and Ireland....... 21 9 12 133
Rest of the World,
including Remote
Sites............. 18 31 (13) (42)
------ ------ ------ ------
Total............... 474 483 (9) (2)
Service Vouchers and
Cards.............. 68 77 (9) (12)
------ ------ ------ ------
EBITA, excluding
corporate expenses. 542 560 (18) (3)
Corporate expenses.. (28) (35) 7 20
------ ------ ------ ------
Total EBITA......... 514 525 (11) (2)
====== ====== ====== ======
Food and Management Services
Food and Management Services represented 98% of our consolidated revenues
and 87% of our consolidated EBITA before corporate expenses. Our revenues from
this segment totaled EUR 11.4 billion in fiscal 2003, reflecting organic
growth of 2.9%, which was a net improvement over prior year organic growth of
1.6%. The strengthening of the euro during the year resulted in a negative
foreign currency exchange impact of 9.7% while net dispositions decreased
revenues by 0.3%.
North America
Food and Management Services revenues in North America for fiscal 2003 were
EUR 5.4 billion with organic growth of 4.3%.
Organic growth in the Business and Industry segment was 5.8%. The year was
highlighted by the creation of the Defense sub-segment, which contributed
revenues of EUR 133 million. Excluding Defense, Business and Industry segment
declined by 0.6%. The progressive opening during the year of contracts with
clients such as Sony, General Electric Medical Systems, General Mills and a
national contract with Hewlett Packard, offset the negative effects of
delocalizations and staff reductions in the industrial sector.
Organic growth in the Healthcare and Seniors segment was 3.5%. This
progression reflects continued good performance on existing sites as well as the
signing of some new multiservice contracts toward the end of the year. Other
recent commercial successes such as Spring Valley Hospital Center, North
Colorado Medical Center and the Medical Center of Louisiana will begin to have a
favorable impact in fiscal 2003-2004.
The Education segment's revenues reflected organic growth of 3.7% for
fiscal 2003. Significant contracts were signed at the end of the year, such as
the Atlanta Public School District, Rowan University in New Jersey, the
University of Connecticut and Morehouse College in Georgia.
EBITA in North America reached EUR 268 million. Operating margins
increased from 4.8% in the prior year to 4.9% for fiscal 2003. This improvement
resulted from revenue growth on existing sites in Healthcare and Education and
the continued optimization of purchasing and employee costs in all segments. The
margin improvement was partially offset by start-up costs in the Defense
sub-segment and costs related to the implementation of new information systems.
Continental Europe
In Continental Europe, revenues rose to EUR 3.6 billion in fiscal 2003,
with organic growth of 3.6%, as follows: 4.0% in Business and Industry, 3.7% in
Healthcare, and 2.1% in Education.
In France, the Healthcare segment continued its steady development, notably
with the signing of "Global Hospitality" contracts such as the Chenieux clinics
in Limoges and Clinique St. Louis in Poissy. In Business and Industry, growth
was maintained, despite a depressed economic environment. Labor strikes during
May and June weighed on growth, particularly in the Education segment.
In Northern Europe, the opening of contracts with the Swedish army and the
city of Stockholm in the Healthcare segment, as well as contracts with Nokia in
Finland and Vattenfall in Sweden in Business and Industry contributed to our
organic growth.
In other countries in Continental Europe, significant contracts were signed
during the year, both in food service as well as multiservice. Examples include
Banco Santander in Spain, Euroform in the Netherlands, and Wal-Mart in Germany.
Sodexho Prestige continued its development, particularly in France, with
the operation of renowned restaurants such as Roland Garros. In Sweden, Sodexho
Prestige operates the Parliament Restaurant.
EBITA increased by 11.3% and the operating margin grew from 4.3% to 4.7%.
This increase resulted from a strong improvement in gross operating profit due
to the pursuit of our Five Step process, which is intended to optimize
purchasing and to a lesser extent to implement a selectivity strategy which in
certain cases led us not to renew certain insufficiently profitable contracts.
In addition, overheads were contained and increased in line with revenues.
United Kingdom and Ireland
In the United Kingdom and Ireland, revenues totaled EUR 1.5 billion in
fiscal 2003, a decline of 13.7% from the prior year, including a negative
currency exchange impact of 6.8%. The remaining difference was attributable to
the sale of the Lockhart subsidiary in the third quarter of fiscal 2002. On a
constant consolidation basis and excluding the currency effect, revenues
declined by 3.9%, in part due to the new management team's decision to exit
unprofitable contracts, notably in the Hotels sub-segment. In addition,
retention rates declined, for example, in the Healthcare segment, where certain
clients returned to self-operation. Finally, revenues were affected by site
closings and cost reductions made by Business and Industry clients. New
contracts signed included a multiservice contract with Glaxo Smithkline, two
detention centers and the Deep Cut garrison.
EBITA of EUR 21 million in fiscal 2003 reflected an EBITA margin increase
to 1.4% as compared with 0.5% for the prior year. The action plan to improve
profitability in the United Kingdom subsidiary is underway. This plan includes
rigorous control over food and employee costs at each site, and the
renegotiation or exit from certain contracts. In spite of Land Technology's
disappointing operating performance, the EBITA margin improved by 0.9%. The
action plan also relies on training and motivation of the teams as well as
strict containment of overheads. Important training initiatives were undertaken
during the year such as "Sodexho Way," to reinforce the rigor of operations
management, and to improve contracting policies. In addition, noteworthy
investments were made in human resources including external recruitment of
executives to reinforce the sales and marketing departments as well as the
management of the Healthcare segment. The return to a margin similar to the
Group's overall food and management services margin is the strong priority for
the next two or three years.
Rest of the World
In the Rest of the World, which includes the worldwide remote sites
activity, revenues of EUR 974 million reflected organic growth of 3.9%.
In spite of an unfavorable economic environment in the industrial sector,
we continued our development in Latin America and won several new contracts in
multiservice including Coca Cola, Codelco Norte and Carrefour in Chile, Pepsi
Cola and Clariant in Venezuela, Techint in Peru, and Exito in Colombia.
In China we continue to experience strong growth as a result of new
contracts in all segments such as with Motorola, Shanghai Container Limited, and
Richina in Business and Industry, and Yewcchung Shanghai Internal School and
CAFA in Education. Healthcare development continued with the signing of
contracts with the Jin Shan and Dacang hospitals.
In Australia, we experienced strong growth, as our Minesite subsidiary
obtained a contract with the Golden Valley camp.
The remote sites activity had good performances in the North Sea and in
Alaska. The slowdown of foraging activity in the Gulf of Mexico was confirmed.
The reinforcement of our sales teams and our strategy of following our
clients on large projects have begun to show results, such as the three-year
contract recently signed with Chiyoda on Sakhalin Island (Russia).
Total EBITA for these regions was EUR 18 million as compared to EUR 31
million for the prior year. The operating margin declined from 2.9% for fiscal
2002 to 1.9% in the current year. A difficult environment and strong competition
in Latin America weighed on EBITA. Finally, in remote sites, expenses related to
the opening of certain contracts and to the reinforcement of our sales
structures, as well as the allocation of certain overhead costs previously
supported by Group management, also weighed on the operating margin.
Service Vouchers and Cards
Sodexho Pass had revenues of EUR 248 million and organic growth of 11.3% in
fiscal 2003, representing business activities in 26 countries. This increase was
mainly attributable to new contracts in our traditional services (meal and
food), such as Telecom and Technit in Argentina, SNCB in Belgium, the Ministry
of Health in Venezuela, and General Motors in Mexico. Growth also resulted from
new services offered to existing clients such as, for example, a culture card
provided to 199,000 students in the Centre and Burgundy regions of France, and
the creation of the Education voucher for 15,000 beneficiaries of the Postal
Service in Hungary, and the consultant voucher "Adviescheque" in Belgium.
EBITA was EUR 68 million for fiscal 2003, compared to EUR 77 million for
the prior year. 74% of the EBITA for this activity is earned in foreign
currencies, and therefore, as a result, currency fluctuations have a more
significant impact in this activity than in the other activities. The operating
margin of 27.5% was comparable to that of the prior year.
Corporate Expenses
Corporate expenses, which are included in EBITA, of EUR 28 million in
fiscal 2003 declined significantly from the prior year. This was the result of
the allocation of corporate expenses to each operating entity.
Financial Expense, Net
Net financial expense totaled EUR 152 million as compared to EUR 166
million in the prior year. The improvement resulted in part from a reduction in
interest expense due to the reduction in debt and exchange rate variances and
also from the impact of items which affected the prior year, principally the
provision of EUR 19 million on Sodexho Alliance shares held and the
non-repetition of foreign currency exchange gains realized in the prior year in
the Service Vouchers and Cards business, when funds were converted into strong
currencies.
Net Exceptional Income/Expense
Net exceptional income totaled EUR 1 million in fiscal 2003 and is
principally explained by a EUR 28.6 million purchase price complement received
in fiscal 2003 in connection with the sale of our shares in CCA in fiscal 2001,
offset by provisions recorded on Sodexho Alliance stock options and losses on
Sodexho Alliance shares totaling EUR 13.6 million, restructuring costs in the
United Kingdom and the U.S. totaling EUR 7.6 million, and exceptional costs
related to litigation of EUR 5 million.
Income Taxes
Income taxes declined to EUR 134 million in fiscal 2003 for an effective
rate of 36.9%, which is comparable to the prior year when computed in the same
manner.
Net Income from Equity Method Investees
Net income from equity method investees was EUR 4 million, which was
comparable to the prior year.
Minority Interests
Minority interests decreased from EUR 13 million in fiscal 2002 to
EUR 9 million in fiscal 2003 mainly as a result of currency effects.
Goodwill Amortization
Goodwill amortization decreased from EUR 67 million in fiscal 2002 to
EUR 62 million in fiscal 2003, mainly as a result of currency exchange
impacts.
Fiscal Year Ended August 31, 2002 Compared with Fiscal Year Ended
August 31, 2001
Consolidated Overview of Revenues and EBITA
Revenues for fiscal 2002 totaled EUR 12.6 billion, a 5.7% increase over
fiscal 2001. This increase is net of a 2.5% decrease attributable to the
unfavorable impact of foreign currency translation, principally arising on
revenues denominated in U.S. dollars or reliant on the U.S. dollar exchange
rate. The acquisitions of Wood Dining Services and Sogeres in the fourth quarter
of fiscal 2001 contributed 6.2%. Organic growth of 2.0% reflected strength in
the education and health care segments of the Food and Management Services
business in North America and in Continental Europe, offset by poor performance
in the United Kingdom, where management problems surfaced during a year already
made difficult by the continuing global economic recession. Excluding the United
Kingdom, organic growth was 2.4%. The recession also continued to adversely
affect the Business and Industry segment of our Food and Management Services
business, as well as River and Harbor Cruises. We expect our growth rate in
fiscal 2003 to improve on a consolidated basis.
EBITA decreased by 8.2% to EUR 525 million in fiscal 2002. Despite the
higher sales, EBITA growth was hampered by a negligible EBITA margin in the
United Kingdom and Ireland primarily due to management problems in that region,
exacerbated by tough economic conditions in the Business and Industry segment.
Excluding the performance of United Kingdom, our EBITA margin was 4.7%;
including the United Kingdom, our EBITA margin was 4.2%. We have implemented
action plans, including a new management team for the United Kingdom and
Ireland, in order to improve profitability.
Analysis of Revenues and EBITA
The following table presents, for the periods stated, the variation in
revenues and EBITA by activity.
Fiscal Year Ended August 31, Change in Revenues
2002 2001 EUR %
Revenues by Activity(1)
(in millions of euro, except percentages)
Food and Management Services
North America...... 6,039 5,719 320 6
Continental Europe. 3,491 3,099 392 13
United Kingdom
and Ireland....... 1,681 1,727 (46) (3)
Rest of the World,
including Remote
Sites............. 1,119 1,134 (15) (1)
------ ------ ------ ------
Total............... 12,330 11,679 651 6
Service Vouchers
and Cards.......... 279 249 30 12
------ ------ ------ ------
Total revenues...... 12,609 11,928 681 6
====== ====== ====== ======
(1) Activities reflect the Group's internal management reporting structure.
(2) Percentage figures are derived from actual revenue numbers and so may vary
from those calculated from the numbers in this table due to rounding.
Fiscal Year Ended August 31, Change in Revenues
2002 2001 EUR %
EBITA by Activity(1)
(in millions of euro, except percentages)
Food and Management Services
North America...... 293 294 (1) 0
Continental Europe. 150 139 11 8
United Kingdom and
Ireland........... 9 87 (78) (90)
Rest of the World,
including Remote
Sites............. 31 28 3 11
------ ------ ------ ------
Total............... 483 548 (65) (12)
Service Vouchers
and Cards.......... 77 61 16 26
------ ------ ------ ------
EBITA, excluding
corporate expenses. 560 609 (49) (8)
Corporate expenses.. .. (35) (38) 3 8
------ ------ ------ ------
Total EBITA............ 525 571 (46) (8)
====== ====== ====== ======
(1) Activities reflect the Group's internal management reporting structure.
(2) Percentage figures are derived from actual EBITA numbers and so may vary
from those calculated from the numbers in this table due to rounding.
Food and Management Services
Food and Management Services represented 98% of our consolidated revenues
and 86% of our consolidated EBITA, excluding corporate expenses. Our revenues
from this segment increased in fiscal 2002 to EUR 12.3 billion, an increase of
5.7% over fiscal 2001 revenues, of which 6.2% was from acquisition growth (net
of dispositions) and negative 2.5% was from currency fluctuations. Acquisition
growth resulted primarily from our acquisitions of Sogeres and Wood Dining
Services during the fourth quarter of fiscal 2001. Despite the global economic
recession, organic growth was 2.0%.
North America
Food and Management Services revenues in North America for fiscal 2002 were
EUR 6 billion, representing an increase of 5.6% from fiscal 2001 revenues,
which was net of a negative 3% impact from currency fluctuations. The inclusion
of a full year of operations of Wood Dining Services, acquired in the fourth
quarter of fiscal 2001, increased revenues by 8.6%, and organic growth was 0.1%.
Of particular note were the subsidiary's significant wins in the defense market,
with the reaffirmation in July 2002 of a large contract with the United States
Marine Corps, valued at EUR 967 million over ten years, and the award of a
EUR 192 million contract over 15 years with the U.S. Naval Air Station in
Miramar, California. These important contracts affirm our development strategy
in this sub-segment. Healthcare achieved strong organic growth, in part from the
expansion into multiservices on existing sites as well as with the signing of
several significant new contracts, including University Hospitals of Cleveland,
Loyola University Medical Center in Chicago, and Stamford Hospital in
Connecticut.
The Education segment also achieved a strong performance. In primary and
secondary schools, most of the increase in revenues on existing sites resulted
from the deployment of creative solutions such as Kid's Way Cafe, Crossroads
Cafe and EDZone, a British innovation adapted to the U.S. market. Significant
contracts were signed with Beaufort County School District in South Carolina,
Guildford County School District in North Carolina, and Marysville School
District in Washington. In higher education, important contracts were signed
with Chapman University in California and the University of Wisconsin.
In Business and Industry, despite new contracts signed with, for example,
Perot Systems, Chicago Museum of Science and Industry, Merrill Lynch Asset
Management and BellSouth, our revenues were down 8% given the difficult economic
environment. This decline reflected site closures, reductions in customers
on-site, and client decisions to reduce catering services, which represent 10%
of the activity in Business and Industry and which declined by 20%. Several
contracts signed in 2002 will commence operations in 2003, such as Sony
Pictures, MetLife, Federal Reserve Bank in Atlanta, and Nationwide Training
Center, and are expected to lead to renewed growth in the upcoming year.
EBITA in North America of EUR 293 million was comparable to the prior
year. With the integration of Wood Dining Services for a full year, the EBITA
margin was 4.8%, compared to 5.1% in the prior year. Synergies and improvements
in food cost management at the sites improved gross profitability. However, a
number of factors weighed on the EBITA margin: increases in overhead with the
creation of a new division in the Healthcare segment; weaker initial margins at
Wood Dining Services as compared to Sodexho, Inc.; the decline in catering
services; and an increase in employee medical insurance costs. EBITA for river
and harbor cruises was negatively affected by September 11 and the U.S.
recession.
Continental Europe
In Continental Europe, revenues rose to EUR 3.5 billion in fiscal 2002,
an increase of 12.7% over the prior year. Acquisition growth of 7.7% resulted
almost entirely from the integration of Sogeres for a full year. Organic growth
in revenues was 5.3%.
France, Italy, the Netherlands and the countries in Central and Eastern
Europe continued to grow while expanding their service offerings. In addition,
non-food services experienced double digit growth, due in large part to contract
wins generated by our subsidiary, Altys, such as with Cisco in Belgium and
Germany. In France, the Business and Industry segment had positive growth,
defying the economic slowdown affecting not only the high technology sector, but
also some of the more traditional sectors of the economy, such as the automobile
industry. A noteworthy contract was signed with Danone's Vitapole Research and
Development Center.
In Sweden, activities in the transportation sector suffered the fall-out
from the events of September 11. Elsewhere, the importance to the Swedish
economy of the telecommunications, information technology and engineering
sectors was a limiting factor during the period. Nonetheless, a significant
contract was signed in June 2002 with the municipality of Stockholm giving us
the management of equipment provided for the use of handicapped individuals.
Strong performances achieved in the Health Care and Senior segments
throughout Continental Europe allowed us to maintain growth rates close to those
of prior years.
EBITA grew by 8% in fiscal 2002 to EUR 150 million, with Sogeres
contributing EUR 12.7 million. Following the significant increases in food
costs in the prior year, our subsidiaries in France succeeded in negotiating
pricing increases on more than 80% of their contracts. Food cost management and
margins improved significantly as a result. EBITA declined in other countries,
most notably in Sweden and in Italy, where there was an increase in the number
of man-hours lost as a result of worker strikes affecting client sites.
United Kingdom and Ireland
In the United Kingdom and Ireland, revenues totaled EUR 1.7 billion in
fiscal 2002, a decline of 3% from the prior year, of which 1.0% was organic. The
currency exchange impact was responsible for 1.5% of the decline and the
remaining difference was attributable to the third quarter sale of Lockhart, a
subsidiary whose activity is the distribution of kitchen equipment, not a core
activity of the Group.
New contract wins allowed the Education segment to achieve satisfactory
organic growth. A prestigious multiservice contract was signed with the Royal
Air Force in the Defense sub-segment. In the Business and Industry segment, our
subsidiary was awarded a catering contract for the Commonwealth Games.
Multiservice activities continued to develop. However, Business and Industry was
affected by the economic slowdown and the significant decline in demand for
catering services. In Healthcare, revenues declined with a political climate
favoring self-operation.
EBITA went from EUR 87 million in fiscal 2001 to EUR 9 million in
fiscal 2002. This deterioration principally arose from the decline in
profitability of the Business and Industry segment, which represents more than
two-thirds of the region's revenues. Faced with reductions in meal subsidies by
our clients and a decrease in the number of consumers at our sites, our teams
were not reactive in adapting their cost structures in a timely manner. In
addition, a number of recently signed or renegotiated contracts were determined
to be unprofitable, and a poorly managed entry into hotel management services
generated significant losses. Reduced purchasing volumes negatively impacted
margins. Poorly controlled overheads and the installation of a new information
system also weighed on profitability. In addition, a restructuring charge of
EUR 11 million has been recorded as an exceptional item.
The new management team has put into place an ambitious action plan, for
which certain costs were recorded in fiscal 2002. The top priority for the next
two to three years is the return to a satisfactory EBITA margin. This will
involve in-depth programs to make our contracts more profitable, to train and
motivate our teams, to tighten on-site management of food and personnel costs,
and to reduce support function overheads.
Rest of the World
In the Rest of the World, including remote sites, revenues of EUR 1.1
billion were unchanged from fiscal 2002, as organic growth of 2.8% was offset by
a negative currency exchange effect of 6.5%.
Latin America continued its expansion, despite an unfavorable economic
climate in the industrial sector, with several important new multiservice
contracts, such as IBM in Chile, Peru, Venezuela and Columbia, Citibank in Chile
and Peru, and Nestle in Argentina and Chile, which contributed to an overall
organic growth of 10% in that region. In Chile, our teams won two initial
contracts for the management of five correctional facilities, a market with
significant potential.
China saw significant growth, with strong performances across all segments
including contracts signed with Haier, the Chinese leader in electrical
appliances, a multiservice contract with Proctor and Gamble in Guangzhou, and
the French School at the New University of Fine Arts in Peking. Following our
entry into the Healthcare market, new contracts were signed with the
International Peace Maternity Hospital in Shanghai and Beijing United Family
Hospitals and Clinics in Peking, noteworthy accomplishments which resulted from
synergies between our worldwide Healthcare teams, in particular, those in the
United Kingdom, and the local teams. Activities in Singapore and Hong Kong felt
the consequences of numerous client relocations to mainland China.
In Australia, we continued our strategy of selective growth, the
development of the multiservice activity and growing revenues on existing sites.
Of particular note, was the contract signed with Griffith Brisbane, one of the
largest universities in the country.
Revenues from remote site operations, which are now included in the Food
and Management Services, Rest of the World activity, grew 2% to EUR 590
million in fiscal 2002. This growth included 3% acquisition growth from the
integration of Minesite Catering, a company in Western Australia acquired at the
beginning of the year, organic growth of 1%, and a negative currency exchange
effect of 2%.
Strong development in petroleum activities in the North Sea and Alaska was
offset by the slowdown in activity on gas platforms in the Gulf of Mexico. A
slowdown in growth in the second half of the fiscal year resulted from the
non-renewal of the Chevron contract in Kazakhstan and the completion of two
large projects in Latin America (the construction of a mine and a drilling
field). However, we have been awarded food and management services contracts for
the operational phase of both of the projects, which will commence in fiscal
2003. Additional significant contracts have been signed with Fluor in the United
States, Camisea in Peru, Schlumberger in the Middle East and the Argyle Diamond
Mine in Australia.
EBITA increased to EUR 31 million, as a return to profitability in these
regions (excluding remote sites) more than offset a 13% decline in EBITA for the
remote sites operations resulting from currency effects as well as strong
competition and pressure on our clients to reduce costs on large projects in
Africa, and finally, from the weaker margins of Minesite Catering in Australia.
Service Vouchers and Cards
Now present in 26 countries, Sodexho Pass had revenues of EUR 279 million
in fiscal 2002, an increase of 12% over the prior year, net of a negative
currency exchange effect of 7%. For the fourth year in a row, organic growth was
in the neighborhood of 20%, as a result of improvements in the revenue mix and
strong development in Europe. This growth resulted from the implementation of
creative solutions, value creators for our clients. In the employee benefits
area, Sodexho Pass implemented a new internet tool, E-SPI, which facilitates,
accelerates, and validates the check order process. In the area of social
benefits, the research into solutions adapted to the needs of institutions led
to the signing of a contract to provide 244,000 students in 550 schools in the
Rhone-Alpes department in France with a "Culture card" allowing them to buy or
rent school books.
The total issue volume of service vouchers and cards (face value of the
service vouchers and cards multiplied by their number) reached EUR 5.9 billion
compared to EUR 5.1 billion in fiscal 2001.
EBITA reached EUR 77 million in fiscal 2002, an increase of 26% compared to
fiscal 2001. This growth was net of a negative foreign currency exchange impact
of 4.7%. The EBITA margin increased by 3% in part as a result of the higher
volumes which allowed us to better absorb our fixed production costs, and
secondly from the exchange of savoir faire and experiences between countries.
Corporate Expenses
Corporate expenses, which are included in EBITA, of EUR 35 million in
fiscal 2002 were down 8% from the prior year, despite the costs related to the
listing of Sodexho Alliance on the New York Stock Exchange, illustrating Group
management's efforts to control overhead expenses.
Financial Expense, Net
Net financial expense totaled EUR 166 million, as compared to EUR 122
million in fiscal 2001. Higher interest expense of EUR 140 million, as compared
to EUR 124 million in fiscal 2001, resulted from the impact on a full year of
the acquisition financing arranged for the June 2001 transactions. In fiscal
2002, financial provisions totaled EUR 26 million, of which EUR 19 million was
on Sodexho Alliance shares held by the Group to be used for stock compensation
programs. The related stock options are exercisable over periods ranging from
one to ten years at a higher exercise price than the closing price of the share
as of August 31, 2002.
Net Exceptional Income/Expense
Net exceptional income totaled EUR 55 million in fiscal 2002 and included
the following principal elements: a gain of EUR 49 million euro (EUR 37 million
net of tax) on the sale of the Lockhart subsidiary in the United Kingdom; a gain
of EUR 37 million representing the reduction in liabilities related to stock
option shares in connection with the acquisition of Sodexho Marriott Services,
Inc. (this gain is partially offset by a EUR 19 million provision included in
net financial expense); a provision for EUR 11 million related to a lawsuit in
the United States (see "Item 8A - Legal Proceedings," below); and restructuring
expenses and costs to exit certain contracts in the United Kingdom totaling EUR
11 million.
Income Taxes
Income taxes declined to EUR 136 million in fiscal 2002 from EUR 157
million in fiscal 2001 for an effective rate of 33%. Excluding permanent
differences, the effective rate was comparable to the prior year effective rate
of 36% as computed in the same manner.
Net Income from Equity Method Investees
Net income from equity method investees increased to EUR 4 million in
fiscal 2002 from a loss of EUR 2 million in fiscal 2001, as we sold our
remaining interest in Attendo Care, which had reported a loss in the prior year.
Minority Interests
Minority interests decreased from EUR 67 million in fiscal 2001 to EUR 13
million in fiscal 2002 as a result of our acquisition of Sodexho, Inc.'s
remaining shares in the fourth quarter of fiscal 2001. In addition, the
remaining shares of Sogeres, of which we acquired 60% in June 2001, were
acquired at the end of the first quarter of fiscal 2002.
Goodwill Amortization
Goodwill amortization increased 54%, from EUR 44 million in fiscal 2001
to EUR 67 million in fiscal 2002, principally reflecting the additional
goodwill generated by the acquisition of the remaining shares of Sodexho, Inc.
and the acquisitions of Wood Dining Services and Sogeres during fiscal 2001.
B. Liquidity and Capital Resources
The following table sets forth certain cash flow items for fiscal 2001
through fiscal 2003:
Year ended August 31,
2003 2002 2001
(millions of euro)
Net cash provided by
operating activities.................. 490 619 554
Net cash used in investing
activities............................ (278) (315) (1,959)
Net cash provided by (used in)
financing activities.................. (202) (70) 1,763
Net effect of exchange rate
variations on cash.................... (54) (118) (40)
----- ----- ------
Net increase (decrease)
in cash and cash equivalents.......... (44) 116 318
===== ===== ======
For fiscal 2003, net cash provided by operating activities amounted to
EUR 490 million. Cash provided by operating activities totaled EUR 387
million, a level close to that for fiscal 2002, despite unfavorable currency
effects of 13%, thus confirming the Group's ability to generate cash. Net cash
generated by changes in operating working capital amounted to EUR 100 million
in fiscal 2003, of which 40% was from the Service Vouchers and Cards business.
The remaining amount resulted from organic growth in revenues and the efforts of
the operating teams in the Food and Management Services business to improve
receivables collection, a strategic priority for the group.
Capital expenditures, net of disposals of property, plant and equipment,
amounted to EUR 226 million in fiscal 2003, representing 1.9% of revenues.
Significant investments in information systems were made during the year in the
main countries where the Group operates.
Net acquisition expenditures of EUR 33 million in fiscal 2003 mainly
included the acquisitions of the remaining 23.16% of Sodexho Pass do Brazil from
its minority shareholders and 91.4% of the outstanding shares of Patriot Medical
Technologies, Inc., a U.S. company based in Tennessee which specializes in
providing engineering services to the medical sector.
Net cash used in financing activities of EUR 202 million in fiscal 2003
is explained in part by the repayment of debt of EUR 97 million and the
remainder by the payment of EUR 105 million in dividends.
Net debt was reduced by EUR 162 million of which EUR 82 million
resulted from the exchange rate effect on August 31, 2003. As such, net debt in
our consolidated balance sheet totaled EUR 1,201 million as of August 31,
2003, and represents 52% of our shareholders' equity including minority
shareholders.
Total financial debt of EUR 2,488 million as of August 31, 2003 principally
comprised three bond issues in euro totaling EUR 1,605 million and U.S. dollar
credit facilities totaling U.S. $718 million. The balance of outstanding debt
represents leasing, term and various revolving credit facilities. As of August
31, 2003, 91% of our debt was at fixed interest rates, and our weighted average
interest cost was 5.5%.
As of August 31, 2003, and in addition to available cash and cash equivalents
and marketable securities (excluding restricted cash) of EUR 1,142 million, we
had revolving credit facilities available of EUR 119 million to provide funds
for liquidity, seasonal borrowing needs and other corporate purposes. We believe
our working capital is sufficient for our present requirements. Cash on hand,
internally generated cash flows and available credit will be sufficient to cover
our additional cash flow requirements.
Our off balance sheet commitments totaled EUR 150 million as of August
31, 2003. Refer to note 3.20 in the consolidated financial statements.
For fiscal 2002, net cash provided by operating activities amounted to
EUR 619 million, an increase of 12% over the prior year, confirming the
quality of the Group's financial model. Net cash generated by changes in
operating working capital amounted to EUR 209 million in fiscal 2002, as
compared to EUR 154 million for fiscal 2001, with about half of the
improvement being made in the Service Vouchers and Cards business and the
remainder resulting from the growth in the business and the efforts by our
operational teams to improve collection of accounts receivable, a strategic
priority for the Group.
Capital expenditures, net of disposals of property, plant and equipment,
amounted to EUR 268 million in fiscal 2002, representing 2.1% of revenues.
Net acquisition expenditures of EUR 97 million in fiscal 2002 mainly
included the acquisition of Minesite Catering in Australia and the remaining 40%
of the capital stock of Sogeres.
In May 2002, the Lockhart subsidiary in the United Kingdom was sold for
EUR 61 million.
During fiscal 2002 we paid dividends totaling EUR 102 million. Dividend
payments of EUR 15 million were paid out by our subsidiaries to third-party
shareholders.
In March 2002, we issued EUR 1 billion of debt securities in the European
markets. We used the net proceeds from the sale of these debt securities,
approximately EUR 992,330,000, to refinance outstanding debt. The debt is
issued in 5.875% notes due March 25, 2009.
Negative currency exchange effects increased net debt EUR 47 million.
Despite this, net debt in our consolidated balance sheet totaled EUR 1,363
million as of August 31, 2002, a reduction of EUR 205 million from the prior
year end and represents 55% of our shareholders' equity.
Total financial debt of EUR 2,693 million as of August 31, 2002
principally comprised three bond issues (EUR 305 million in bonds issued in
1996 and redeemable in 2004, EUR 300 million in bonds issued in 1999 and
redeemable in 2009, and EUR 1billion in bonds issued in 2002 and redeemable in
2009) and U.S. dollar-denominated credit facilities totaling U.S. $818 million.
The balance of outstanding debt represents leasing, term and revolving credit
facilities by our subsidiaries. As of August 31, 2002, 92% of our debt was at
fixed interest rates, and our weighted average interest cost was 5.7%.
As of August 31, 2002, and in addition to available cash and cash
equivalents and marketable securities (excluding restricted cash) of EUR 1,142
million, we had revolving credit facilities available of EUR 122 million to
provide funds for liquidity, seasonal borrowing needs and other corporate
purposes.
C. U.S. GAAP
General
Except as described in note 1 to the consolidated financial statements, our
financial statements are prepared in accordance with French GAAP, which differs
in certain significant respects from U.S. GAAP, as discussed in note 5 to the
consolidated financial statements. The individual differences discussed in note
5 describe the main adjustments to the French GAAP consolidated financial
statements, which reflect Sodexho, Inc. (previously, Sodexho Marriott Services,
Inc.) as a consolidated subsidiary in all periods presented. Under French GAAP,
we consolidated Sodexho, Inc., of which we owned 47.5% as of August 31, 2000,
until we acquired the remaining shares on June 20, 2001 (at which time we owned
46.9% of Sodexho, Inc.). French GAAP generally requires consolidation of greater
than 40%-owned subsidiaries if there is no single more significant shareholder.
Under U.S. GAAP, Sodexho, Inc. was required to be accounted for by the equity
method until the date when the remaining shares were acquired. The effects of
accounting for Sodexho, Inc. under the equity method in fiscal 2001 as well as
the effects of other U.S. GAAP adjustments are included in note 5 to the
consolidated financial statements.
New Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation, FIN No. 46,
Consolidation of Variable Interest Entities, which is an interpretation of
Accounting Research Bulletin, ARB No. 51 Consolidation of Financial Statements.
FIN No. 46 provides additional guidance regarding how to identify variable
interest entities and how an enterprise assesses its interest in the variable
interest entity to determine whether an entity is required to be consolidated.
The interpretation establishes that an enterprise consolidate a variable
interest entity if the enterprise is the primary beneficiary of the variable
interest entity. The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entity's expected losses, receives a
majority of its expected residual returns, or both, as a result of holding
variable interests, which are the ownership, contractual, or other pecuniary
interests in an entity. This interpretation applies immediately to variable
interest entities created after January 31, 2003 and to variable interest
entities in which an enterprise obtains an interest after that date. For
interests in variable interest entities existing as of January 31, 2003, the
guidance of FIN No. 46 will apply in the first fiscal year or interim period
beginning after June 15, 2003. The adoption of FIN No. 46 did not have a
significant impact in the current year and is not expected to have a significant
impact in future years on our consolidated results of operations, financial
position, or cash flows.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which is an Interpretation of FASB
Statements No. 5, 57 and 107 and Recission of FASB Interpretation No. 34. FIN 45
relates to the accounting for and disclosure of guarantees and requires that
upon issuance of a guarantee, the entity (i.e., the guarantor) must recognize a
liability for the fair value of the obligation it assumes under that guarantee.
Many guarantees are embedded in purchase or sales agreements, service contracts,
joint venture agreements, or other commercial agreements and the guarantor in
many such arrangements does not receive a separately identifiable upfront
payment for issuing the guarantee. FIN 45 requires identical accounting for
guarantees issued with or without a separately identified premium. FIN 45 covers
guarantee contracts that have four specific characteristics, excludes some
guarantee contracts entirely from its scope and excludes certain types of
guarantees (a guarantee issued between parents and their subsidiaries) from its
initial recognition and measurement but for which they are subject to its
disclosure requirements. The initial recognition and initial measurement
provisions applied immediately to guarantees issued or modified after December
31, 2002. The adoption of FIN 45 did not have a significant impact in the
current year and is not expected to have a significant impact in future years on
our consolidated results.
EITF Issue No. 02-16, Accounting for Consideration Received from a Vendor
by a Customer (Including a Reseller of the Vendor's Products), addresses how a
customer of a vendor's products should account for cash consideration received
from the vendor. EITF 02-16 requires that, for new arrangements entered into
after December 31, 2002, cash consideration received by a customer from a vendor
is presumed to be a reduction of the prices of the vendor's products or services
and should be characterized as a reduction of cost of sales. However, that
presumption may be overcome if the consideration is either (1) a reimbursement
of costs incurred by the customer to sell the vendor's products, which should be
characterized as a reduction of that cost or (2) a payment for assets or
services delivered to the vendor, which should be characterized as revenue.
Additionally, if consideration received by the customer for reimbursement of
costs the customer incurred to sell the vendor's products is more than the
actual costs incurred by the customer, then any "excess" should be treated as a
reduction of the prices of the vendor's product. EITF 02-16 also requires that,
for arrangements entered into after November 21, 2002, assuming the customer can
reasonably estimate the rebate or refund and it is probable that the specified
target will be attained, such amount should be recognized as a reduction of the
cost of sales based on a systematic and rational allocation of the cash
consideration to each of the underlying transactions that results in progress by
the customer toward earning the rebate or refund. If attaining the milestone is
not probable, then the rebate or refund should be recognized as the milestone is
achieved. The adoption of EITF 02-16 did not have a significant impact on our
financial statements.
D. Research and Development, Patents and Licenses, etc.
We have the patents, trademarks, trade names and licenses that are
necessary for the operation of our business as we currently conduct it. Other
than the Sodexho name, we do not consider our patents, trademarks, trade names
and licenses to be material to the operation of our business.
E. Off-balance sheet arrangements.
Commitments made as of August 31, 2003 (millions of euro) were as follows:
August 31, 2003 August 31,2002
Less than
1 year 1-5 years > 5 years Total Total
Financial guarantees
to third parties ... 14 45 0 59 41
Performance bonds on
operating leases .. 13 20 0 33 62
Client performance
bonds ............. 0 39 9 48 22
Other commitments .. 0 10 0 10 18
---- ---- ---- ---- ----
Total .............. 27 114 9 150 143
==== ==== ==== ==== ====
With respect to the above table, there are no other significant off balance
sheet commitments.
Sureties
In connection with its Service Vouchers and Cards business, Sodexho
Alliance and its subsidiaries have secured cash amounts with different financial
institutions, totaling EUR 18 million as of August 31, 2003. Other surety
arrangements (security granted over equipment or buildings used for collateral)
agreed to by Sodexho Alliance and its subsidiaries in fiscal 2003 were not
significant.
Commitments to purchase or sell shares in companies
Commitments made:
o Patriot Medical Technologies, Inc.
The Group has entered into a put agreement with the minority shareholders
of Patriot Medical Technologies, Inc. ("Patriot"), to acquire the remaining
shares outstanding during the period from March 3, 2003 to March 3, 2004 for a
total of U.S. $234,000 (EUR 0.2 million). As of August 31, 2003, a portion of
the put option had already been exercised, in the amount of U.S. $100,000.
o Medcheque
The Group, through its Service Vouchers and Cards subsidiary in Brazil, has
entered into a put agreement with the minority shareholders of Medcheque to
acquire the remaining 35% of the shares outstanding during the period from July
2004 to July 2006 for a total price of between EUR 7.7 million (minimum assuming
purchase is made in July 2004) and EUR 9.8 million (maximum assuming purchase is
made in August 2006).
o Abra (subsidiary of Sodexho Scandinavian Holding AB)
The Group, through its Sodexho Scandinavian Holding AB subsidiary, has
entered into a put agreement with the minority shareholders of Abra (located in
Norway) to acquire the remaining 15% of the shares outstanding by November 2005,
at the latest, for a price based upon a profit multiple. The minimum purchase
price amount is EUR 1.3 million and based on current projections, is estimated
at EUR 2.3 million.
o Altys Multiservices
The Group has entered into a put agreement to acquire 1.5% of the shares of
Altys Multiservice from the minority shareholders between October 1 and November
30, 2007 for a purchase price based on a multiple of the average economic
profits, as defined contractually in the year of exercise with an adjustment
based on the following year's results.
o Sodexho Italia
The Group has entered into a put agreement to acquire the remaining 2% of
the shares of Sodexho Italia from the minority shareholders on July 1, 2010, at
the latest, for a purchase price based on a multiple of the average economic
profits, as defined contractually.
o Baren Menu
The Group has entered into a put agreement to acquire the remaining 5% of
the shares of Baren Menu in Germany from the minority shareholders on December
31, 2005, at the latest, for a purchase price estimated at EUR 0.25 million.
o Sodexho MM Catering
The Group has entered into a put agreement to acquire the remaining 9.5% of
the shares of Sodexho MM Catering from the minority shareholders at any time for
a purchase price based on a multiple of the average economic profits as defined
contractually, for a minimum amount of EUR 0.2 million.
Commitments received:
o Patriot Medical Technologies, Inc.
The minority shareholders of Patriot have entered into a call agreement
with the Group, which allows the Group, during the period from September 3, 2003
and September 3, 2005, to acquire the remaining outstanding shares of Patriot,
if any, for the greater of U.S. $2 million and five times Patriot's EBITDA,
reduced by adjustments defined contractually.
o Medcheque
The minority shareholders of Medcheque have entered into a call agreement
to sell the remaining shares to the Group in accordance with the terms described
above.
o Abra (subsidiary of Sodexho Scandinavian Holding AB)
The minority shareholders of Abra have entered into a call agreement to
sell the remaining shares to the Group in accordance with the terms described
above, in November 2005 at the latest.
o Sodexho Italia
The minority shareholder of Sodexho Italia has entered into a call
agreement to sell the remaining shares to the Group in accordance with the terms
described above, on July 1, 2010 at the latest.
o Altys Multiservices
The minority shareholders of Altys Multiservice have entered into a call
agreement to sell the remaining shares to the Group (18.5% as of August 31,
2003) between October 1 and November 30, 2005 for a purchase price based on a
multiple of the average economic profits as defined contractually in the year of
exercise with an adjustment based on the following year's results.
Other commitments
Securitization
Our food service subsidiaries in the United Kingdom have securitized
without recourse a portion of their client receivables for an amount of EUR 82
million as of August 31, 2003.
Commitments for stock options in Sodexho Alliance shares
The Group has the following stock option commitments:
o 2,518,517 shares with an average exercise price of U.S. $26.35 to certain
employees of Sodexho, Inc., in connection
with the Group's acquisition of 53% of Sodexho Marriott Services, Inc. in
June 2001. These options are exercisable in the following periods:
o From August 31, 2003 through various expiration dates, the latest being
August 31, 2011: 1,651,722 shares
o From August 31, 2004 through various expiration dates, the latest being
August 31, 2011: 648,256 shares
o From August 31, 2005 through various expiration dates, the latest being
August 31, 2011: 218,539 shares
o 5,085,838 Sodexho Alliance shares granted by the Board of Directors to
Group employees in connection with various stock option plans. These options
are exercisable in the following periods and at the following exercise
prices:
o From January 2004 to January 2009: 744,262 shares at an exercise price of
EUR 24.00
o From March 2004 to January 2005: 223,246 shares at an exercise price of
EUR 39.86
o From January 2005 to January 2009: 744,263 shares at an exercise price of
EUR 24.00
o From March 2005 to January 2006: 319,135 shares at an exercise price of
EUR 48.42
o From January 2006 to October 2007: 432,790 shares at exercise prices of
EUR 21.87 andEUR 47.00
o From January 2006 to January 2009: 744,262 shares at an exercise price of
EUR 24.00
o From January 2006 to March 2008: 1,133,617 shares at an exercise price of
EUR 47.00
o From January 2007 to January 2009: 744,263 shares at an exercise price of
EUR 24.00
In connection with its acquisition of Sogeres, the Group committed to
maintain Sogeres' stock option plan dated August 1, 1997. The Group committed to
acquire the Sogeres shares from the optionees through September 2004 and has
recorded a related liability in its accounts. As of August 31, 2003 this
liability totals EUR 0.7 million. A second stock option plan was established
for which the Group has committed to increase the capital of Sogeres for the
benefit of the optionees and to buy their shares no later than February 20,
2008. In connection with this agreement, a provision of EUR 3.5 million was
recorded in the consolidated financial statements as of August 31, 2003.
Operating lease commitments
Operating lease commitments are as follows:
Less than one year EUR 65 million
From one to five yearsEUR 119 million
More than five years EUR 36 million
Operating lease commitments primarily relate to central kitchens under
tri-partite agreements for EUR 40 million and rent for office space and
various equipment.
Retirement plan obligations
As of August 31, 2003, retirement plan obligations which were not recorded
as a liability in the balance sheet because of the existence of an external fund
totaled EUR 397 million. Partially offsetting this amount are external funds
totaling EUR 269 million.
F. Tabular Disclosure of Contractual Obligations
Future payments on borrowings and other debt balances as of August 31, 2003
were due as follows:
Less than One to More than Total Total
one year five years five years August 31, August 31,
2003 2002
(millions of euro)
Bonds
Euro.............. 341 0 1,300 1,641 1,642
---- ---- ----- ----- -----
Total bonds...... 341 0 1,300 1,641 1,642
Bank borrowings (1)
U.S. Dollars...... 157 795 1 953 1,175
Euro.............. (126) (324) 62 (388) (501)
Pounds Sterling... 86 (1) 0 85 224
Other currencies.. 31 14 0 45 41
---- ---- ----- ----- -----
Total bank
borrowings........ 148 484 63 695 939
Capital lease obligations
U.S. Dollars...... 3 4 7 12
Euro.............. 15 19 4 38 36
Other currencies.. 3 3 4
---- ---- ----- ----- -----
Total capital lease
obligations....... 18 26 4 48 52
Other borrowings
Euro.............. 3 1 4 5
Other currencies.. 1 1
---- ---- ----- ----- -----
Total other
borrowings......... 1 3 1 5 5
Bank overdraft balances
Euro.............. 25 25 18
Pounds Sterling... 70 70 31
Other currencies.. 4 4 6
---- ---- ----- ----- -----
Total bank
overdrafts......... 99 0 0 99 55
---- ---- ----- ----- -----
Total.............. 607 513 1,368 2,488 2,693
==== ==== ===== ===== =====
(1)Includes impact of swaps; see notes 3.16.2 and 3.16.3 to the
consolidated financial statements for further information.
ITEM 6...DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The table below sets forth, as of November 14, 2003, the names of our
directors, their dates of birth, their current positions with us, the dates of
their initial appointment as directors and the expiration dates of their current
terms.
Initially Expiration
Name Date of Birth Position Appointed of Term
Pierre Bellon(2) (4) 1/24/1930 Chairman 11/14/1974 2004
Remi Baudin(2) (3) 10/19/1930 Vice Chairman 2/25/1983 2004
Astrid Bellon 4/16/1969 Director 7/26/1989 2004
Bernard Bellon 8/11/1935 Director 2/26/1975 2003
Francois-Xavier Bellon 9/10/1965 Director 7/26/1989 2004
Sophie Clamens 8/19/1961 Director 7/26/1989 2004
Paul Jeanbart(6)* 8/23/1939 Director 2/13/1996 2005
Charles Milhaud 2/20/1943 Director 2/04/2003 2006
Francois Perigot
(1)(4)* 5/12/1926 Director 2/13/1996 2005
Edouard de Royere(2)
(4)(5)* 6/26/1932 Director 2/13/1996 2005
Nathalie Szabo 1/26/1964 Director 7/26/1989 2004
H.J. Mark Tompkins
(6)* 11/02/1940 Director 2/05/2002 2005
(1) Chairman of the Selection Committee.
(2) Member of the Selection Committee.
(3) Chairman of the Compensation Committee.
(4) Member of the Compensation Committee.
(5) Chairman of the Audit Committee and financial expert.
(6) Member of the Audit Committee.
* Independent director.
Pierre Bellon. Mr. Bellon founded Sodexho Alliance in 1966 and currently
serves as its Chairman and Chief Executive Officer. Since 1988, he has served as
Chairman and Chief Executive Officer of Bellon SA, the family holding company
that controls us, and as Chairman of its Executive Board (Board of Directors)
from 1996 until February 2002. At that time, he was appointed Chairman of the
Bellon SA Supervisory Board. Mr. Bellon has also served as National President of
the Center for Young Company Managers (formerly the Center for Young Employers)
from 1968 to 1970 and President of the National Federation of Hotel and
Restaurant Chains from 1972 to 1975. He was a member of the Economic and Social
Council from 1969 to 1979 and has been a member of the Executive Council of the
National Council of French Employers (CNPF (now known as the Medef)) since 1981.
He has also served as President of the Management Improvement Association, which
he founded in 1987, and as a member of the Board of the National Association of
Joint-Stock Companies. Mr. Bellon was a director of L'Air Liquide (until May
2003) and is currently a director of Pinault Printemps La Redoute. Mr. Bellon
and his children, Astrid Bellon, Sophie Clamens, Nathalie Szabo and
Francois-Xavier Bellon, hold 54.9% of the shares in Bellon SA, which holds a 39%
economic interest in Sodexho Alliance as of November 30, 2003.
Remi Baudin. Before helping Pierre Bellon to create Sodexho Alliance, Mr.
Baudin took part in a number of foreign projects for the management consultant
company SEMA from 1957 to 1965. He reorganized and managed its ship supply
business (1965-1969), then created a joint venture with Sonatrach in the Remote
Sites business and headed the two companies' joint subsidiary in Algeria
(1969-1970). He successively managed the Food and Management Services France
division and started up operations in Belgium (1971-1976); the France and Africa
division, overseeing start-ups in Cameroon, Nigeria, Ivory Coast, Angola, Benin,
Guinea, Algeria and Libya (1977-1982); and the Food and Management Services
France and Europe division (1982-1992). Mr. Baudin is also President of FERCO,
the European food services confederation, which he founded in 1988. He was
Chairman of the Bellon SA Supervisory Board from 1996 until February 2002 and
currently serves as its Vice Chairman.
Astrid Bellon. Astrid Bellon is a member of the Executive Board of Bellon
SA. Since 1999, Ms. Bellon has worked in the field of audio-visual production,
and in 2001, she created the company "Les Films d'a Cote," in which she is also
a shareholder. Astrid Bellon is the daughter of Pierre Bellon.
Bernard Bellon. Mr. Bellon was Director of Compagnie Hoteliere du Midi (a
member of the Compagnie de Navigation Mixte Group) from 1962 to 1970 and then
held various managerial positions in banking at CIC-Banque de Union Europeenne
Group from 1970 to 1988. In 1988, he founded Finadvance SA, a venture capital
company, and has since served as its Chairman. He also serves as a member of the
Bellon SA Supervisory Board and a director of Perfin SA, CIC France and Allios
Industrie. Bernard Bellon is the brother of Pierre Bellon.
Francois-Xavier Bellon. Francois-Xavier Bellon began his career in the
temporary employment business as an agency manager for Adia France (1990-1991)
and then for Ecco in Barcelona, Spain, where he was promoted to Sales and
Marketing Director and Regional Director for Catalonia (1993-1995). He joined
the Group in September 1995, initially as segment manager and later as
development manager for the Healthcare segment in France. He is a member of the
Executive Board of Bellon SA and since 1999 has served as the Chief Operating
Officer of Sodexho Mexico. Francois-Xavier Bellon is the son of Pierre Bellon.
Sophie Clamens. From 1985 to 1987, Ms. Clamens was employed by Credit
Lyonnais in New York as a mergers and acquisitions advisor for the bank's French
clientele. She later worked as a sales agent for a number of leading European
fashion houses, including Chanel, Valentino, Ungaro and Armani. Ms. Clamens
joined the Group's finance department in 1994, initially as a development
analyst and later responsible for strategic financial planning. Since 2002, she
has been Manager of Strategic and Management Control. Ms. Clamens became
Chairman of the Executive Board of Bellon SA in 2002. Ms. Clamens is the
daughter of Pierre Bellon.
Paul Jeanbart. Mr. Jeanbart is a co-founder, partner and, since 1967, the
Chief Executive Officer of the Rolaco Group. He also serves as Chairman of Oryx
Merchant Bank Limited, Chairman of the Board of Directors of Hotels
Intercontinental Geneve, Managing Director of Rolaco Holding SA and is a member
of the Semiramis Hotel Co., Delta International Bank, NASCO Insurance Group, and
XL Capital Limited Boards of Directors and the Club Mediterranee SA Supervisory
Board. Mr. Jeanbart is a citizen of Canada.
Charles Milhaud. Mr. Milhaud joined the Caisse d'Epargne in 1964. In 1983,
he became Directeur General of the Caisse d'Epargne des Bouches du Rhone et de
la Corse as well as a Member of the Supervisory Board of the Centre National des
Caisses d'Epargne (CENCEP). In 1995, he was named Vice President of the Board of
Directors of the Caisse Centrale des Caisses d'Epargne. When the two entities
merged in 1999 to form the Caisse Nationale des Caisses d'Epargne (CNCE), Mr.
Milhaud was named President of the Directoire, a position he currently holds.
Mr. Milhaud is also Vice President of the Board of Directors of Eulia Compagnie
Financiere, President of the Supervisory Councils of Credit Foncier de France
and Financiere Oceor, Member of the Supervisory Board of CNP Assurance, and
member of the Boards of Directors of Sopassure and the Banque Internationale des
Mascareignes. He is a permanent representative of the CNCE to the Boards of the
Banque de Tahiti, Holassure, the Banque des Iles Saint-Pierre-et-Miquelon, the
Banque des Antilles Francaises, Credit Saint-Pierrais, the Banque de la Reunion,
the and the Banque de Nouvelle-Caledonie.
Francois Perigot. After serving as Chairman and Chief Executive Officer of
Thibaud Gibbs et Compagnie from 1968 to 1970, Mr. Perigot successively held the
positions of Chairman and Chief Executive Officer Unilever Spain and Chairman
and Chief Executive Officer Unilever France (1971-1986). From 1986 to 1998, he
was Chairman of Compagnie du Platre, and from 1988 to 1998 he served as Vice
Chairman and later Chairman of UNICE, the European union of employer and
industry confederations. Mr. Perigot has also served as a president of the
Enterprise Institute (1983-1986), a president of the National Council of French
Employers (1986-1994), a member of the Executive Committee of the International
Chamber of Commerce (1987-1989) and a member of the Economic and Social Council
(1989-1999). He has been President of the Franco-Dutch Chamber of Commerce since
1996, President of MEDEF International since 1997 and President of the
International Employers Organisation since June 2001. He currently serves as a
director of Astra Calve, Lever, CDC Participations and Sabate-Diosos.
Edouard de Royere. After working as an authorized representative with power
of attorney for Credit Lyonnais and as Director of Union Immobiliere et
Financiere, Mr. de Royere joined L'Air Liquide in 1966. He successively held the
positions of General Secretary to senior management and Investor Relations
Manager, and in 1967 he was appointed Company Secretary. Mr. de Royere joined
the L'Air Liquide Board of Directors in 1971. He became Assistant Managing
Director in 1979, then Vice Chairman and Assistant Managing Director, and
finally Vice Chairman in 1982. From 1985 to 1995, he served as Chairman and
Chief Executive Officer of L'Air Liquide. In 1997, he was named Honorary
Chairman of L'Air Liquide and since 2001 he has served as a member of its
Supervisory Board. He is also Chairman of the National Association of
Joint-Stock Companies. Mr. de Royere served as a director of Danone and L'Oreal
through May 2003 and currently serves as a director of Michelin.
Nathalie Szabo. Ms. Szabo began her career in 1987 in the restaurant
industry. She served as an account manager for Scott Traiteur from 1989 and
later became sales director of Pavillon Royal. She joined the Group in March
1996 as sales director of Sodexho Prestige in France. She became sector manager
in 1999 and effective September 2003 she is the General Manager of Sodexho
Prestige. Ms. Szabo is a member of the Executive Board of Bellon SA. Ms. Szabo
is the daughter of Pierre Bellon.
H.J. Mark Tompkins. Mr. Tompkins began his career in investment banking in
1964 with Samuel Montagu & Company (now HSBC). From 1965 to 1971, he was a
management consultant with Booz Allen & Hamilton working on assignments in the
U.K., continental Europe and the U.S. He joined the Slater Walker Securities
group in 1972 and was named Chief Executive Officer of Compagnie Financiere
Haussmann, a publicly traded company in France. From 1975 through 1987, he
became active in property development, investment and management in both
residential and commercial sectors. In 1987 and subsequent years, his focus
moved to private equity and capital development in publicly traded entities,
notably in the healthcare, pharmaceutical, retail and distribution, leisure,
tourism and manufacturing sectors. He has significant experience in mergers and
acquisitions, start-ups, initial public offerings, and private and public debt
offerings. He currently serves as director of Partners Bio Projects
International Ltd and Calcitech Ltd. Mr. Tompkins is a British citizen.
Executive Officers
The table below sets forth, as of November 14, 2003, the names and dates of
birth of our executive officers, which include Pierre Bellon as Chairman and
Chief Executive Officer and the members of our Executive Committee. Albert
George, who had been appointed President and Chief Operating Officer of Sodexho
Alliance on February 20, 2000, resigned his position for health reasons in June
2003. In accordance with the recommendation of the selection committee, the
Board of Directors nominated Jean-Michel Dhenain and Michel Landel as Presidents
and Chief Operating Officers of Sodexho Alliance. In addition, two new members
of the Executive Committee were named: Richard Macedonia, Chief Operating
Officer, North America, and Vincent Hillenmeyer, Senior Vice President,
Strategic Planning and Control.
Name Date of Birth Position
Pierre Bellon 1/24/1930 Chairman and Chief Executive Officer
Elisabeth Carpentier 5/08/1954 Senior Vice President, Human Resources
Jean-Michel Dhenain 12/10/1944 Group President and Chief Operating Officer
Chief Executive Officer, Continental Europe
Sian Herbert-Jones 9/13/1960 Chief Financial Officer
Vincent Hillenmeyer 7/16/1966 Senior Vice President, Strategic Planning
and Control
Michel Landel 11/07/1951 Group President and Chief Operating Officer
Chief Executive Officer, North America
Richard Macedonia 9/21/1943 Chief Operating Officer, North America
Clodine Pincemin 7/20/1952 Senior Vice President, Corporate
Communications
Elisabeth Carpentier. Ms. Carpentier joined us in 1981 as Director of Hiring
and Placement. From 1994 to 1998, she served as Human Resources Director for
our Food and Management Services subsidiary in France. In January 1998, she was
appointed Senior Vice President, Corporate Human Resources. Ms. Carpentier has
both a law diploma and a post-graduate degree in human resources management.
Jean-Michel Dhenain. Mr. Dhenain joined us in 1972, where he served as
Regional Director, Departmental Director and then Sales Director. He then headed
the Hospitals-Clinics division before moving to our French healthcare subsidiary
in 1987 and our French schools-universities subsidiary in 1991. Mr. Dhenain is
currently our Chief Executive Officer - Continental Europe. He has supervised
operations in Continental Europe since April 30, 1998 and is the Market Champion
for Healthcare. Mr. Dhenain has a degree in law and economics from the
University of Dijon, France.
Sian Herbert-Jones. Ms. Herbert-Jones began her career in Corporate Finance
with Price Waterhouse in London and Paris from 1982 to 1995, where she served,
notably, as Director in the Mergers and Acquisitions department. While at Price
Waterhouse, she played an active role in our acquisition of Gardner Merchant in
1995. Ms. Herbert-Jones joined us in 1995 and was appointed Treasurer in 1998,
Deputy Chief Financial Officer in October 2000 and Chief Financial Officer in
November 2001. She holds an M.A. in History from Oxford University and is a
Chartered Accountant in England and Wales.
Vincent Hillenmeyer. Mr. Hillenmeyer is the Senior Vice President for
Strategic Planning and Control. He began his career in 1988 with Arthur
Andersen. After joining Sodexho in 1991, he served as Remote Sites Finance
Manager in Cameroon, then in 1993 as District Manager for Sodexho France,
Business and Industry, in 1995 as Financial Analyst for Sodexho France, Business
and Industry, and in 1998 as Paris-Ile de France Regional Director, Large
Accounts. In 2000, he was appointed Vice President, Special Projects,
Information Systems, for Sodexho, Inc. In October 2001, he was promoted to
Corporate Vice President Planning. He earned a degree in 1988 from HEC, one of
France's leading business schools.
Michel Landel. Mr. Landel has served as President, Chief Executive Officer,
and a member of the Board of Directors of Sodexho, Inc. (formerly SMS) since May
1999. Mr. Landel joined us in 1984 as Chief Operating Manager for Eastern
Africa, Libya and Algeria. Mr. Landel served as President and Chief Executive
Officer of Sodexho North America (known now as Sodexho, Inc.) from 1989 to 1998.
He was appointed an Executive Vice President of Sodexho, Inc. in 1998 and was
also appointed President, Corporate Services, in June 1998. Mr. Landel currently
serves as Chief Executive Officer - North America, and is the Market Champion
for Business and Industry (and prior to April 22, 2002, for Education). He has a
degree in business and management from the European Business School.
Richard "Dick" Macedonia. Mr. Macedonia is the Executive Vice President and
Chief Operating Officer of Sodexho, Inc. Before being named COO in 2003, Mr.
Macedonia most recently was the president for Sodexho's Health Care Services
Division. Mr. Macedonia began his career with the company in 1968 as a unit
manager in the Campus Services Division, and joined Health Care Services in
1975. He has held positions throughout the divisions including district manager,
vice president of marketing and sales, and vice president of business
development. Mr. Macedonia is a graduate of Indiana University of Pennsylvania,
Indiana, PA. He is a corporate member of both the Health Insights Foundation and
the Hospital Research and Development Institute.
Clodine Pincemin. Ms. Pincemin joined us in 1974. She was later appointed
to head public relations and then communications for France. Since 1991, she has
held the position of Senior Vice President, Corporate Communications. Ms.
Pincemin has a degree in French literature.
B. Compensation
During fiscal 2003, members of our Board of Directors received total fees,
compensation and benefits from Sodexho Alliance and related companies as
follows.
Sodexho Alliance
Board meeting
Name fees Bellon S.A.(3) Total(1)
(in euro)
Pierre Bellon 12,800 330,480 646,372(1)
Remi Baudin 12,800 1,500 14,300
Astrid Bellon 6,400 53,400 59,800
Bernard Bellon 6,400 1,500 7,900
Francois-Xavier Bellon 6,400 112,900 256,773
Sophie Clamens 12,800 122,000 134,800
Patrice Douce(2) 3,200 32,260 35,460
Paul Jeanbart 12,800 12,800
Charles Milhaud 3,200 3,200
Francois Perigot 12,800 12,800
Edouard de Roy 12,800 12,800
Nathalie Szabo 6,400 67,900 106,608
H.J. Mark Tompkins 9,600 9,600
(1)Amount includes Board meeting attendance fees paid by Sodexho Alliance as
well as all compensation and benefits of any kind paid with respect to
responsibilities with Bellon SA and Sodexho Alliance.
(2)Director until February 4, 2003.
(3)Compensation with respect to responsibilities with Bellon SA.
As a matter of French law, until January 24, 2001 we could not grant
options to non-employee members of our Board of Directors.
Compensation for our executives is comprised of a fixed salary, a
performance bonus tied to the achievement of annual objectives, and benefits.
For fiscal 2003, the aggregate compensation received by members of the Executive
Committee was EUR 2,682,582, which included base pay totaling EUR 1,848,557
and variable pay totaling EUR 834,025. The members of the Executive Committee
also received options to purchase a total of 254,000 Sodexho Alliance shares. On
June 13, 2003, the membership of our Executive Committee changed, and the
Committee now has two more members than it did at the end of fiscal 2002. For
this reason, the total compensation figure described above may not be comparable
to the aggregate figure for fiscal 2002. During fiscal 2003, the total
compensation paid to the Group Chief Operating Officers was as follows:
Fixed Variable
Group Chief Operating Officer compensation compensation Total
(amounts in euro)
Jean-Michel Dhenain 284,564 149,732 434,296
Michel Landel 538,598 309,075 847,673
Albert George 252,671 158,795 411,466
The table below provides certain information regarding the options to
purchase our common shares granted to executive officers.
Date of Plan Amount(1) Exercise Price per Share Expiration Date
January 24, 2001 25,767 EUR 48.42 January 23, 2006
January 11, 2002 46,500 EUR 47.00 January 10, 2007
January 11, 2002 60,000 EUR 47.00 January 10, 2008
January 27, 2003 254,000 EUR 24.00 January 28, 2009
(1) These amounts have been adjusted retroactively, where appropriate, to
reflect the four-for-one stock split effective March 7, 2001 and the rights
offering on July 4, 2001.
During fiscal 2003, we and our subsidiaries recorded total charges of
EUR 25 million for pension, retirement and similar benefits and, as of August
31, 2003, we and our subsidiaries had accrued a total of EUR 147 million for
these items.
C. Board Practices
Our Board of Directors has 12 members. Directors are chosen for their
ability to take the interests of all shareholders into account and for their
recognized expertise in areas that are strategic to the company, such as
international expansion, innovation, finances or services. The Board of
Directors periodically reviews operations, on-going business and special
transactions, defines corporate strategy, closes our interim and annual
accounts, prepares shareholders' meetings, designates corporate officers to
implement strategy and monitors the quality of information provided to
shareholders and financial markets.
Senior executives of the company regularly inform the Board of the
resources used in their respective businesses to implement the strategy defined
by the Executive Committee and approved by the Board. The Board is assisted in
its strategic thinking by three ad hoc committees:
o the Selection Committee for Board members and corporate officers, which
examines the Chairman's proposals, prepares recommendations to present to
the Board and keeps an up-to-date, confidential list of potential
replacements in case a position becomes vacant;
o the Compensation Committee, which proposes compensation packages for
corporate officers and senior executives, including stock option plans; and
o the Audit Committee, which prepares and monitors internal accounting
procedures, supervises the application of Group financial, legal and
accounting rules, proposes changes to accounting procedures, recommends the
appointment and fees of our external auditors and approves their audit and
non-audit services, communicates with our internal and external auditors and
reports on such matters to the rest of our Board.
The Selection committee is chaired by Francois Perigot with the assistance
of Pierre Bellon, Edouard de Royere and Remi Baudin. The Selection committee met
three times during fiscal 2003 and reviewed matters including succession
planning for Mr. Bellon, the replacement of Mr. George for health reasons, the
assessment of directors' independence, and the replacement of an outgoing
director whose term was expiring.
The Compensation committee is chaired by Remi Baudin, who is also Vice
Chairman of the Board of Directors, with the assistance of Pierre Bellon and two
non-executive directors, Francois Perigot and Edouard de Royere. The
Compensation committee met three times during fiscal 2003 and reviewed matters
including the feasibility of a new Employee Savings plan, new stock option plans
and revised rules, management retirement benefit plans and related comparisons
between France, the United Kingdom, and the United States, and compensation
packages for the Chairman and Chief Executive Officer and the President and
Chief Operating Officer.
The Audit Committee is chaired by Edouard de Royere, a financial expert,
with the assistance of Paul Jeanbart and Mark Thompkins. Ms. Clamens and Mr.
Baudin are invited to attend the Audit Committee meetings but are not members.
Our external auditors report to the Audit Committee twice annually on their
activity and planned actions. The Chairman of the Audit Committee reports to the
Board after each Audit Committee meeting. The Audit Committee met three times
during fiscal 2003 to discuss various issues which included the recruitment of a
senior executive to head the internal audit department, the company's accounting
for retirement plan obligations, the impact of International Financial Reporting
Standards (IFRS) on the consolidated financial statements and management's
initiative to evaluate internal control procedures in order to comply with the
recent French "Loi sur la Securite Financiere" and rules adopted by the SEC
pursuant to Section 404 of the Sarbanes-Oxley Act in the United States. The
Audit Committee also approved the Internal Audit plan for fiscal 2004 and
implemented a procedure for its pre-approval of audit and non-audit engagements
of the company's external auditors and their affiliates.
The Board of Directors met nine times during fiscal 2003.
There are no service contract termination benefits for Directors as such
benefits are forbidden by French law.
D. Employees and Labor Relations
As of August 31, 2003, we had 308,385 employees worldwide. The table below
shows the number of employees of our company and our subsidiaries by geographic
zone as of August 31, 2003, 2002 and 2001.
August 31,
2003 2002 2001
North America.................. 119,009 117,689 120,147
United Kingdom and Ireland..... 51,843 61,835 63,142
France......................... 30,465 30,477 29,051
Rest of Europe................. 49,897 49,438 47,467
Rest of the World.............. 57,171 55,702 53,662
------- ------- -------
Total Number of Employees...... 308,385 315,141 313,469
======= ======= =======
Following is a breakdown of our employees by category as of August 31,
2003, 2002 and 2001.
August 31,
2003 2002 2001
Executives and middle
management.................... 6,137 5,759 7,065
Establishment managers
and supervisory staff......... 33,173 25,614 32,677
Front line service
staff and other............... 269,075 283,768 273,727
------- ------- -------
Total Number of Employees...... 308,385 315,141 313,469
======= ======= =======
Some of our employees are members of local or national trade unions, and,
consequently, we have entered into various collective bargaining agreements.
Pursuant to regulations in certain countries across Europe, especially in France
and Belgium, various committees which represent employees meet on a regular
basis. These committees are informed about and consulted on pertinent employee
matters. Salaries, working conditions and other employment matters are
negotiated with trade unions every year. It is our practice to renew or replace
our various employee and collective bargaining agreements as and when they
expire, and we are not aware of any material agreements which are not expected
to be satisfactorily renewed or replaced in a timely manner. A relatively small
number of our employees worldwide are subject to collective bargaining
agreements, and we do not believe that a failure to renew our collective
bargaining agreements on terms similar to those we have now would have a
material adverse effect on our financial condition or results of operations.
Because we are a service company, though, we are highly dependent upon the
availability of hourly or part-time wage and skilled employees. Thus, severe
shortages in the supply of these employees at times of high demand for their
services could materially impact our operating performance.
In France, recent legislation on working week reduction to 35 hours led to
wide-ranging discussions with employee representatives on issues such as
workplace organization, time management, flexibility and customer service.
We have not experienced any significant work disruptions or conflicts in
the last few years, and we consider our relationship with our employees to be
satisfactory.
E. Share Ownership
Collectively, members of the Board of Directors and the Executive Committee
directly own less than 0.5% of our outstanding capital stock. Pierre Bellon and
his children, Astrid Bellon, Francois-Xavier Bellon, Sophie Clamens and Nathalie
Szabo, collectively own an economic interest of approximately 55% (representing
a voting interest of approximately 71%) in Bellon SA, which, as of November 30,
2003, owns an economic interest of approximately 39% (representing a voting
interest of approximately 39%) in us. This difference between voting and
economic interests in Sodexho is attributable to the fact that a double voting
right is granted to all holders of fully-paid registered shares when those
shares have been registered for more than four years in the name of the same
shareholder, as described in "Item 10.B. Additional Information--Memorandum and
Articles of Association." As of November 30, 2003, 5,269,400 of the shares owned
by Bellon SA had double voting rights. Bernard Bellon, who is Pierre Bellon's
brother, and members of his family own, as of November 30, 2003, an economic
interest of approximately 13% in Bellon SA. The table below sets forth share
ownership information, exclusive of these indirect interests, for these
individuals and for Bellon SA as of November 30, 2003.
Number of
Name Shares Owned
Bellon SA.................................... 61,286,881(1)
Pierre Bellon................................ *(2)
Remi Baudin.................................. *(2)
Astrid Bellon................................ *(2)
Bernard Bellon............................... *(2)
Francois-Xavier Bellon....................... *(2)
Sophie Clamens............................... *(2)
Patrice Douce................................ *(2)
Paul Jeanbart................................ *(2)
Francois Perigot............................. *(2)
Edouard de Royere............................ *(2)
Nathalie Szabo............................... *(2)
H.J. Mark Tompkins........................... *(2)
Elisabeth Carpentier......................... *(2)
Jean-Michael Dhenain......................... *(2)
Albert George................................ *(2)
Sian Herbert-Jones........................... *(2)
Michel Landel................................ *(2)
Clodine Pincemin............................. *(2)
(1)Pierre Bellon owns .01% of the outstanding shares of Bellon SA; Astrid
Bellon, Francois-Xavier Bellon, Sophie Clamens and Nathalie Szabo each own
an economic interest of 13.72% in Bellon SA. At any ordinary shareholders'
meeting of Bellon SA, Pierre Bellon has a voting interest of 62.7% and each
of Astrid Bellon, Francois-Xavier Bellon, Sophie Clamens and Nathalie Szabo
has a voting interest of 2%. At any extraordinary meeting, Pierre Bellon
has a voting interest of .01% and each of Astrid Bellon, Francois-Xavier
Bellon, Sophie Clamens and Nathalie Szabo has a voting interest of 17.7%.
Bernard Bellon owns an economic interest of 21% in Bellon SA. At any
ordinary shareholders' meeting, Bernard Bellon has a voting interest of
16.5%. At any extraordinary meeting, Bernard Bellon has a voting interest
of 2.8%. Bellon SA is the beneficial owner of approximately 39% of our
outstanding shares.
(2)Indicates beneficial ownership of less than 1% of the shares outstanding.
As of November 30, 2003, members of our Board of Directors and Executive
Committee held, in the aggregate, options to acquire 596,814 shares of our
common stock. The following table lists the amounts, exercises prices and
expiration dates of options held by these individuals at that time.
Exercise Price
Name Amount(1) per Share Expiration Date
Pierre Bellon - - -
Remi Baudin(2) - - -
Astrid Bellon(2) - - -
Bernard Bellon(2) - - -
Francois-Xavier Bellon(2) - - -
Sophie Clamens(2) - - -
Patrice Douce(2) - - -
Paul Jeanbart(2) - - -
Francois Perigot(2) - - -
Edouard de Royere(2) - - -
Nathalie Szabo(2) - - -
H.J. Mark Tompkins - - -
Elisabeth Carpentier 19,631 EUR 38.17 December 10, 2003
4,172 EUR 39.86 January 24, 2005
5,317 EUR 48.42 January 23, 2006
10,000 EUR 47.00 January 10, 2007
35,000 EUR 24.00 January 26, 2009
Jean-Michel Dhenain 8,221 EUR 39.86 January 24, 2005
10,225 EUR 48.42 January 23, 2006
15,000 EUR 47.00 January 10, 2007
43,000 EUR 24.00 January 26, 2009
Albert George 16,359 EUR 27.11 December 12, 2003
10,306 EUR 39.86 January 24, 2005
14,314 EUR 48.42 January 23, 2006
31,000 EUR 47.00 January 10, 2007
80,000 EUR 24.00 January 26, 2009
Sian Herbert-Jones 6,135 EUR 39.86 January 24, 2005
6,135 EUR 48.42 January 23, 2006
15,000 EUR 47.00 January 10, 2007
40,000 EUR 24.00 January 26, 2009
Vincent Hillenmeyer 982 EUR 39.86 January 24, 2005
4,000 EUR 47.00 January 10, 2008
17,000 EUR 24.00 January 26, 2009
Michel Landel 16,359 EUR 27.11 December 12, 2003
30,000 EUR 47.00 January 10, 2008
60,000 EUR 24.00 January 26, 2009
Dick Macedonia 26,000 EUR 47.00 January 10, 2008
40,000 EUR 24.00 January 26, 2009
Clodine Pincemin 3,068 EUR 39.86 January 24, 2005
4,090 EUR 48.42 January 23, 2006
6,500 EUR 47.00 January 10, 2007
19,000 EUR 24.00 January 26, 2009
--------
Total 596,814
========
(1)These numbers have been adjusted retroactively, where appropriate, to reflect
the four-for-one stock split effective March 7, 2001 and the rights offering
on July 4, 2001.
(2)Until January 24, 2001, we were not permitted under French law to grant
options to members of the Board of Directors (other than the Chairman of the
Board) who are not employees.
Our Board of Directors recently approved four Sodexho Alliance Stock Option
Plans. The granting of stock options to our employees under these plans had been
previously approved by our shareholders at our Extraordinary Shareholders'
Meeting of February 21, 2000. The first three plans were approved on January 27,
2003 and the fourth plan on June 12, 2003. The exercise price for these plans is
EUR 24.00. Options under these plans will be valid from the grant date through
January 26, 2009. Under the January 27, 2003 plans, 25% of the options granted
vest and become exercisable on each anniversary of the grant date, such that the
entire option is vested after four years on January 27, 2007. Options under
these plans, totaling 2,917,800, were granted to 1,344 employees. Under the June
12, 2003 plan, 25% of the options granted vest and become exercisable on January
27 of each year such that the entire option is vested on January 27, 2007.
Options under this plan, totaling 84,660, were granted to nine employees. No
options granted under these plans may be transferred by the optionholder other
than by will or the laws of intestacy. Stock options under these four plans are
governed by the laws of France (specifically, articles L225.177 through L225.185
of the French Code de Commerce). Any Sodexho Alliance shares or Sodexho Alliance
shares underlying any American Depositary Shares to be delivered to Sodexho,
Inc. optionholders will be purchased by Sodexho Alliance on the open market.
Our Board of Directors approved two Sodexho Alliance Stock Option Plans
prior to December 31, 2002. The granting of stock options to our employees under
these plans had been previously approved by our shareholders at our
Extraordinary Shareholders' Meeting of February 21, 2000. The first plan was
approved on September 17, 2002. Options under this plan, totaling 12,000, were
granted to a single newly hired employee and will be valid from September 17,
2002 to March 31, 2008. The options vest in full on April 1, 2006 and may be
exercised between April 1, 2006 and March 31, 2008 with an exercise price of
EUR 47.00. The second plan was approved on October 10, 2002. Options under
this plan, totaling 3,220, were granted to 46 employees and will be valid from
October 10, 2002 to October 10, 2007. The options vest in full on October 10,
2006 and may be exercised between October 10, 2006 and October 10, 2007 with an
exercise price of EUR 21.87. For both plans, if an optionholder terminates his
or her employment due to disability, retires or dies, his or her options will
vest in proportion to the time he or she has been continuously employed by us.
For both plans, no options granted under this plan may be transferred by the
optionholder other than by will or the laws of intestacy. Stock options granted
under both plans are governed by the laws of France (specifically, articles
L225.177 through L225.185 of the French Code de Commerce). Any Sodexho Alliance
shares or Sodexho Alliance shares underlying any American Depositary Shares to
be delivered to Sodexho, Inc. optionholders will be purchased by Sodexho
Alliance on the open market.
Our Board of Directors approved the Sodexho Alliance Stock Option Plan A on
January 11, 2002. The granting of stock options to our employees under this plan
had been previously approved by our shareholders at our Extraordinary
Shareholders' Meeting of February 21, 2000. Options under this plan will be
valid from January 11, 2002 to January 10, 2007 and will be granted to our
employees primarily located outside of the United States. The options granted
under Plan A vest in full four years from the date of grant and may be exercised
between January 11, 2006 and January 10, 2007. If an optionholder terminates his
or her employment due to disability, retires or dies, his or her options will
vest in proportion to the time he or she has been continuously employed by us.
No options granted under this plan may be transferred by the optionholder other
than by will or the laws of intestacy. Approximately 475 of our employees were
granted options pursuant to this plan. Plan A stock options are governed by the
laws of France (specifically, articles L225.177 through L225.185 of the French
Code de Commerce).
On January 11, 2002, our Board of Directors approved the Sodexho Alliance
Stock Option Plan B, under which options will be granted to employees of
Sodexho, Inc. and its affiliates. The issuance of shares to our employees under
this plan had been previously approved by our shareholders at our Extraordinary
Shareholders' Meeting of February 21, 2000. Options in Sodexho Alliance shares
granted under this plan vest in full four years from the date of grant, and
optionholders may exercise the options they receive during the two-year period
between January 11, 2006 and January 10, 2008. If an optionholder terminates his
or her employment due to disability, retires or dies, his or her options will
vest in proportion to the time he or she has been continuously employed by us.
No options granted under this plan may be transferred by the option holder other
than by will or the laws of intestacy. Approximately 772 of our employees were
granted options pursuant to this plan. Any Sodexho Alliance shares or Sodexho
Alliance shares underlying any American Depositary Shares to be delivered to
Sodexho, Inc. optionholders will be purchased by Sodexho Alliance on the open
market.
At the Extraordinary Shareholders' Meeting of February 13, 1996, our
shareholders renewed the authorization given to our Board at the February 23,
1993 Extraordinary Shareholders' Meeting to issue shares to our employees
through an employee stock ownership plan, the InterEnterprise Mutual Fund.
Pursuant to this authorization, our Board of Directors has approved a separate
stock ownership plan in each of the years between 1996 and 1999, inclusive,
funded through market repurchases of our shares on the Paris Bourse. In December
2000, the Board authorized new issuances of shares to employees participating in
our international employee stock ownership plan.
In addition, in 2001 we created the Sodexho Alliance International Employee
Stock Ownership Plan in which approximately 150,000 employees of Sodexho
Alliance and Sodexho Alliance's majority-owned subsidiaries were eligible to
participate. This plan was open for cash contributions from April 23, 2001 until
September 19, 2001, and it offered two options to subscribe for shares. The
first, called Alliance Plus, allowed employees to invest up to 2.5% of their
gross annual pay. Each cash contribution was matched on a non-recourse basis by
an unaffiliated bank with an additional contribution equal to nine times the
employee's investment to be used towards the purchase of additional shares. If
the stock appreciates in value during the term of the plan, the employees repay
the matching funds to the bank and a portion of the stock's appreciation from
the proceeds of the sale of the stock. If the stock depreciates in value, the
employee is not responsible for reimbursing the bank for its loss. Under the
second plan, called Alliance Classic, employees were given the option of
investing up to 25% of their gross annual compensation towards the purchase of
shares at a discount to fair market value. The two plans were not mutually
exclusive, and employees could select a combination of the two for investment.
Under both plans, employee investments cannot be withdrawn without penalty for a
period of five years from the time of investment. The employee in both cases
benefited from a discount of up to 20% of the fair market price of our shares at
the time the shares were issued. On October 18, 2001, the Board of Directors
issued 1,385,848 shares with a par value of EUR 4 each and an issue price of
EUR 44.10 per share for United States employees and EUR 41.51 for other
employees.
As of August 31, 2003, 34,599 employees held 2,691,809 Sodexho Alliance
shares, representing 1.7% of the outstanding shares of Sodexho Alliance.
Certain members of management have been granted options to purchase Sodexho
Alliance shares repurchased by us in the open market or funded through future
issuances. Options in Sodexho Alliance shares granted under our plans vest in
full five years from the date of grant, except for the December 11, 1997 grant,
which vests in full six years after the date of grant and Plan A and Plan B,
which vest in full four years after the date of grant. In general, if an
optionholder dies during his or her employment, such person's options may be
exercised up to six months after his or her death to the extent vested at the
time of his or her death or termination. Options granted pursuant to Board
resolutions of January 25, 2000, April 4, 2000 and February 21, 2001, however,
provide that if an optionee dies, such person's vested options may be exercised
between March 1, 2005 and January 23, 2006 only (and not in the six months
following such person's death). No option may be transferred by the optionee
other than by will or the laws of intestacy. In any event, all options must be
exercised within one year of vesting.
Prior to our acquisition of the portion of SMS we did not already own in
June 2001, approximately 6.4 million SMS stock options had been granted under
the SMS 1998 Stock Incentive Plan, 2.7 million of which were vested and 3.7
million of which were unvested at the time of the acquisition. Under the terms
of this plan, SMS stock options were granted to officers and key employees at an
exercise price not less than the market price of SMS stock on the date of grant.
Most of the SMS options vest 25% each year during the four years following the
date of grant and expire ten years following the date of grant. If an SMS
optionholder dies during his or her employment, all such person's SMS stock
options become fully vested and may be exercised up to one year after his or her
death to the extent vested at the time of his or her death. In the event an SMS
employee is terminated, such employee's SMS stock options may be exercised up to
three months after the date of his or her termination to the extent vested at
the time of his or her termination. No SMS stock option may be transferred by
the optionee other than by will or the laws of intestacy.
Certain members of SMS's management have received restricted stock units in
connection with their employment. These units vest 25% each year during the four
years following the date of grant. If a holder of restricted stock units dies
during his or her employment, all such person's restricted stock units become
fully vested. If an employee is terminated, such employee's unvested restricted
stock units will be forfeited. No restricted stock units may be transferred by
their holder prior to conversion, as described in the following paragraph.
Pursuant to the terms of our agreement to acquire the 53% of Sodexho, Inc.
we did not already own, vested SMS stock options were cancelled in exchange for
a cash payment equal to the option spread (i.e., the difference between the
exercise price and the tender price offered by us for SMS shares), and unvested
SMS stock options were converted into the right to indirectly purchase our
ordinary shares or our ADSs. The unvested restricted stock units were converted
into the right to indirectly receive, pursuant to their vesting, our ordinary
shares or our ADSs. Any Sodexho Alliance shares or Sodexho Alliance shares
underlying any American Depositary Shares to be delivered to SMS optionholders
will be purchased by Sodexho Alliance on the open market.
As of November 30, 2003, 2,962 members of management held 7,511,997 options
to purchase Sodexho Alliance shares and 124,203 restricted stock units,
representing 4.9% of the shares of Sodexho Alliance on a fully-diluted basis.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Below is a diagram illustrating our ownership as of November 30, 2003.
There are two shareholders known to management to beneficially own 5% or more
of our shares: Bellon SA, a French company controlled by our chairman, Pierre
Bellon, and members of his family, and the Caisse de Depots et Consignations, a
French bank. As of November 30, 2003, Bellon SA beneficially owned 61,286,881
shares of the company (representing approximately 39% of our outstanding share
capital and 39% of the voting power relating to our outstanding share capital),
and Pierre Bellon and his children beneficially owned approximately 55% of the
outstanding capital stock of Bellon SA. As of the same date, Bernard Bellon and
his children owned 13% of the outstanding capital stock of Bellon SA, and
certain others owned 14% of such stock. As of the same date, Sofinsod, one of
our wholly-owned subsidiaries, held an indirect interest of approximately 5% in
Sodexho Alliance, SA through its interest of approximately 14% in Bellon SA.
Sofinsod also has an indirect interest of approximately 2% in Sodexho Alliance,
SA through its wholly owned subsidiary, Societe Financiere de la Porte Verte,
which in turn owns approximately 4% of Bellon SA. Pursuant to French law, these
shares owned by our subsidiaries are not entitled to any vote. Excluding the
Bellon SA shares owned by our subsidiaries, as of November 30, 2003, Pierre
Bellon and his children owned 67% of the outstanding capital stock of Bellon SA,
Bernard Bellon and his children owned 16% of such stock and certain others owned
17% of such stock.
To management's knowledge, there have not been any significant changes in
Bellon SA's ownership interest in the company during the past three years, and
there are no agreements granting Bellon SA or any other shareholder different
voting rights from our other shareholders. As disclosed in "Item 10.B.
Additional Information -- Memorandum and Articles of Association Relating to
Shares," a double voting right is granted to all holders of fully-paid
registered shares when those shares have been registered for more than four
years in the name of the same shareholder.
As of August 31, 2003, our shares were owned by approximately 78,153
shareholders, including approximately 34,600 people acquiring their shares
through our various employee stock ownership plans (together, our employees own
approximately 2% of our outstanding capital stock). French citizens hold
approximately 8% of our shares, while French institutional investors hold
approximately 29% of our shares. To the best of our knowledge and after having
made reasonable inquiries, as of August 31, 2003, foreign shareholders held
approximately 21% of our shares. This figure may not be entirely accurate
because we can obtain only limited information regarding the beneficial owners
of our shares.
We are not directly or indirectly owned or controlled by another
corporation, other than Bellon SA, or by any government or other natural or
legal person.
B. Related Party Transactions
To management's knowledge, since September 1, 2001 no loans have been made
by Sodexho Alliance, Bellon SA or any of their subsidiaries to or for the
benefit of key Sodexho Alliance management personnel or close members of their
families, Bellon SA, any of its affiliates or any other enterprise in which a
substantial interest in the voting power is owned, directly or indirectly, by
any of the foregoing persons or entities.
In the course of our business, we have occasionally entered into contracts
with certain of our affiliates. The material terms of those material affiliate
contracts which are currently in force or have been in force during some portion
of the last three fiscal years are described below.
On December 30, 1991, we entered into an agreement with Felix Bellon SA,
the predecessor of Bellon SA, for consulting and advisory services. The contract
renews automatically every year, but it can be terminated on three months'
notice by either party. Amounts invoiced under this contract totaled EUR 2.4
million in fiscal 2003.
In 2001, we sold our entire holding in Corrections Corporation of America
("CCA"), which resulted in an exceptional loss of EUR 3 million, net of tax
benefits. We sold our CCA shares to Latonia, an entity that is indirectly
controlled by Paul Jeanbart, one of our directors. We sold the CCA shares for
EUR 8,718,339. Pursuant to the terms of the purchase and sale agreement,
Latonia paid us an additional amount totaling EUR 28.6 million upon resale of
some of the shares in May 2003.
In fiscal 2003, Mr. Douce invoiced Sodexho Alliance EUR 32,260 for
services rendered as a speaker at Sodexho Management Institute.
In fiscal 2003, Sodexho Alliance acquired the remaining 23.16% of the
shares of Sodexho Pass do Brazil from its minority shareholders, including
Bellon S.A., for EUR 27.6 million.
A list of Sodexho Alliance, SA's intercompany loans, advances, deposits and
guarantees outstanding as of August 31, 2003 is provided below.
Amount of
deposits
Loans and and Largest
advances guarantees amount
given and given and outstanding Total Amount
outstanding outstanding as of each outstanding
as of as of of August 31, as of
August 31, August 31, 2003, 2002 August31,
2003 2003 and 2001 2003
(thousands of euro)
French subsidiaries
Astilbe 8,643 0 8,643 8,643
Societe Marseillaise
de restauration et
de services 0 383 395 383
SPI 81 13,690 16,087 13,771
Holding Sogeres 7, 595 0 7,595 7,595
Sogeres 0 947 9,989 947
STNB 0 708 708 708
Other 4 0 4,151 4
Foreign subsidiaries
Primary Management
Aldershot 0 22,715 22,715 22,715
Universal Sodexho
Partnership 12 16,942 18,827 16,954
Harmondsworth 0 25,989 28,664 25,989
Sodexho Argentina 6 930 936 936
Universal Sodexho
Scotland 0 13,262 13,262 13,262
Saha 11 895 2,280 906
Sodexho Luxembourg 5 273 173 278
Sakhalin Support
Services 0 693 693 693
Rugby Hospitality 2003 0 2,057 2,057 2,057
Kelvin Catering Ltd 1 1,586 1,587 1,587
Universal Services
Europe Ltd 0 543 543 543
Universal Sodexho Norway 0 1,916 1,916 1,916
Sodexho Maroc 0 186 186 186
Sodexho Gabon 332 0 332 332
PT Universal Ogden
Indonesia 0 458 458 458
Other 217 6 14,153 223
Foreign affiliates
Serco Sodexho Defense
Services 0 5,584 5,616 5,584
------- ------- ------- -------
TOTAL 16,907 109,763 161,966 126,670
======= ======= ======= =======
C. Interests of Experts and Counsel
Not Applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information.
See Item 17.
Legal Proceedings
In connection with the expansion of its activities in Lebanon, Sodexho Pass
International SA (SPI), a subsidiary of Sodexho Alliance SA, acquired 40% of the
share capital of Sodexho Pass Lebanon. Prior to the commencement of operating
activities, SPI exerted its right to cancel the agreement due to a
misunderstanding with one of the partners, the manager of Sodexho Pass Lebanon.
The Lebanon partners claimed damages from SPI. On February 20, 2003, the
Arbitration Court ordered Sodexho Pass International to pay U.S. $2 million.
This ruling was final and not subject to appeal. The amount paid was expensed as
an exceptional item during fiscal 2003.
On March 8, 2001, ten current and former employees of Sodexho, Inc., the
majority of whom had worked for Marriott Management Services, Inc. (later known
as Sodexho Marriott Services, Inc., and now known as Sodexho, Inc.) filed a
lawsuit against Sodexho, Inc. in the U.S. District Court for the District of
Columbia, alleging that they and other African-American salaried employees were
discriminated against on the basis of their race. The plaintiffs' complaint
alleges unspecified damages on behalf of a class of over 2,600 current and
former employees of Sodexho, Inc. relating to the period commencing March 27,
1998 and ending on July 1, 2001,as well as reimbursement of plaintiffs' costs
and attorneys' fees. Sodexho, Inc. has denied the plaintiffs' allegations and is
vigorously defending the lawsuit. On June 25, 2002, the district court certified
the case as a class action for purposes of determining liability. Sodexho,
Inc.'s requests for permission to appeal this decision have been denied by both
the U.S. Court of Appeals for the District of Columbia and the U.S. Supreme
Court. The parties to this litigation are currently engaged in discovery and
recently, the trial judge scheduled a trial date for late 2004. A resolution of
plaintiffs' claims in their favor could have a material effect on our net
income. In fiscal 2002, a provision of U.S. $10 million (EUR 11 million at the
fiscal 2002 exchange rate and EUR 9 million as of August 31, 2003) was
recorded for defense costs anticipated in connection with this lawsuit.
We are involved in a number of other legal proceedings incidental to the
normal conduct of our business. We do not believe that liabilities relating to
the these proceedings are likely to be, in the aggregate, material to our
business or our consolidated financial position.
Dividends
We have paid dividends in each year since 1976. The payment and amount of
dividends depend on our earnings and financial condition and other factors that
our Board of Directors deem relevant. Dividends are recommended by our Board and
are then voted on by the shareholders at the shareholders' ordinary general
meeting. We have paid dividends in euro since 2000.
Dividends paid to holders of American Depositary Shares (ADSs) or Sodexho
Alliance shares who are not residents of France will generally be subject to
French withholding tax at a rate of 25%. Holders who qualify for benefits under
an applicable tax treaty and who comply with the procedures for claiming treaty
benefits may be entitled to a reduced rate of withholding tax and, in certain
circumstances, an additional payment (net of withholding tax) representing all
or part of the French avoir fiscal, or tax credit, under conditions provided for
in the relevant treaty and under French law. Investors in our ADSs or shares
should consult their own advisors with respect to the tax consequences of an
investment in ADSs or shares. For further information regarding taxation of
dividends, see "Item 10.E. Additional Information -- Taxation."
The table below sets forth, for the fiscal years indicated, the amount of
dividends declared per share excluding the French avoir fiscal and the amount of
dividends declared per share including the French avoir fiscal (before deduction
of applicable French withholding tax). Dividends declared for a given fiscal
year are paid in the following fiscal year.
Shares
Dividend per Dividend per outstanding Total
share excluding share including at the date dividend
Year(1)(2) avoir fiscal avoir fiscal of payment paid
(eur) $ (eur) $ (eur)
(in millions)
2000........... 0.56 0.50 0.84 0.75 134,350,116 75.2
2001........... 0.56 0.51 0.84 0.77 158,945,502 89.0
2002........... 0.61 0.60 0.915 0.90 159,021,416 97.0
2003........... 0.61 0.67 0.915 1.00 159,021,565 97.0
(1) Pursuant to French law, payment of dividends must be made within nine
months following the end of the fiscal year to which they relate.
(2) The amounts listed in this table have been adjusted retroactively, where
appropriate, to reflect the four-for-one stock split effective March 7,
2001.
B. Significant Changes
Not applicable.
ITEM 9. THE OFFER AND LISTING
A. Listing Details
The principal trading market for our common shares, which have a par value
of EUR 4 each, is Euronext Paris (formerly the Paris Bourse), where they
have been listed since 1983. Since 1998, our shares have been included in the
CAC 40 benchmark index of Euronext Paris. The table below sets forth, for the
periods indicated, the reported high and low prices and average daily trading
volume (in shares) for our outstanding shares on Euronext Paris and its
predecessor, the Paris Bourse (all amounts have been restated to reflect stock
splits). In accordance with the relevant European Union regulations, as of
January 1, 1999 all shares listed on Euronext Paris are traded in euro so, for
ease of reference, the table below indicates the euro prices converted at the 2
p.m. European Central Bank euro-franc exchange rate at the end of fiscal 1997
and 1998.
Our Articles of Association (statuts) provide that fully-paid common shares
may be held in either registered or bearer form at the option of the
shareholders.
Prior to the listing of our shares on the New York Stock Exchange,
effective April 3, 2002, there was no public trading market in the United States
for our shares or the ADSs. ADS trading volumes from September 1, 2002 through
November 30, 2003 were less than 2,000 shares per day.
Average daily
trading volume
Fiscal Year High Low (in shares)
EUR EUR
1999......................... 48.96 32.51 274,315
2000......................... 47.74 31.38 317,693
2001......................... 60.10 41.13 397,875
2002......................... 55.75 25.10 574,261
2003......................... 30.83 17.95 683,519
Average daily
trading volume
Fiscal Year High Low (in shares)
(euro) (euro)
2002
First Quarter............. 55.75 41.65 647,348
Second Quarter............ 48.42 42.65 439,090
Third Quarter............. 48.62 36.63 616,982
Fourth Quarter............ 38.40 25.10 593,625
2003 (euro) (euro)
First Quarter............. 30.83 18.11 744,885
Second Quarter............ 26.85 20.20 579,734
Third Quarter............. 22.56 17.95 761,906
Fourth Quarter............ 27.36 20.88 646,377
June...................... 24.49 20.88 780,738
July...................... 25.70 23.06 667,345
August.................... 27.36 24.46 489,051
September................. 28.15 23.00 701,225
October................... 24.50 21.68 759,908
November ................. 24.75 22.26 910,273
B. Plan of Distribution
Not Applicable.
C. Markets
See Item 9.A.
D. Selling Shareholders
Not Applicable.
E. Dilution
Not Applicable.
F. Expenses of the Issue
Not Applicable.
ITEM 10.ADDITIONAL INFORMATION
A. Share Capital
We have only one class of share capital, consisting of common shares with a
nominal value of EUR 4 per share. All of our outstanding shares are
fully-paid. Our Articles of Association (statuts) provide that fully-paid shares
may be held in registered or bearer form at the option of the shareholder. The
most recent survey on August 31, 2003 found 42,440 identified holders of bearer
shares and 1,114 holders of registered shares.
In accordance with French law concerning dematerialization of securities,
the ownership rights of shareholders are represented not by share certificates
but rather by book entries. We maintain a share account with Societe Generale
for all shares in registered form, which is administered by Societe Generale. In
addition, we maintain separate accounts in the name of each shareholder either
directly or, at a shareholder's request, through the shareholder's accredited
intermediary. Each shareholder account shows the name of the holder, the number
of shares held and, in the case of shares held through an accredited
intermediary, the fact that the shares are held through such intermediary.
Societe Generale, as a matter of course, issues confirmation to each registered
shareholder as to shares registered in the shareholder's account, but these
confirmations are not documents of title.
Shares held in bearer form are held on the shareholder's behalf in an
account maintained by an accredited intermediary and are registered in an
account which the accredited intermediary maintains with Societe Generale. That
account is separate from our share account with Societe Generale. Each
accredited intermediary maintains a record of shares held through it and will
issue certificates of registration for the shares it holds. Shares held in
bearer form may only be transferred through accredited intermediaries and
Societe Generale. Our statuts permit us to request that Societe Generale provide
us at any time with the identity of the holders of our shares or other
securities granting immediate or future voting rights held in bearer form and
with the number of shares or other securities so held.
Our statuts do not contain any restrictions relating to the transfer of
shares. Under French law, registered shares must be converted into bearer form
before being traded on Euronext Paris and, accordingly, must be registered in an
account maintained by an accredited intermediary. A shareholder may initiate a
transfer by giving instructions to the relevant accredited intermediary. A fee
or commission is payable to the broker involved in the transaction, regardless
of whether the transaction occurs within or outside of France. No registration
tariff is normally payable in France unless a transfer instrument has been
executed in France.
As of August 31 and November 30, 2003, our share capital, as authorized in
our statuts, was EUR 636,086,260, represented by 159,021,565 shares. Our Board
updates our statuts regularly to take into account increases in share capital
due to the issuance of shares in connection with employee stock ownership plans,
the exercise of stock options, warrants and subscription rights and any
conversion of convertible bonds. Between August 31, 2003 and November 30, 2003,
we issued no shares for these purposes.
As of August 31, 2003 and November 30, 2003, we directly owned 2,528,062
shares, roughly 1.6% of total share capital, with face value EUR 4 per share
and book value of EUR 4 per share. Sofinsod, one of our wholly-owned
subsidiaries, holds an indirect interest of approximately 5% in Sodexho
Alliance, SA through its interest of approximately 14% in the capital of Bellon
SA. Sofinsod has an indirect interest of approximately 2% in Sodexho Alliance,
SA, through its wholly owned subsidiary, La Societe Financiere de la Porte
Verte, which in turn owns approximately 4% of Bellon SA.
Equity-Linked Securities
On June 12, 2003, the Board of Directors issued 84,660 options.
On January 27, 2003, the Board of Directors issued 2,917,800 options. On
September 17, 2002, the Board of Directors issued 12,000 options. On October 10,
2002, the Board of Directors issued 3,220 options.
At the Extraordinary Shareholders' Meeting of February 13, 1996, our
shareholders authorized the Board to issue bonds with equity warrants in an
aggregate face amount not to exceed EUR 304,898,000. On May 21, 1996, the
Board approved the issue of EUR 304,898,000 in debt pursuant to this
authorization at a face value of EUR 762 per bond. Each of the 400,000 issued
bonds carried a warrant giving the right to subscribe one share of our common
stock, without preemptive subscription rights, at a price of EUR 411.61 until
June 7, 2004. Following our increase in share capital which took effect in
December 1997, each warrant entitled the holder to subscribe for 1.02 shares of
common stock for EUR 411.61. After the April 1998 bonus share issue, each
warrant entitled the holder to subscribe for 4.08 shares per warrant. Following
our four-for-one stock split effective March 7, 2001 and the capital increase in
June 2001, each warrant currently entitles the holder to 16.66 shares per
warrant. The exercise price remains unchanged at EUR 411.61. As of November 30,
2003, 374,773 warrants were still outstanding.
Changes in Share Capital
The table below indicates the changes in our share capital in the fiscal
years ending August 31, 2000, 2001, 2002 and 2003 and in the period commencing
August 31, 2003 and ending November 30, 2003, retroactively adjusted, where
appropriate, to reflect our four-for-one stock split effective March 7, 2001.
Shares
outstanding
before new Type of transaction Shares created
issue
Date
December 9, 1999 33,495,697 Exercise of warrants (4)
and stock options(71,468) 71,484
August 31, 2000 33,567,181 Exercise of stock options (1) 20,348
October 13, 2000 33,587,529 Exercise of stock options (1) 1,552
December 5, 2000 33,589,081 Exercise of stock options (1) 18,020
December 11, 2000 33,607,109 Exercise of warrants
and stock options (1) 36,524
December 15, 2000 33,643,625 Exercise of stock options (1) 36,108
January 22, 2001 33,679,733 Exercise of warrants (1) 82
March 7, 2001 33,679,815 Four-for-one stock split -
April 9, 2001 134,719,260 Exercise of warrants (1) 16
April 10, 2001 134,719,276 Exercise of warrants (1) 261,838
May 3, 2001 134,981,114 Exercise of stock options (1) 6,256
May 14, 2001 134,987,370 Exercise of warrants (1) 278
May 15, 2001 134,987,648 International Employee
Stock Ownership Plan(3) 4,728
July 4, 2001 134,992,376 Share issue(4) 22,498,729
August 24, 2001 157,491,105 Exercise of stock options (1) 23,034
August 27, 2001 157,514,139 Exercise of warrants (1) 50
August 31, 2001 157,514,189 Exercise of warrants (1) 45,465
October 18, 2001 157,559,654 International Employee
Stock Ownership Plan (3) 1,385,848
December 10, 2001 158,945,502 Exercise of stock options (1) 4,173
December 18, 2001 159,949,675 Exercise of warrants (1) 2,499
January 11, 2002 158,952,174 Exercise of stock options (1) 8,180
January 31, 2002 158,960,354 Exercise of warrants (1) 16
February 25, 2002 158,960,370 Exercise of stock options (1) 5,726
February 28, 2002 158,966,096 Exercise of warrants (1) 51,230
April 17, 2002 159,017,326 Exercise of stock options (1) 4,090
October 1, 2002 159,021,416 Exercise of warrants (1) 149
(1)Please see our disclosure in this Annual Report on Form 20-F regarding our
options and warrants.
(2) The cash increase in issued capital was made in
order to obtain a EUR 16 per share par value for the outstanding shares
due to rounding.
(3)Please see our description of the Sodexho Alliance International Employee
Stock Ownership Plan described in "Item 6.E. Directors, Senior Management
and Employees--Share Ownership" for the terms of this plan. These shares
were issued to employees at a discount of 15% to 20%, depending upon the
jurisdiction in which the shares were issued to our employees, from the
fair market value of the shares at the time of issuance.
(4)We raised EUR 1.0 billion by issuing 22,498,729 new shares to our existing
shareholders for cash. Pursuant to the terms of the offering, each of our
shareholders was entitled to purchase one share for every six shares held by
such shareholder at the time of the offering, at a price of EUR 45 per
share.
Authorizations
At the Extraordinary Shareholders' Meeting of February 4, 2003, our
shareholders authorized the Board to increase our issued capital on one or more
occasions, at any time over the 26 month period from such date, by issuing
common shares, warrants and share equivalents with or without preemptive
subscription rights. The shareholders authorized these issuances to be funded in
cash or by capitalizing reserves. The issuances of capital are subject to the
following restrictions: share issues funded with cash may not exceed an
aggregate par value of EUR 175,000,000 at any one time; issues of debt
securities may not have the effect of increasing our indebtedness by more than
EUR 1,200,000,000; and the aggregate par value of share issues funded by
capitalizing reserves may not exceed the amount of treasury reserves. Our
shareholders also authorized the Board of Directors to repurchase shares of our
stock for a period of 18 months following the meeting. The terms of this
repurchase program have been approved by the French Commission des Operations de
Bourse. Pursuant to this authorization, we purchased 969,740 shares on the open
market in fiscal 2003. The maximum purchase price authorized for each share was
EUR 50.00, and the maximum number of shares to be repurchased is an amount
equal to 10% of the issued shares or the limits specified by law.
B. Memorandum and Articles of Association
The following summary contains a description of the material provisions of
our Articles of Association (statuts), which does not purport to be complete and
is qualified in its entirety by reference to our statuts, an English translation
of which is attached hereto as an exhibit, and French company law.
Registration and Corporate Purpose
Sodexho is a societe anonyme a Conseil d'Administration, a form of limited
liability company established under French law. Our bylaws were registered in
Versailles, France on December 31, 1974 under the number 301,940,219, Code APE
741 J.
Our objects and purposes are set out in Article 2 of our statuts. These include
o studying and providing all services in connection with the organization of
catering;
o operating restaurants, bars, hotels and any business related to catering, the
hotel industry, hotel services, tourism, leisure;
o providing, in whole or in part, the services required for the operation,
maintenance and management of office, commercial, industrial, leisure, health
and educational establishments and buildings, and providing services
connected with the operation and maintenance, in whole or in part, of
facilities associated with the foregoing;
o providing installation, maintenance, repair and replacement services related
to any type of facility;
o providing consultancy services and studying the economic, financial and
technical aspects of all projects and services connected with the operation
or organization of the above-mentioned businesses and, specifically, all
transactions involving advice relating to the operation or organization of
the above-mentioned businesses;
o creating, purchasing and holding companies, irrespective of their corporate
purpose; and
o engaging in any business transactions directly or indirectly related to the
foregoing or to any similar or related objects.
Directors
We are managed by a Board of Directors. The Board of Directors is invested
with all permissible powers relating to third parties within the scope of our
objects, subject to limitations prescribed by our shareholders and French law.
Under French law, the Board of Directors prepares and presents the year-end
accounts to the shareholders and convenes shareholders' meetings. In addition,
the Board of Directors reviews and monitors our economic, financial and
technical strategies.
The Board of Directors is composed of a minimum of three members and a
maximum of 18 members appointed at the ordinary general meeting of the
shareholders. The Board of Directors is authorized to act in all circumstances
in the name of Sodexho Alliance, subject to our corporate purpose and to those
powers granted by law or at shareholder meetings. Under French law, Directors
are liable for violations of French legal or regulatory requirements applicable
to societes anonymes, violation of our statuts or mismanagement. A Director may
be held liable for such actions both individually and jointly with the other
directors. The Executive Committee, which is appointed by the Board of
Directors, determines our general strategy and guides our international
development.
The Directors' term of office was six years until February 5, 2002. This
term was changed to three years at the Extraordinary Shareholders' meeting of
February 5, 2002. Any Director may stand for reelection. A Director appointed to
replace another Director whose term of office has expired can only remain in
office for the remaining period of the term of office of his or her predecessor.
Except in the event of termination of employment if the Director is a salaried
employee, or in the event of resignation, removal or death, the term of office
of a Director expires at the end of the ordinary general meeting held during the
year in which the Director's term of office expires. Our statuts allow for the
election of directors at staggered times. At the Annual Meeting of Shareholders
in February 2004, it is expected that six of our directors' terms will be
renewed.
The Board of Directors elects a Chairman from among its members and may
elect one or more Vice Chairmen. The Chairman must retire no later than the end
of the ordinary general meeting of shareholders held in the year in which he or
she reaches 85 years of age. The shareholders may, during the following ordinary
general meeting, extend this age limit.
Meetings of the Board of Directors, which are held as often as necessary,
are normally convened and presided over by the Chairman or Vice Chairman. A
quorum consists of one-half of the members of the Board of Directors, and
decisions are taken by a vote of the majority of the members present or
represented by other members of the Board of Directors. A Director may give a
proxy to another Director but a Director cannot represent more than one other
member at any particular meeting. Members of the Board of Directors represented
by another member at meetings do not count for purposes of determining the
existence of a quorum.
Transactions between Us and Our Directors
Any agreement between us and any one of the members of the Board of
Directors that is not in the ordinary course of our business is subject to the
prior authorization of the disinterested members of Board of Directors. The same
applies to agreements between us and another company if one of the members of
the Board of Directors is the owner, general partner, manager, director, general
manager or member of the executive or supervisory board of the other company.
Directors' Compensation
The aggregate compensation of the Board of Directors is determined at the
ordinary general meeting of the shareholders. The Board of Directors then
divides up this compensation among its members. It may allocate exceptional
compensation to some of its members for assignments undertaken by them. In
addition, compensation may be granted to directors on a case-by-case basis for
special assignments. The Board may also authorize the reimbursement of travel
and accommodation expenses as well as other expenses incurred by Directors in
the corporate interest.
Directors' Borrowing Powers
All loans or borrowings may be decided by the Board of Directors within the
limits duly authorized by the ordinary general meeting of the shareholders.
Directors' Age Limits
The number of Directors having reached age 70 may not at any time exceed
one-third of the total number of Directors in office. Any such Directors may
remain in office only until the end of the next ordinary general meeting of
shareholders. In the event that the number of Directors reaching the age of 70
during one year exceeds one-third of the total number of Directors in office,
the order of retirement is decided by drawing lots during a meeting of the Board
of Directors.
Directors' Share-Ownership Requirements
Each member of the Board of Directors must own at least four hundred of our
shares.
Rights, Preferences and Restrictions Relating to Shares
We currently have one class of shares, consisting of common shares with a
nominal value of EUR 4 per share. Our statuts provide that fully-paid shares
may be held in registered or bearer form. Shares not fully-paid may be held in
registered form only. The rights, preferences and restrictions attaching to the
shares are set forth below.
Dividend Rights
We may distribute dividends to our shareholders from net income in each
fiscal year (after deductions for depreciation and provisions), as increased or
reduced by any profit or loss carried forward from prior years and as reduced by
the legal reserve fund described below, after payment of the initial dividend
described below. These distributions are subject to applicable provisions of
French law.
Under French law, we are required to contribute a minimum of 5% of our
annual net income in each fiscal year, after a reduction for any losses carried
forward from previous years, to a legal reserve fund. The obligation to make
this minimum contribution ceases if and so long as we maintain a legal reserve
equal to 10% of the aggregate nominal value of our issued share capital. The
legal reserve is distributable only upon our liquidation. The remaining net
income, increased by any profits carried forward, constitutes the distributable
profits.
On the recommendation of the Board of Directors, shareholders may decide to
carry forward all or part of any distributable profits remaining after payment
of the initial dividend to the next fiscal year as retained earnings or to
allocate them to (i) the creation of reserves; (ii) contingency funds for the
purpose of total or partial redemption of our shares; or (iii) the shareholders
as additional dividends. The Board of Directors may propose a dividend for
approval by the shareholders at the ordinary general meeting.
Right of Inspection
Any shareholder has a right of access to all of our corporate documents
(e.g., shareholder lists, corporate minutes, financial records) required to
assess the management of the Company.
We must distribute dividends to our shareholders pro rata according to
their shareholdings. Dividends are payable to holders of shares outstanding on
the date of the shareholders' meeting approving the distribution of dividends,
or, in case of interim dividend, on the date the Board of Directors meets and
approves the distribution of interim dividends. The actual dividend payment date
is decided by the shareholders at an ordinary general meeting or by the Board of
Directors, if no decision is taken by the shareholders. We must pay any
dividends within nine months of the end of the fiscal year unless otherwise
authorized by court order. Under French law, dividends not claimed within five
years of the date of payment are forfeited.
If proposed by the Board of Directors and decided at the ordinary general
meeting, each shareholder may be granted at the ordinary general meeting a
choice between payment of the dividend in cash or in shares, for all or for part
of the dividend, according to the procedures set out under French law.
Voting Rights
Subject to the limitations on voting rights described below under
"-Shareholders' Meetings" and "-Disclosure of Shareholdings," each shareholder
is entitled to one vote per share at any general meeting of our shareholders. A
double voting right is granted to holders of fully-paid registered shares when
those shares have been registered for more than four years in the name of the
same shareholder. Any share whose ownership is transferred (certain intra-family
transactions excepted) or which is converted into a bearer share loses the right
to the double vote. Double voting rights also attach to any shares issued by
right to shareholders in proportion to the number of shares with double voting
rights which such shareholders held prior to the issuance. Votes can be cast by
proxy or by mail. Proxies can only be exercised by the shareholder's spouse or
by another shareholder. Our statuts do not grant our shareholders the right to
cumulate their votes when electing directors and French law does not
automatically grant this right to shareholders.
Rights in the Event of Liquidation
In the event that we are liquidated, our assets remaining after payment of
our debts, liquidation expenses and all of our remaining obligations will be
distributed to repay the nominal value of our shares in full. Any surplus will
then be distributed pro rata among our shareholders.
Preferential Right of Subscription
Under French law, shareholders have preemptive rights to subscribe for cash
issuances of new shares or other securities giving rights, directly or
indirectly, to acquire additional shares on a pro rata basis. A two-thirds
majority of the shares entitled to vote at an extraordinary general meeting may
vote to waive preemptive subscription rights with respect to any particular
offering. French law requires that the Board of Directors and our independent
auditors present reports that specifically address any proposal to waive
preemptive subscription rights. In the event of a waiver, the issue of
securities must be completed within the period prescribed by law. The
shareholders may also decide at an extraordinary general meeting to give the
existing shareholders a non-transferable preferential right to subscribe to the
new securities, for a limited period of time. A two-thirds majority of the
shares entitled to vote at an extraordinary general meeting may also grant to
existing shareholders a non-transferable form of preemptive right to subscribe
to any new securities that may affect our share capital. Shareholders may also
notify us that they wish to waive their own preemptive subscription rights with
respect to any particular offering if they so choose.
Preemptive subscription rights, if not previously waived, are transferable
during the subscription period relating to a particular offering of shares and
may be listed on Euronext Paris.
Redemption of Shares
Under French law, our Board of Directors is entitled to redeem a set number
of shares as authorized by our shareholders at an extraordinary shareholders'
meeting, provided that the capital reduction has not been undertaken in an
attempt to mask the effect of losses. In the case of such an authorization, the
shares redeemed must be cancelled within one month after the end of the offer to
purchase such shares from shareholders. One notable exception to this rule,
however, is that shares redeemed on the open market need not be cancelled if the
company redeeming the shares grants options on or awards those shares to its
employees within one year of the redemption.
Liability to Further Capital Calls
Shareholders are liable for corporate liabilities only up to the nominal
amount of the shares they hold.
Changes to Shareholders' Rights
A two-thirds majority vote at the extraordinary shareholders' meeting is
required to change our statuts, which set out the rights attaching to our
shares. The extraordinary shareholders' meeting may not increase shareholders'
obligations, except in the event that different classes of shares are merged.
However, in such case, any decision involving a change in the rights attaching
to a class of shares shall be final only following its ratification by a
two-thirds majority of a special meeting of the shareholders of the class
concerned.
Shareholders' Meetings
In accordance with French law, there are two types of shareholders' general
meetings: ordinary and extraordinary. Ordinary general meetings are required for
matters such as the election of directors, the appointment of statutory
auditors, the approval of annual accounts, the declaration of dividends and the
issuance of debt. Extraordinary general meetings are required for the approval
of matters such as amendments to our statuts, approval of mergers, increases or
decreases in share capital, the creation of a new class of equity securities and
the authorization of the issuance of investment certificates or securities
convertible or exchangeable into equity securities.
Convocation of Meetings
The Board of Directors is required to convene an annual ordinary general
meeting of shareholders, which must be held within six months of the end of our
fiscal year, to approve the annual financial statements for the fiscal year.
Other ordinary or extraordinary general meetings may be convened at any time
during the year. Meetings of shareholders may be convened by the Board of
Directors or, if the Board of Directors fails to call such a meeting, by our
statutory auditors or by a court-appointed agent. The court may be requested to
appoint an agent by (i) one or several shareholders holding at least 10% of our
share capital; (ii) any interested party in emergency cases; or (iii) certain
duly qualified associations of shareholders. The notice calling a meeting must
state the matters to be considered at the meeting.
At least 30 days prior to the date set for any general meeting of
shareholders, a preliminary notice must be sent to the Commission des Operations
de Bourse (the "COB"), the administrative agency responsible for overseeing the
French securities markets, and published in France in the Bulletin des Annonces
Legales Obligatoires (bulletin of obligatory legal announcements) (the "BALO").
This preliminary notice must contain the agenda of the meeting and a draft of
the resolutions to be considered. Within 10 days of the notice, one or several
shareholders holding a specified percentage of shares (determined on the basis
of a formula relating to capitalization) or a duly qualified association of
shareholders holding a specified percentage of voting rights may propose
additional resolutions to be voted on at the meeting. At least 15 days prior to
the date set for a general meeting on its first call, and at least six days
before any meeting's second call, notice must be sent by mail to all holders of
registered shares who have held such shares for more than one month prior to the
notice. Notice of the meeting shall also be given in a journal authorized to
publish legal announcements in the administrative region (departement) in which
we are registered, as well as in the BALO, with prior notice to the COB. The
notice must state the type, agenda, place, date and time of the meeting. No
action may be taken at a meeting on any matter not listed on the agenda for that
meeting, subject to exceptions relating to the dismissal of directors under
certain circumstances and to certain miscellaneous matters.
Attendance of and Voting at Meetings
Attendance and the exercise of voting rights at general meetings of
shareholders are subject to certain conditions. A holder of registered shares
must have his shares registered in his own name in a shareholder account
maintained by us or on our behalf at least five days prior to the meeting. A
holder of shares in bearer form must obtain from the financial intermediary with
whom the shares have been deposited a certificate indicating the number of
bearer shares owned and attesting to the fact that the shares are not
transferable until the time fixed for the meeting.
All shareholders who have properly registered their shares have the right
to participate in general meetings, either in person or by proxy, and to vote
either by proxy or by mail according to the number of shares they hold. Proxies
will be sent to any shareholder on request, but they can only appoint the
shareholder's spouse or another shareholder as proxy. Any vote made by mail
shall be deemed valid if received by us at least three days prior to the date of
the meeting, but the attendance of the shareholder automatically cancels any
proxy previously executed by that shareholder or any previous vote made by mail.
Under French law, shares of a company held by entities controlled directly
or indirectly by that company are not entitled to voting rights, are not counted
for quorum or majority purposes, and do not receive dividends.
Under French law, the presence in person or by proxy of shareholders
holding an aggregate of not less than 25% (in the case of an ordinary general
meeting or an extraordinary general meeting deciding upon any capital increase
affecting reserves, such as a stock dividend) or 33 (0)f1/4% (in the case of any
other extraordinary general meeting) of voting shares is necessary for a quorum.
If a quorum is not reached at any meeting, that meeting is adjourned. There is
no quorum requirement upon recommencement of an adjourned ordinary general
meeting. Upon the reconvening of an extraordinary general meeting, the presence
in person or by proxy of shareholders having not less than 25% of the eligible
voting rights is necessary for a quorum, except when an increase in our share
capital is proposed through the incorporation of reserves, profits or a share
premium, in which case the quorum requirements are those applicable to ordinary
general meetings.
At an ordinary general meeting or at an extraordinary general meeting
deciding upon any capital increase by incorporation of reserves, a simple
majority of the votes cast is required to pass a resolution. At any other
extraordinary general meeting, a two-thirds majority of the votes cast is
required to pass a resolution. However, a unanimous vote is required to increase
the liabilities of shareholders. Abstention from voting by those present or
represented by proxy is deemed to be a vote against the resolution submitted to
a vote.
Limitation on Security Ownership
There is no limitation, under French law or in our statuts on the right of
non-French residents or non-French security holders to own or, where applicable,
to vote our securities.
Change in Control/Anti-Takeover
There are no provisions in the statuts that would have the effect of
delaying, deferring or preventing a change in our control and that would operate
only with respect to a merger, acquisition or corporate restructuring involving
us or any of our subsidiaries. There also are not any provisions in our statuts
that allow for the issuance of preferred stock upon the occurrence of takeover
attempts or the addition of other "anti-takeover" measures without a shareholder
vote.
Disclosure of Shareholdings
French law provides that any individual or entity, acting alone or in
concert with others, that acquires, directly or indirectly, more than 5%, 10%,
20%, 33%, 50% or 66% of our shares or voting rights attached to our shares, or
whose holdings fall below any of these thresholds, must notify us of the number
of shares or voting rights that person or entity holds within 15 calendar days
of the date the threshold has been crossed. The individual or entity must also
notify the Conseil des Marches Financiers (financial markets council) (the
"CMF") within five Euronext Paris trading days of the date on which the
threshold is crossed. If the shareholder fails to comply with this notification
requirement, the shares or voting rights in excess of the relevant threshold
will be deprived of voting rights or the voting rights will not be exercisable,
as the case may be, for two years from the date on which the owner of the shares
or voting rights complies with the notification requirement. In addition, any
shareholder who fails to comply with the above requirements may have all or part
of his voting rights suspended for up to five years by the Commercial Court at
the request of our Chairman, any shareholder or the COB, and may be subject to
other penalties.
In addition to the requirements set out in French law, our statuts provide
that every person or corporate body who acquires or ceases to hold, directly or
indirectly, 2.5% or more of our shares must notify us within a period of 15 days
from the date when the threshold is exceeded. If the shareholder fails to comply
with the notification requirement, any shareholder holding at least 5% of the
authorized capital can cause the shares in excess of this threshold to be
deprived of voting rights for two years following the date of the notification.
In order to permit shareholders to give the notice required by law or by
our statuts, we are obligated to publish information disclosing the total number
of votes eligible to be cast at our annual ordinary general meeting in the BALO
within 15 calendar days of the general meeting. In addition, if the number of
eligible votes changes by at least 5% between two ordinary general meetings, we
are required to publish the number of votes then available in the BALO within 15
calendar days of the change and to provide the CMF with a written notice. In
order to facilitate compliance with the notification requirements, a holder of
ADSs may notify the Depositary, and the Depositary shall immediately forward the
notification to us and the CMF.
Under the regulations of the CMF, and subject to limited exemptions, anyone
acquiring 33 1/3% or more of the share capital or voting rights of a French
listed company must initiate a public tender offer for the balance of our share
capital (including, for these purposes, all securities convertible into or
exchangeable for equity securities).
Changes in Capital
As of November 30, 2003 our share capital was EUR 636,086,280, divided
into 159,021,565 shares at a par value of EUR 4 each, all fully-paid and of
the same class. Pursuant to authorizations granted by the shareholders at
previous meetings, see "Authorizations," we are entitled to increase this share
capital under certain circumstances.
Pursuant to French law, our share capital may be increased only with the
approval of the shareholders at an extraordinary general meeting upon the
recommendation of the Board of Directors. Our share capital may be increased by
the issuance of additional shares, by the issuance of a new class of equity
securities or by an increase in the nominal value of the shares. The
shareholders may delegate to the Board of Directors the powers required to
effect in one or more stages (subject to the limitations provided by French law)
any increase in share capital previously authorized by the shareholders. A
reduction in our share capital can be accomplished either by decreasing the
nominal value of the shares or by reducing the number of outstanding shares. The
number of outstanding shares may be reduced either by an exchange of shares or
by our repurchase and cancellation of shares.
C. Material Contracts
We are not currently party to any contract, nor have we been party to any
contract within the last two years, which we believe to be individually material
to our business or operations.
D. Exchange Controls
The French commercial code currently does not limit the right of nonresidents
of France or non-French persons to own and vote shares. However, nonresidents of
France must file an administrative notice with French authorities in connection
with the acquisition of a controlling interest in our company. Under existing
administrative rulings, ownership of 20% or more of our share capital or voting
rights is regarded as a controlling interest, but a lower percentage might be
held to be a controlling interest in some circumstances depending on factors
such as the acquiring party's intentions and the acquiring party's ability to
elect directors, and financial reliance on us by the relying party.
Under current French exchange control regulations, there are no limitations
on the import or export of capital or on the amount of payments that may be
remitted by us to non-residents. Laws and regulations concerning foreign
exchange control do require, however, that all payments or transfers of funds
(including payments of dividends to foreign shareholders) made by a French
resident to a non-resident be handled by an accredited intermediary. In France,
all registered banks and substantially all credit establishments are accredited
intermediaries.
E. Taxation
French Taxation
The following is a general summary of the material French tax consequences
of purchasing, owning and disposing of shares or ADSs. The statements relating
to French tax laws set out below are based on the laws in force as of the date
hereof, and are subject to any changes in applicable French tax laws or in any
applicable double taxation conventions or treaties with France occurring after
such date.
This discussion is intended only as a descriptive summary and does not
purport to be a complete analysis or list of all potential tax effects of the
purchase or ownership of the shares and of the ADSs or a comprehensive
description of all of the tax considerations that may be important for your
decision to purchase shares or ADSs.
There is currently no direct simplified procedure available for holders of
ADSs who are not United States residents to claim or receive from the French tax
authorities any tax treaty benefits in respect of dividends that the holder may
be entitled to receive pursuant to a treaty between France and the holder's
country of residence.
The following summary does not discuss the treatment of shares or ADSs that
are held in connection with a permanent establishment or fixed base through
which a holder carries on business or performs personal services in France.
As a general matter, we encourage you to consult your own tax advisors as
to the tax consequences of the purchase, ownership and disposition of shares or
ADSs arising from your particular circumstances and the specific laws applicable
to you, including the availability and terms of any applicable tax treaty.
Taxation on Sale or Disposal of Shares or ADSs
On the basis of the provisions of any relevant double tax treaty, persons
who are not French residents for the purpose of French taxation (as well as,
under certain conditions, foreign states, international organizations and
certain foreign public bodies) and who have held not more than 25%, directly or
indirectly, of our dividend rights (benefices sociaux) at any time during the
preceding five years, are not subject to any French income tax or capital gains
tax on any sale or disposal of shares.
If a share transfer is evidenced by a written agreement, such share transfer
agreement is, in principle, subject to registration formalities and therefore to
a 1% registration duty assessed on the higher of the purchase price and the
market value of the shares (subject to a maximum assessment of EUR 3,049 per
transfer) provided that no duty is due if such written share transfer agreement
is executed outside France.
An owner of shares resident outside France may trade shares on the Euronext
Paris. Should such owner, or the broker or other agent through whom a sale is
effected, require assistance in this connection, an accredited intermediary
should be contacted. For dealings on Euronext Paris, a tax assessed on the price
at which the securities were traded (impot sur les operations de bourse) is
payable at a rate of 0.3% on transactions up to EUR 153,000 and at a rate of
0.15% thereafter, subject to a rebate of EUR 23 per transaction and a maximum
assessment of EUR 610 per transaction. Transactions made by non-residents of
France are not subject to the payment of such tax. In addition, while not
strictly a tax, a fee or commission is payable to the financial intermediary
whether within or outside France.
Taxation of Dividends
In France, dividends are paid out of after-tax income. French residents are
entitled to a tax credit, known as the avoir fiscal, equal to 50% of the
dividend paid for individuals and for specific entities (foundations of public
utility), or 10% of the dividend paid for other legal entities. Pursuant to
regulations finalized on December 30, 2002 and applicable as from 1st January
2003, the 10%-rate avoir fiscal is increased to an amount equal to 80% of the
precompte where the precompte is paid by the distributing company. Under French
domestic law, dividends paid to nonresidents are normally subject to a 25%
withholding tax and nonresidents are generally not eligible for the benefit of
the avoir fiscal.
However, the following countries and territories (including Overseas
Territories) have entered into income tax treaties with France whereby tax
residents of such countries and territories may, as provided in the relevant
treaty, obtain from the French tax authorities a reduction (generally to 15%)of
all or part of such withholding tax and a refund of the avoir fiscal (net of
applicable withholding tax).
Australia Ghana Malta Spain
Austria Iceland Mauritius Sweden
Belgium India Mexico Switzerland
Bolivia Israel Namibia Togo
Brazil Italy Netherlands Turkey
Burkina Faso Ivory Coast New Zealand Ukraine
Cameroon Japan Niger United Kingdom
Canada Latvia Norway United States of America
Estonia Lithuania Pakistan Venezuela
Finland Luxembourg Senegal
Gabon Malaysia Singapore
Germany Mali South Korea
Overseas Territories and Other
New Caledonia
Saint-Pierre et Miquelon
Mayotte
Treaties with some of the countries and territories listed above contain
specific limitations applicable to corporate entities entitled to benefit from
the avoir fiscal, or limit the rights to the avoir fiscal strictly to individual
residents (as opposed to corporate entities). The "Taxation of Dividends"
section below describes the provisions of the income tax treaty between the
United States and France.
Except for the United States, none of the countries or territories listed
above has a treaty granting benefits to holders of ADSs, as opposed to shares.
Accordingly, this discussion of treaty benefits does not apply to ADS holders.
Dividends paid to nonresidents of France benefiting from the avoir fiscal
in accordance with a tax treaty will be subject, on the date of payment, to the
withholding tax at the reduced rate provided for by such treaty (with the
exception of certain shareholders resident in Germany and subject to filing
formalities as provided for by an instruction dated May 13, 1994 and released on
June 7, 1994) rather than to the French withholding tax at the rate of 25% to be
later reduced to the treaty rate, provided that they establish, before the date
of payment of the dividend, their entitlement to such reduced rate.
If shares are sold in a trade executed on the monthly settlement market
during the month of a dividend payment date, the seller rather than the
purchaser will be entitled to the avoir fiscal with respect to dividends paid on
those shares on that date, unless the seller elects on the determination date to
settle by the last trading day of the month and the dividend payment date occurs
after the determination date.
Amounts distributed as dividends by French companies out of profits which
have not been taxed at the ordinary corporate income tax rate or which have been
earned and taxed more than five years before the distribution are subject to a
precompte (equalization tax) by such companies equal to the avoir fiscal
attached to the corresponding dividends. The precompte is paid by the
distributing company to the French tax authorities and is equal to a maximum of
50% of the net dividend before withholding tax. When a tax treaty in force does
not provide for a refund of the avoir fiscal or when the nonresident investor is
not entitled to such refund but is otherwise entitled to the benefits of a tax
treaty, such investor may generally obtain from the French tax authorities a
refund of such precompte actually paid in cash by us, if any (net of applicable
withholding tax). We believe that we would be subject to payment of a precompte
with respect to any dividends payable in the foreseeable future.
Estate and Gift Tax
France imposes estate and gift tax on certain real and personal property
acquired by inheritance or gift from a nonresident of France if such property is
deemed to be situated in France. France has entered into estate and gift tax
treaties with a number of countries pursuant to which, assuming certain
conditions are met, residents of the treaty countries may be exempted from such
tax or obtain a tax credit. Prospective investors in shares or ADSs should
consult their own advisors concerning the applicability of French estate and
gift tax to their shareholding and the availability of, and the conditions for
claiming exemption under, such a treaty.
Wealth Tax
In the absence of a more favorable tax treaty, the French wealth tax (impot
de solidarite sur la fortune) does not apply to non-French resident individual
investors owning directly or indirectly less than 10% of our capital stock.
Taxation of United States Investors
The following discussion describes the material United States federal
income tax and French tax consequences of the acquisition, ownership and
disposition of ADSs or shares by a U.S. Holder (as defined below).
This discussion is based in part on representations of the depositary and
assumes that each obligation provided for in, or otherwise contemplated by the
deposit agreement or any other related document will be performed in accordance
with its terms. The United States Treasury has expressed concerns that parties
to whom American depositary shares such as the ADSs are released may be taking
actions that are inconsistent with the claiming of foreign tax credits by U.S.
Holders of ADSs. Accordingly, the analysis of the creditability of French taxes
described below could be affected by future actions that may be taken by the
United States Treasury.
This discussion is not a complete analysis or description of all potential
tax consequences to a U.S. Holder of owning ADSs or shares. It deals only with
ADSs or shares held as capital assets by persons who own less than 10% of our
capital and does not discuss the tax consequences applicable to all categories
of investors, some of which (such as dealers in securities and investors whose
functional currency is not the U.S. dollar) may be subject to special rules.
Holders of our shares or ADSs are advised to consult their tax advisors
concerning the application of the United States federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign taxing authority.
The statements of United States and French tax laws set forth herein are
based on the laws in force as of the date hereof, including the United States
Internal Revenue Code of 1986, the French Code General des Impots and the
regulations enacted thereunder, and the double tax convention between the United
States and France. In this regard, the Convention between the United States and
the French Republic for the Avoidance of Double Income Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital of
August 31, 1994, referred to as the Treaty, entered into force on December 30,
1995, and the French tax authorities issued an Instruction dated May 13, 1994
and released on June 7, 1994 relating to the withholding tax on dividends in
favor of non-residents entitled to the avoir fiscal pursuant to a tax treaty,
referred to as the "June 1994 Regulations." The Treaty and the June 1994
Regulations change the French withholding tax rules applicable to dividends to
which an avoir fiscal is associated and may affect the timing of payments to
non-residents of France that are entitled to tax treaty benefits.
As used herein, the term "U.S. Holder" means a beneficial owner of ADSs or
shares who or that is entitled to Treaty benefits under the "limitation on
benefits" provisions contained in the Treaty and is, for United States federal
income tax purposes:
o a citizen or resident of the United States;
o a corporation created or organized under the laws of the United States or any
political subdivision thereof; or
o an estate or trust, the income of which is subject to United States federal
income taxation regardless of its source.
Taxation of Dividends
In France, dividends are paid out of after-tax income. French residents are
entitled to a tax credit, known as the avoir fiscal, equal to 50% of the
dividend paid for individuals and for specific entities (foundations of public
utility), or 10% of the dividend paid for other legal entities as from January
1, 2003. Pursuant to regulations finalized on December 30, 2002 and applicable
as from January 1st, 2003, the 10% avoir fiscal is increased to an amount equal
to 80% of the precompte where the precompte is paid by the distributing company.
Under French domestic law, dividends paid to nonresidents are normally subject
to a 25% withholding tax and nonresidents are generally not eligible for the
benefit of the avoir fiscal.
Under the Treaty, the rate of French withholding tax on dividends paid to a
U.S. Holder whose ownership of ADSs or shares is not effectively connected with
a permanent establishment or a fixed base in France is reduced to 15%. Dividends
paid to an Eligible U.S. Holder and an Eligible Tax Exempt Holder, each as
defined below, will be subject to the reduced rate of 15% at the time of
payment, provided that such holder establishes before the date of payment that
such holder is a resident of the United States under the Treaty in accordance
with the procedures described below. An Eligible U.S. Holder would also be
entitled to a payment equal to the avoir fiscal, less a 15% withholding tax. As
noted below, such payment will not be made to an Eligible U.S. Holder until
after the close of the calendar year in which the dividend was paid, and only
upon receipt by the French tax authorities of a claim made by the Eligible U.S.
Holder for such payment in accordance with the procedures set forth below.
An Eligible U.S. Holder is a U.S. Holder whose ownership of ADSs or shares
is not effectively connected with a permanent establishment or fixed base in
France and who is (1) an individual or other noncorporate holder that is a
resident of the United States as defined pursuant to the provisions of the
Treaty, (2) a United States corporation, other than a regulated investment
company, (3) a United States corporation, which is a regulated investment
company, provided that less than 20% of its shares are beneficially owned by
persons who are neither citizens nor residents of the United States or (4) a
partnership, or trust that is treated as a resident of the United States as
defined pursuant to the provisions of the Treaty, but only to the extent that
its partners, beneficiaries or grantors would qualify under clause (1) or (2)
above.
Payment of the avoir fiscal is made by the French Treasury not earlier than
the January 15 following the close of the calendar year in which the related
dividend is paid, and only after receipt by the French tax administration of a
claim for such payment in accordance with the procedures described below.
However, there are certain limitations on the availability of the avoir fiscal
under the Treaty. First, the avoir fiscal is generally only granted if the
Eligible U.S. Holder is subject to United States federal income tax on both the
dividend and the avoir fiscal. Second, a partnership or a trust (other than a
pension trust, a real estate investment trust or a real estate mortgage
investment conduit) in its capacity as an Eligible U.S. Holder is entitled to
the avoir fiscal only to the extent that its partners, beneficiaries or
grantors, as applicable, are themselves Eligible U.S. Holders (other than a
regulated investment company) and are themselves subject to United States
federal income tax on their respective shares of both the dividend and the avoir
fiscal. Third, the Eligible U.S. Holder, where required by the French tax
administration, must show that he or she is the beneficial owner of the ADSs or
shares and that the holding of such ADSs or shares does not have as one of its
principal purposes to allow another person to take advantage of the grant of the
avoir fiscal under the Treaty.
Under the Treaty, special rules apply to (1) any "Eligible Pension Fund",
which is a tax-exempt entity established in, and sponsored or established by a
resident of, the United States, the exclusive purpose of which is to provide
retirement or employee benefits, (2) any "Eligible Not-For-Profit Organization",
which is a tax-exempt entity organized in the United States, the use of whose
assets is limited under United States federal or state laws, both currently and
upon liquidation, to the accomplishment of the purposes that serve as the basis
of its exemption from income taxation in the United States, and (3) any
"Individual Holding Shares in a Retirement Plan", meaning an individual who is a
resident of the United States under the Treaty and who owns Shares through an
individual retirement account, a Keogh plan or any similar arrangement.
("Eligible Pension Funds", "Eligible Not-For-Profit Organizations" and
"Individuals Holding Shares in a Retirement Plan" are referred to collectively
as "Eligible Tax-Exempt Holders.")
Provided they are entitled to Treaty benefits under the limitation on
benefits provisions in Article 30 of the Treaty, Eligible Tax-Exempt Holders are
entitled to receive from the French Treasury a payment equal to 30/85ths of the
avoir fiscal (the "partial avoir fiscal"), less a 15% dividend withholding tax
on such amount, notwithstanding the general requirement described above that the
Holder be subject to United States tax on both the dividend and the avoir
fiscal. Thus, for example, if a dividend of EUR 100 were payable by us to an
Eligible Tax-Exempt Holder that is an individual and the requirements of the
June 1994 Regulations are satisfied, such Holder would initially receive
EUR 85 (the EUR 100 dividend less a EUR 15 withholding tax). The Eligible
Tax-Exempt Holder would be further entitled to an additional payment from the
French Treasury of EUR 15, consisting of the partial avoir fiscal of 30/85ths
of EUR 50, less the 15% withholding tax on that amount. Thus, the total net
payment to the Eligible Tax-Exempt Holder would be EUR 100. The Eligible
Tax-Exempt Holder, where required by the French tax administration, must show
that it is the beneficial owner of the shares and that the holding of such
shares does not have as one of its principal purposes to allow another person to
take advantage of the grant of the partial avoir fiscal under the Treaty.
Eligible Tax-Exempt Holders are also entitled to a refund of any precompte
paid by us with respect to the dividends they receive, but such refund is
reduced by the amount of the partial avoir fiscal to which they are entitled and
further reduced by the 15% dividend withholding tax.
Eligible Tax-Exempt Holders generally must follow the procedures set forth
hereafter. Nevertheless, the existing French forms do not take into account the
special tax treatment applicable to Eligible Tax-Exempt Holders with respect to
the payment of the partial avoir fiscal and the refund of the precompte. Certain
Eligible Tax-Exempt Holders may also be required to provide written evidence
certified by the IRS of their status under United States federal income tax law.
As a consequence, Eligible Tax-Exempt Holders are urged to contact their own tax
advisors with respect to the procedures to be followed to obtain Treaty
benefits.
Dividends paid to an Eligible U.S. Holder will be subject to the reduced
withholding tax rate of 15% at the time the dividend is paid if (i) such holder
duly completes and provides the paying agent with Treasury Form RF1 A EU-No.
5052 (the "Form") before the date of payment of the relevant dividend, or (ii)
if completion of the Form is not possible prior to the payment of dividends,
such holder duly completes and provides the institution in charge of the
management of the stock account (etablissement gestionnaire du compte-titres)
with a simplified certificate (the "Certificate") stating that (a) such holder
is a United States resident as defined pursuant to the provisions of the Treaty,
(b) such holder's ownership of the ADSs or shares is not effectively connected
with a permanent establishment or fixed base in France, (c) such holder owns all
of the rights attached to the full ownership of the ADSs or shares, including
but not limited to dividend rights and (d) such holder meets all the
requirements of the Treaty for obtaining the benefit of the reduced rate of
withholding tax and the right to payment of the French avoir fiscal. Dividends
paid to a U.S. Holder that is entitled to the reduced withholding tax rate of
15% but that is not entitled to the avoir fiscal (i.e., one who is not an
Eligible U.S. Holder) will be subject to the reduced withholding tax rate of 15%
at the time the dividend is paid if such holder duly completes and provides the
paying agent with Treasury Form RF1 B EU-No. 5053 before the date of payment of
the relevant dividend. Dividends paid to any U.S. Holder that has not filed the
relevant completed form or Certificate before the dividend payment date will be
subject to French withholding tax at the rate of 25%. Such holder may claim a
refund of the excess withholding tax and an Eligible U.S. Holder may claim the
avoir fiscal by completing and providing the French tax authorities with the
relevant form before December 31st of the year following the year during which
the dividend is paid.
The avoir fiscal or partial avoir fiscal is generally expected to be paid
to Eligible U.S. Holders and Eligible Tax-Exempt Holders within 12 months of
filing the Form, but not before January 15th following the end of the calendar
year in which the related dividend is paid. Similarly, any French withholding
tax refund is generally expected to be paid to U.S. Holders within 12 months of
filing the Form, but not before January 15th following the end of the calendar
year in which the related dividend is paid.
The forms or the Certificate, together with their respective instructions,
are available from the United States Internal Revenue Service and at the Centre
des Impots des Non-Residents (9, rue d'Uzes, 75094 Paris Cedex 2, France). The
depositary will provide to all U.S. Holders of ADRs the forms or Certificate,
together with the respective instructions, and will arrange for the filing with
the French tax authorities of all forms and Certificates completed by U.S.
Holders of ADRs and returned to the Depositary within sufficient time.
If shares are sold in a trade executed on the monthly settlement market of
the Paris Bourse during the month of and prior to a dividend payment date, the
seller of the shares rather than the purchaser will generally be entitled to the
avoir fiscal with respect to dividends paid on such shares on such date.
Precompte
Amounts distributed as dividends by French companies out of profits which
have not been taxed at the ordinary corporate income tax rate or which have been
earned and taxed more than five years before the distribution are subject to a
"precompte" (equalization tax) by such companies equal to the avoir fiscal
attached to the corresponding dividends. The precompte is paid by the
distributing company to the French tax authorities and is equal to a maximum of
50% of the dividend distributed before withholding tax.
A U.S. Holder not entitled to the full avoir fiscal may generally obtain a
refund from the French tax authorities of any precompte paid by us with respect
to the dividends paid to the holder. Pursuant to Treaty, the amount of the
precompte refunded to United States residents is reduced by the 15% withholding
tax applicable to dividends. A U.S. Holder is only entitled to a refund of
precompte actually paid in cash by us.
A U.S. Holder entitled to the refund of the precompte must apply for such
refund by filing a French Treasury Form RF1 B EU-No. 5053 (the "Treasury Form")
before the end of the year following the year in which the dividend was paid.
The form and its instructions are available from the United States Internal
Revenue Service or at the Centre des Impots des Non-Residents (9, rue d'Uzes,
75094 Paris Cedex 2, France). The depositary will, upon request, provide to U.S.
Holders of ADRs the Treasury Forms, together with the respective instructions,
and will arrange for the filing with the French tax authorities of all Treasury
Forms completed by U.S. Holders of ADRs and returned to the Depositary within
sufficient time.
For United States federal income tax purposes, the gross amount of a
dividend and the amount of the avoir fiscal or precompte paid to a U.S. Holder,
including any French withholding tax thereon, will be included in gross income
as dividend income in the year each such payment is received to the extent paid
out of our current or accumulated earnings and profits as calculated for United
States federal income tax purposes. No dividends received deduction will be
allowed with respect to dividends paid. Under recently enacted legislation,
dividends received by non-corporate U.S. Holders of ADSs or shares may be
subject to U.S. Federal income tax at lower rates than other types of ordinary
income if certain conditions are met. U.S. Holders should consult their own tax
advisors regarding the implications of this new legislation on their particular
circumstances. The amount of any dividend paid in euro, including the amount of
any French taxes withheld there from, will be equal to the dollar value of such
euro amount on the date such dividend is included in income, regardless of
whether the payment is in fact converted into dollars. A U.S. Holder will
generally be required to recognize United States source ordinary income or loss
upon the sale or disposition of euro. Moreover, a U.S. Holder may be required to
recognize foreign currency gain or loss, which will generally be United States
source ordinary income or loss, upon the receipt of a refund of amounts, if any,
withheld from dividends in excess of the Treaty rate of 15%.
French withholding tax imposed at the Treaty rate of 15% on dividends paid
by us and on any related payment of the avoir fiscal or precompte is treated as
payment of a foreign income tax and, subject to certain conditions and
limitations, may be taken as a credit against such U.S. Holder's United States
federal income tax liability. For foreign tax credit purposes, dividends will
generally constitute foreign source "passive", or in the case of certain
holders, "financial services" income.
Taxation of Capital Gains
Under the Treaty, no French tax is levied on any capital gain derived from
the sale of ADSs or shares by a U.S. Holder who (1) is a resident of the United
States under the Treaty, and (2) does not have a permanent establishment in
France to which the ADSs or shares are effectively connected or, in the case of
an individual, who does not maintain a fixed base in France to which the ADSs or
shares are effectively connected. Special rules apply to individuals who are
residents of' more than one country. In general, for United States federal
income tax purposes, a U.S. Holder will recognize capital gain or loss on the
sale or exchange of ADSs or shares in the same manner as on the sale or exchange
of any other shares held as capital assets. Any gain or loss will generally be
United States source.
French Estate and Gift Taxes
Under "The Convention Between the United States of America and the French
Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to taxes on Estates, Inheritance and Gifts of November 24,
1978," a transfer of ADSs or shares by gift or by reason of the death of a U.S.
Holder that would otherwise be subject to French gift or inheritance tax,
respectively, will generally not be subject to French tax unless (1) the donor
or the transferor is domiciled in France at the time of making the gift, or at
the time of his or her death, or (2) the ADSs or shares were used in, or held
for use in, the conduct of a business through or pertaining to a permanent
establishment fixed base in France. Prospective investors in shares or ADSs
should consult their own advisors as to the applicability of the November 24,
1978 Convention mentioned above, and in particular as to the interpretation of
article 8 of said Convention.
French Wealth Tax
The French wealth tax does not apply to any U.S. Holder that is not an
individual or, in the case of natural persons, who owns alone or with their
parents, directly or indirectly, ADSs or shares representing the right to less
than 25% of our profits. Prospective investors in shares or ADSs should consult
their own advisors as to the applicability of the Treaty and in particular to
the interpretation of its article 23.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
We are subject to the information requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") except that, as a foreign issuer, we are not
subject to the proxy rules under Section 14 of the Exchange Act and our
officers, directors and principal shareholders are not subject to the insider
short-swing profit disclosure and recovery provisions under Section 16 of the
Exchange Act. In accordance with the Exchange Act reporting requirements
applicable to us, we file annual reports on Form 20-F with and submit certain
information on Form 6-K, including our quarterly revenue announcements and our
semi-annual profit and loss information (both of which will be prepared in
accordance with French GAAP and generally will not include a reconciliation to
U.S. GAAP), to the United States Securities and Exchange Commission (the "SEC").
The information that will be filed on Form 6-K will be substantially less
detailed than interim financial statements required of a domestic registrant
pursuant to Article 10 of Regulation S-X. You may read and copy any document
that we file at the Public Reference Room of the SEC at 450 Fifth Street, NW,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect
our filings at the regional offices of the SEC located at Citicorp, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and at 233 Broadway, New
York, New York 10279. To provide shareholders with regular information about our
businesses, financial results and share price, we also offer our annual report
in French and English, including the "Reference Document" filed with the COB.
You may request a copy of the aforementioned filings and annual report at no
cost by writing or telephoning the offices of Sodexho Alliance, SA, attention
Jean-Jacques Vironda, Investor Relations, 3, avenue Newton, 78180
Montigny-le-Brettoneux, France. Our telephone number for these requests is
011-33-0-1-30-85-72-03, our fax number is 011-33-0-1-30-85-51-81 and our e-mail
address is jean-jacques.vironda@sodexhoalliance.com.
I. Subsidiary Information
Not Applicable.
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate and foreign exchange rate risks associated
with underlying assets and liabilities. We manage this exposure as it pertains
to our borrowings through the use of interest rate, currency and cross-currency
derivative contracts. These swap contracts are entered into with major high
credit quality institutions, in accordance with procedures and within limits
approved by our Board of Directors. Our policy is not to use derivative
contracts for any other purpose than hedging our financial exposures.
Foreign Exchange Risk Exposure
Foreign exchange risk exposure arises from the possibility that changes in
foreign currency exchange rates will impact the value of revenues, expenses,
assets and liabilities denominated in foreign currencies. Our results of
operations, financial position, and cash flows are directly dependent on the
periodic monitoring and adjustment of the balance of assets and liabilities in
each of our main operating currencies, which are the euro, the U.S. dollar and
the British pound sterling. The impact of fluctuations in exchange rates is
mitigated to a large extent by the fact that within each of our subsidiaries,
revenues and the related expenses are generally denominated in the same
currency. In order to match the cash flows pertaining to borrowing instruments
held by our subsidiaries with the revenues to which they relate, we occasionally
enter into currency or cross-currency swap contracts.
Interest Rate Exposure
In accordance with our policy, we may borrow at variable rates and use
interest rate swaps in order to fix future interest payments, effectively
converting borrowings from floating to fixed rates. As of August 31, 2003,
including the effect of interest and cross-currency swap agreements,
approximately 91% of our borrowings were at fixed rates, with an average
interest rate of 5.5%.
Sensitivity Analysis
A hypothetical strengthening or weakening by 10% in the value of the dollar
relative to the euro would have resulted in an increase or decrease,
respectively, of our fiscal 2003 net income by approximately EUR 10 million. A
hypothetical strengthening or weakening by 10% in the value of the British pound
sterling relative to the euro would have resulted in a decrease or increase,
respectively, of our fiscal 2003 net income by approximately EUR 4 million.
A hypothetical increase of 1% in average interest rates would have resulted
in an increase in fiscal 2003 interest expense of approximately EUR 2 million
on our variable rate borrowings.
ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
PART II
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not Applicable.
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not Applicable.
ITEM 15.CONTROLS AND PROCEDURES
Our chief executive officer and our chief financial officer, after
evaluating the effectiveness of our "disclosure controls and procedures" (as
defined in Exchange Act Rules 13a-14C and 15d-14C) as of a date (the "Evaluation
Date") within 90 days of the filing date of this Annual Report on Form 20-F,
have concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and effective and designed to ensure that material
information relating to us and our consolidated subsidiaries would be made known
to them by others within those entities. There were no significant changes in
our internal controls or, to our knowledge, in other factors that could
significantly affect our internal controls subsequent to the Evaluation Date.
ITEM 16A.Audit committee financial expert.
Our Board of Directors has determined that Mr. Edouard de Royere, who
serves on the audit committee, has the background and qualifications necessary
to be considered an audit committee financial expert
ITEM 16B.Code of Ethics
In 2003, the Board of Directors adopted a written Code of Conduct for
Senior Managers. Each of Sodexho Alliance's senior financial managers, including
the Group's CEO, Chief Operating Officers, Chief Financial Officer, Chief
Accountant, and others performing similar functions, signed a statement
acknowledging his or her compliance with the Code. The full text of the Code of
Conduct is available on Sodexho Alliance's internet website at www.sodexho.com.
ITEM 16C.Principal Auditor Fees and Services
PricewaterhouseCoopers
and member firms KPMG SA (1)
Amount Percentage Amount Percentage
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2003 2002 2003 2002 2003 2002 2003 2002
Audit and
audit-related:
Audit fees 4,536 4,578 66% 11% 1,013 N/A 94% N/A
Audit-related
fees 240 655 4% 2% 54 N/A 5% N/A
----- ----- ---- ---- ----- ----
Total audit and
audit-related
fees 4,776 5,233 70% 13% 1,067 99%
Other non-audit
services:
Tax, legal and
human
resources
consulting 1,853 2,935 28% 7% 9 N/A 1% N/A
Information
technology 14 31,373 0% 79% 0 N/A 0% N/A
Other 140 221 2% 1% 1 N/A 0% N/A
----- ------ ---- ---- ---- ----
Total other
services 2,007 34,529 30% 87% 10 1%
------ ------ ---- ---- ----- ----
Total 6,783 39,762 100% 100% 1,077 100%
====== ====== ==== ==== ===== ====
(1)Listed companies in France are required to have their financial
statements audited by two different independent accounting firms. KPMG SA was
named independent auditor at the February 4, 2003 Shareholders' Meeting,
replacing Olivier Belnet.
The fees paid by Group subsidiaries to accounting firms other than
PricewaterhouseCoopers and KPMG in connection with the audit of their financial
statements totaled EUR 766,000 for the year ended August 31, 2003.
PART III
ITEM 17.FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-57 of this Annual Report.
ITEM 18.FINANCIAL STATEMENTS
We have responded to Item 17 in lieu of responding to this Item.
ITEM 19.EXHIBITS
(a) The following exhibits are filed as part of this Form 20-F:
Exhibit
Number Description
1 Sodexho Alliance Restated Corporate Statuts (English
translation)(incorporated by reference to Exhibit 1 to the
Registration Statement on Form 20-F filed by Sodexho Alliance SA
on March 19, 2002, Commission File No. 1-31274)
2.1 Composite Conformed Term and Revolving Facilities Agreement,
dated April 6, 2001, for Sodexho Alliance, SA, arranged by
Citibank International plc, Goldman Sachs International and SG
Investment Banking with Societe Generale acting as Agent and
Societe Generale acting as Issuing Bank (as amended by a letter
dated 27 April 2001 and an Amendment and Restatement Agreement
dated 8 June 2001 and as amended by letters dated March 14, 2003
and May 15, 2003)
2.2 Form of Deposit Agreement among Sodexho Alliance, SA, The Bank of
New York as Depositary, and all Owners and Beneficial Owners from
time to time of American Depositary Receipts issued thereunder
(incorporated by reference to Exhibit A of the Registration
Statement on Form F-6 filed by The Bank of New York and the
Company on March 21, 2002, Commission File No. 333-84970)
2.3 Terms and Conditions of Offering of Euro 1,000,000,000 5.875
percent Bonds due 2009 (incorporated by reference to Exhibit 2.3
to the Registration Statement on Form 20-F filed by Sodexho
Alliance SA on March 19, 2002, Commission File No. 1-31274)
2.4 Agreement by Registrant to Furnish Certain Information to the
Securities and Exchange Commission (incorporated by reference to
Exhibit 2.4 to the Registration Statement on Form 20-F filed by
Sodexho Alliance SA on March 19, 2002, Commission File No.
1-31274)
4.1 Agreement and Plan of Merger, dated as of May 1, 2001, among
Sodexho Marriott Services, Inc., Sodexho Alliance, SA and SMS
Acquisition Corp. (incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K filed by Sodexho Marriott
Services, Inc. on May 4, 2001, Commission File No. 1-12188)
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form 20-F filed by Sodexho Alliance SA on March 19,
2002, Commission File No. 1-31274)
4.2 Agreement dated December 30, 1991 between Felix Bellon SA and
Sodexho S.A. and Addendums (English translation)
8.1 List of Significant Subsidiaries (incorporated by reference to
note 4.4 of the Consolidated Financial Statements of Sodexho
Alliance, SA)
12.1 Certification by Pierre Bellon, Chairman and Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
12.2 Certification by Sian Herbert-Jones, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13 Certifications by Pierre Bellon, Chairman and Chief Executive
Officer and Sian Herbert-Jones, Chief Financial Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing this Annual Report on Form 20-F and has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SODEXHO ALLIANCE, SA
By: /s/ Sian Herbert-Jones
Name: Sian Herbert-Jones
Title: Chief Financial Officer
Dated: December 18, 2003
Index to financial statements
Consolidated Financial Statements of Sodexho Alliance, SA
Report of Independent Auditors............................... F-1
Consolidated Income Statements for each of the fiscal
years ended August 31, 2003, 2002 and 2001.................. F-2
Consolidated Balance Sheets as of August 31, 2003 and 2002... F-3
Consolidated Statements of Cash Flows for each of
the fiscal years ended August 31, 2003, 2002 and 2001....... F-4
Notes to the Consolidated Financial Statements............... F-5
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and the Board of Directors of Sodexho Alliance, SA
We have audited the accompanying consolidated balance sheets of Sodexho
Alliance, SA and its subsidiaries (together, the "Group") as of August 31, 2003
and 2002 and the related consolidated statements of income and of cash flows for
each of the three years in the period ended August 31, 2003, all expressed in
millions of euro. These financial statements are the responsibility of the
Group's management, and they have been approved by the Board of Directors. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
These financial statements have been prepared in accordance with accounting
principles generally accepted in France, except for the following matter. As
described in note 1, in order to comply with the requirements of the United
States Securities and Exchange Commission, prior years have been restated in the
Annual Report on Form 20-F to reduce revenue in the period the overstatement
occurred. Net income has been reduced by EUR 10 million for the year ended
August 31, 2001. Under accounting principles generally accepted in France (Avis
CNC No. 97-06), prior periods are not permitted to be retroactively restated,
and the overstatement of previously reported revenue has been recorded as an
exceptional expense when discovered in the year ended August 31, 2002.
In our opinion, except for the effects of the restatement described in the
previous paragraph, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of the Group as of
August 31, 2003 and 2002, and the results of its operations and its cash flows
for each of the three years in the period ended August 31, 2003, in conformity
with accounting principles generally accepted in France.
We draw your attention to note 1, which includes a description of the
impact of changes in accounting principles adopted in the fiscal year ended
August 31, 2002 on the Group's consolidated financial statements.
Accounting principles generally accepted in France vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter, after giving effect to the
restatement referred to in note 5.5, would have affected the determination of
the consolidated net income expressed in millions of euro for each of the three
years in the period ended August 31, 2003 and the determination of consolidated
shareholders' equity at August 31, 2003 and 2002 to the extent summarized in
note 5 to the consolidated financial statements.
Paris, France
November 13, 2003
PRICEWATERHOUSECOOPERS AUDIT
Gerard Dantheny Hubert Toth
SODEXHO ALLIANCE, SA
CONSOLIDATED INCOME STATEMENTS
Years ended August 31,
2003 2002 2001
(millions of euro)
Revenues................................. 11,687 12,609 11,928
Other income............................. 37 54 113
Purchases................................ (3,955) (4,559) (4,416)
Employee costs........................... (5,519) (5,868) (5,437)
Other external charges................... (1,482) (1,464) (1,430)
Taxes, other than income taxes........... (79) (74) (75)
Depreciation and increase in provisions.. (175) (173) (112)
------- ------- -------
Earnings Before Interest, Exceptional
Items, Income Taxes, Income from Equity
Method Investees, Goodwill Amortization
and Minority Interests (EBITA).......... 514 525 571
Financial expense, net................... (152) (166) (122)
------- ------- -------
Income Before Exceptional Items,
Income Taxes, Income from Equity Method
Investees, Goodwill Amortization
and Minority Interests................. 362 359 449
Exceptional (expense) income, net....... 1 55 (51)
Income taxes............................ (134) (136) (157)
------- ------- -------
Income Before Income from Equity Method
Investees, Goodwill Amortization and
Minority Interests..................... 229 278 241
Net income (loss) from equity method
investees.............................. 4 4 (2)
Goodwill amortization................... (62) (67) (44)
------- ------- -------
Group Net Income Before Minority
Interests.............................. 171 215 195
Minority interests in net income of
consolidated subsidiaries.............. (9) (13) (67)
------- ------- -------
Group Net Income........................ 162 202 128
======= ======= =======
Earnings per share (in euro)............ 1.02 1.27 .93
======= ======= =======
Diluted earnings per share (in euro).... 1.00 1.22 .89
======= ======= =======
See accompanying notes to the consolidated financial statements.
SODEXHO ALLIANCE, SA
CONSOLIDATED BALANCE SHEETS
August 31,
2003 2002
ASSETS (millions of euro)
Fixed and Intangible Assets, Net
Goodwill......................................... 1,492 1,616
Intangible assets............................... 2,686 2,940
Property, plant and equipment................... 379 371
Financial investments........................... 64 67
Equity method investees......................... 19 11
------- -------
Total Fixed and Intangible Assets, Net............ 4,640 5,005
Current and Other Assets
Inventories ..................................... 170 170
Accounts receivable, net......................... 1,383 1,456
Prepaid expenses, other receivables
and other assets................................ 637 606
Marketable securities............................ 542 553
Restricted cash.................................. 166 165
Cash............................................. 570 589
------- -------
Total Current and Other Assets..................... 3,468 3,539
------- -------
TOTAL ASSETS....................................... 8,108 8,544
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' Equity
Common stock..................................... 636 636
Additional paid in capital....................... 1,186 1,191
Consolidated reserves............................ 427 571
------- -------
Total Shareholders' Equity......................... 2,249 2,398
Minority Interests................................. 66 73
Provisions for Contingencies and Losses............ 89 99
Liabilities
Borrowings......................................... 2,488 2,693
Accounts payable................................... 1,128 1,251
Vouchers payable................................... 794 732
Other liabilities.................................. 1,294 1,298
------- -------
Total Liabilities................................... 5,704 5,974
------- -------
Total SHAREHOLDERS' EQuity and Liabilities.......... 8,108 8,544
======= =======
See accompanying notes to the consolidated financial statements.
Sodexho Alliance, SA
consolidated statements of CASH FLOW
Years ended August 31,
2003 2002 2001
(millions of euro)
Operating Activities
Consolidated net income before income
(loss) from equity method investees and
minority interests...................... 167 211 197
Noncash items:
Depreciation and provisions.............. 215 254 157
Deferred taxes........................... (9) 5 20
Losses (gains) on disposals and other,
net of tax.............................. 14 (61) 26
------- ------- -------
Cash provided by operating activities..... 387 409 400
Dividends received from equity method
investees............................... 3 1 0
Change in working capital from operating
activities.............................. 100 209 154
------- ------- -------
Net cash from operating activities........ 490 619 554
Investing Activities
Tangible and intangible fixed assets...... (241) (297) (238)
Fixed asset disposals..................... 15 33 31
Acquisitions, net of dispositions,
of consolidated subsidiaries............. (33) (48) (1,739)
Change in working capital from investing
activities............................... (19) (3) (13)
------- ------- -------
Net cash used in investing activities...... (278) (315) (1,959)
Financing Activities
Dividends paid to parent company
shareholders............................. (94) (87) (74)
Dividends paid to minority shareholders
of consolidated subsidiaries............. (11) (15) (9)
Increase in shareholders' equity.......... 0 59 1,020
Proceeds from borrowings.................. 104 1,120 1,977
Repayment of borrowings................... (178) (1,146) (1,142)
Change in working capital from financing
activities............................... (23) (1) (9)
------- ------- -------
Net cash provided by (used in) financing
activities............................... (202) (70) 1,763
------- ------- -------
Increase in net cash, cash equivalents
and marketable securities................ 10 234 358
======= ======= =======
Cash, cash equivalents and marketable
securities, as of beginning of period.... 1,307 1,213 896
Add: provisions as of beginning of period. 23 1 0
Cash, cash equivalents and marketable
securities, as of end of period ......... 1,278 1,307 1,213
Add: provisions as of end of period...... 8 23 1
Net effect of exchange rates on cash...... 54 118 40
------- ------- -------
Increase in net cash, cash equivalents
and marketable securities................ 10 234 358
======= ======= =======
See accompanying notes to the consolidated financial statements.
SODEXHO ALLIANCE, SA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.SIGNIFICANT ACCOUNTING POLICIES AND RELATED FINANCIAL INFORMATION
Sodexho Alliance, SA and its subsidiaries (together, the "Group") applies
accounting principles that comply with French law, including the consolidation
accounting principles established by the Comite de la Reglementation Comptable
No 99-02 ("Regulation CRC 99-02") in France (collectively, "French GAAP") in its
consolidated financial statements. Regulation CRC 99-02 was adopted as of
September 1, 2000, and its impact on the financial statements is fully described
below. The financial statements of Group companies, which have been prepared in
accordance with the accounting principles applicable in their respective
countries, conform to the accounting principles described above in
consolidation.
The differences between French GAAP and accounting principles generally
accepted in the United States ("US GAAP") that have a material impact on the
Group's consolidated financial statements are described in note 5.
Amounts in tables are expressed in millions of euro, unless indicated
otherwise. Our consolidated financial statements and information in the notes
thereto are reported in euro.
Significant Events During the Year
The Group, through its U.S. subsidiary, Sodexho, Inc., acquired 91.4% of
Patriot Medical Technologies, Inc., a U.S. company based in Tennessee, for
U.S.$3.1 million (EUR 2.9 million). This company, formed in 1997 and specialized
in engineering services in the medical sector, has annual revenues of
approximately U.S. $25 million. Goodwill recorded in connection with the
transaction ofEUR 9.4 million will be amortized over 30 years. This entity
contributed an EBITA loss ofEUR 0.2 million to Sodexho Alliance's consolidated
income statement.
Sodexho Pass International acquired an additional 23% of Sodexho Pass do
Brazil, in which it already held 77% of the outstanding shares, for EUR 27.6
million. Goodwill of EUR 25.6 million recorded in connection with the
transaction will be amortized over 30 years.
In May 2003, Sodexho Alliance received a purchase price complement of EUR
28.6 million in connection with the sale of its shares in Corrections
Corporation of America in fiscal 2001, which was recorded as exceptional income.
Divergences from French GAAP
The financial statements filed by the Group with the Commission des
Operations de Bourse (the regulatory authority in France) are prepared in
accordance with French GAAP. French GAAP does not permit retroactive adjustments
to financial statements. In order to comply with the requirements of the United
States Securities and Exchange Commission ("SEC"), the Group restated its
financial statements presented herein as of and for the year ended August 31,
2001 as described below. As a result, the financial statements presented herein
differ from those filed with the Commission des Operations de Bourse ("COB").
The Group's financial statements presented herein have been restated to
reflect revisions discovered in fiscal 2002 related to revenue recognition and
accounts receivable in the Group's grounds maintenance subsidiary located in the
United Kingdom. From fiscal 1999 and continuing through the first half of fiscal
2002, detailed record-keeping and documentation contractually required by
certain of the subsidiary's public authority clients were not maintained for
orders related to existing contracts. Accordingly, the related revenue
recognized by the subsidiary could not be supported. Under the requirements of
the SEC, prior year financial statements are restated to reduce revenue in the
period the overstatement occurred. Under accounting principles generally
accepted in France (Avis CNC No. 97-06) prior periods are not permitted to be
retroactively restated, and the overstatement of revenue has been recorded as an
exceptional expense when discovered in the year ended August 31, 2002.
A reconciliation of the amounts reported in accordance with French GAAP in
the Group's Document de Reference (Annual Report) filed with the COB and those
reported in this Form 20-F filed with the SEC, which have been adjusted for the
overstatement of revenues, follows:
Diluted
Net Earnings Earnings
Revenues EBITA Income per Share per Share
(millions of euro, except per-share amounts)
Fiscal 2002
Annual Report 12,612 528 183 1.15 1.13
Adjustment (3) (3) 19(1) 0.12 0.09
------ ---- ---- ----- -----
Form 20-F 12,609 525 202 1.27 1.22
====== ==== ==== ===== =====
Fiscal 2001
Annual Report 11,943 586 138 1.00 0.99
Adjustment (15) (15) (10) (0.07) (0.10)
------ ---- ---- ----- -----
Form 20-F 11,928 571 128 0.93 0.89
====== ==== ==== ===== =====
(1) Consists of an increase in exceptional income ofEUR 32 million partially
offset by a reduction in revenues ofEUR 3 million and an increase in
income tax expense ofEUR 10 million.
Changes in Accounting Principles
The financial statements have been prepared on a basis consistent with the
prior year, except with respect to the provision of EUR 19 million recorded in
financial expense in fiscal 2002 on Sodexho Alliance shares we acquired in
connection with employee stock option programs in order to reflect the lower of
cost or market. In conformity with Avis CNCC 98D, such provisions and the
release thereof are now included in exceptional items, where losses pertaining
to stock compensation are also recorded.
The Group adopted the accounting principles recommended by Regulation CRC
99-02 effective September 1, 2000. Following is a discussion of the significant
changes to the Group's accounting and reporting which resulted from the adoption
of these accounting principles.
o The presentation of the consolidated balance sheet, income statement and
statement of cash flows conforms to the presentation recommended by
Regulation CRC 99-02, with the inclusion of two additional balance sheet
line items, "Restricted cash" and "Vouchers payable", which relate to the
Service Vouchers and Cards activity.
o Effective September 1, 2000, both gains and losses realized on the
translation of foreign currency denominated monetary assets and
liabilities are recorded in the income statement. Previously, only
such losses were recorded. This change in accounting method has been
accounted for with the cumulative effect of the change reflected in
current period earnings.
o Employee profit sharing charges have been reclassified to employee
costs in all periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of Sodexho
Alliance, SA and its principal subsidiaries. Subsidiaries which are effectively
controlled by Sodexho Alliance are fully consolidated. Companies which are not
fully consolidated but over which Sodexho Alliance is able to exercise
significant influence, are accounted for using the equity method. All fully
consolidated companies that do not have an August 31 year-end are consolidated
on the basis of financial statements prepared on or around August 31 and for the
twelve month period then ended.
A number of companies having minimal impact on the Group's consolidated
financial statements have been excluded from consolidation, notably those having
sales of less than EUR 2 million, net income or loss of less than EUR 0.1
million, and total assets of less than EUR 2 million.
A list of subsidiaries and the Group's percentage interest and percentage
of voting rights held is provided in note 4.5.
Revenue Recognition
In the Food and Management Services activity, revenue is recognized in the
period in which services are provided pursuant to the terms of the contractual
relationships with clients. Revenues for the service voucher segment include
commissions received from customers, which are recorded upon issuance of the
vouchers to the customers; commissions received from affiliates, which are
recorded upon redemption of the vouchers; and investment income realized on the
nominal value of the vouchers during the period from their issuance through
redemption (generally one to three months).
Vendor Discounts and Allowances
Discounts and allowances obtained from vendors are recorded as a reduction to
the related costs in the income statement.
Employee Costs
Retirement Benefits
For funded plans to which the subsidiary makes a contribution, the amount
of the contribution is recorded as the expense of the plan. The Group's benefit
obligations relating to defined benefit pension and retirement indemnity plans
are recorded in the balance sheet.
Stock Options
Sodexho Alliance has acquired treasury shares in connection with its stock
option plans, which are included in marketable securities. A liability (and
corresponding expense) is recorded if at the closing date of the period, the
acquisition cost of the shares acquired is superior to the exercise price of the
options awarded. If the number of treasury shares acquired is less than the
number of options awarded, a liability (and corresponding expense) is recorded
for the difference between the market price at the end of the period and the
exercise price, multiplied by the number of remaining shares to be acquired for
the applicable tranche of stock options. This liability is subject to adjustment
in future periods based on movements in the market price of the Group's common
shares.
Exceptional income and expenses
Exceptional income and expenses are recorded for significant items which,
due to their unusual character and non-recurring nature, are not considered to
be inherent to the operating activities of the Group. In general, such costs
relate to gains or losses on asset dispositions, restructuring costs,
exceptional depreciation of fixed and intangible assets, or provisions or
expenses recorded in connection with stock option plans.
Earnings per Share
Earnings per share and diluted earnings per share are calculated using
methods recommended by Advice No. 27 of the Ordre des Experts Comptables.
Earnings per share is calculated by dividing group net income by the average
number of shares outstanding during the year, including treasury shares. In the
calculation of diluted earnings per share, the denominator is increased by the
number of potential shares outstanding, and the numerator is increased by the
net-of-tax interest income (calculated at the taux moyen mensuel du marche
monetaire euro) on the proceeds which would have resulted from the issuance of
these shares. The potential shares included in diluted earnings per share relate
to stock options awarded but not yet exercised and warrants outstanding from the
1996 bond issuance, which are exercisable prior to June 2004.
Foreign Currency Transactions and Translation
For subsidiaries located in countries with stable currencies, assets and
liabilities are translated using the end of period exchange rate. Income
statement and cash flow statement line items are translated using the average
exchange rate for the year, calculated using monthly averages. Exchange rates
used are obtained from the Bourse de Paris and other international financial
markets. The difference between the translation of the income statement at
average and period end rates, as well as the difference between the opening
balance sheet accounts as translated at beginning and end of period rates is
recorded in shareholders' equity. Foreign exchange gains and losses resulting
from intragroup transactions in foreign currencies during the year are recorded
in the income statement.
The financial statements of the following subsidiaries reflect currency
devaluations as required by local regulations:
Sodexho Chile (sub-consolidation)
Sodexho Pass Chile
Siges Chile
BAS Chile
Sodexho Peru
Sodexho Maintenimientos y Servicios (Mexico)
Prestaciones Mexicanas CA de CV (Mexico)
Sodexho Mexico
Promocupon (Mexico)
Sodexho Servicios Operativos (Mexico)
Sodexho Servicios de Personal (Mexico)
Luncheon Tickets (Argentina)
Sodexho Colombia
Sodexho Pass de Colombia
Sodexho Pass Venezuela
Sodexho Sitios Remotos de Peru
Sodexho Restoran Servisleri (Turkey)
Sodexho Toplu Yemek (Turkey)
Sodexho Argentina
Sodexho Venezuela Alimentacion y Servicios
Universal Sodexho Services de Venezuela
Universal Sodexho Empresa Servicios y Campamentos
The inclusion of monetary corrections imposed by local regulators on these
subsidiaries in the consolidated financial statements had no impact on the
income statement. Foreign currency translation differences for these
subsidiaries are recorded in the currency translation adjustment account in
shareholders' equity in the same manner as for the subsidiaries in countries
with stable currencies.
For subsidiaries located in highly inflationary countries, differences
between net income translated at average and period-end rates are included in
net financial expense. The impact of these differences on the consolidated
income statement was not significant in any of the periods presented. As of
August 31, 2003, none of the countries in which the Group operates was
considered to be highly inflationary.
Translation differences on monetary assets and liabilities denominated in
foreign currencies are recorded in the income statement. Translation differences
related to a monetary component of a net investment in a company within a
consolidated foreign subsidiary are recorded in consolidated shareholders'
equity until the sale or liquidation of the net investment.
Business Combinations
All of the Group's acquisitions have been accounted for as purchases.
Effective September 1, 2000, assets and liabilities of acquired companies have
been recorded at their respective fair values.
Goodwill
Goodwill represents the excess of acquisition cost over the identified
assets and liabilities assumed, including market share. Due to the long-term
nature of the Group's business, goodwill is generally amortized over thirty
years (on a pro rata basis in the year of acquisition). In fiscal 2002, an
exceptional charge of EUR 2.1 million was recorded relating to the IFREST
subsidiary. This valuation of goodwill on a historical basis is also supported
by a calculation of the current value of these assets as of August 31, 2003 and
based on discounted future cash flows.
Additional information pertaining to goodwill balances is provided in note
3.4.
Intangible Assets
In the allocation of purchase price with respect to the acquisitions of
Sodexho, Inc. (formerly, Sodexho Marriott Services, Inc.), Wood Dining Services,
Sogeres, Sodexho Services Group Ltd (formerly, Gardner Merchant), Sodexho
Scandinavia (formerly, Partena), and Universal Services, a portion of the
difference between the cost of the shares acquired and the Group's equity in the
underlying net assets of the entities acquired has been recognized as market
share. This intangible asset represents the value attributed to the significant
market shares held by the Group in the geographic regions specific to the
acquisitions (the United Kingdom and Ireland, the United States, the
Netherlands, France, Australia and Sweden).
Market share is principally determined based on an average of multiples of
revenues and EBITA achieved by the acquired companies in the applicable
countries as compared to unrelated recent transactions in the marketplace and is
reviewed annually for diminution in value. Market shares are not amortized in
the consolidated financial statements, and no deferred taxes are recorded on
market shares. If there is a significant diminution in the market share value
for more than two consecutive years, as recomputed based on actual results of
the applicable subsidiary as compared to the original calculation, it is written
down.
This valuation of market shares on a historical basis is also supported by
a calculation of the current value of these assets as of August 31, 2003 based
on discounted future cash flows.
Additional information pertaining to market share is provided in note 3.5.
Property, Plant and Equipment
Leased assets are recorded on the balance sheet as capital leases in
instances where a Group company is deemed to bear substantially all of the risks
and rewards of the leased asset. A corresponding obligation is recorded as a
liability, and the related rental expense is allocated between depreciation and
interest expense in the income statement.
Depreciation of property, plant and equipment is calculated on a
straight-line basis over the estimated useful lives of the respective assets
giving consideration to the local economic conditions and climate.
The following useful lives are generally used by Group companies:
o Software............................... 25%
o Enterprise resource planning system.... 20%
o Buildings.............................. 3.33 - 5%
o Facilities and fixtures................ 10%
o Plant and machinery.................... 10 - 50%
o Vehicles............................... 25%
o Office and computer equipment.......... 20 - 25%
o Other fixed assets..................... 10%
Organization Costs
Organization costs are capitalized and amortized over a maximum duration of
five years. These costs are included in other intangible assets.
Deferred Income Taxes
Deferred income taxes are recorded on temporary differences between the tax
basis of assets and liabilities and their carrying values for financial
reporting purposes as well as on consolidation adjustments.
As the pattern of temporary difference reversals is not fixed, deferred
taxes recorded on the balance sheet have not been present valued. In addition,
deferred tax assets pertaining to net operating loss carry-forwards (net of
deferred tax liabilities) are only recorded in cases where recovery is deemed
probable.
A reconciliation of income taxes computed at Sodexho Alliance's statutory
rate to the actual income tax provision is provided in note 3.3.
Deferred Charges
Deferred charges primarily include investments made in client facilities in
the U.S. and are amortized over the life of the related contract as well as
deferred financing costs, which are amortized over the maturity period of the
related debt.
Inventories
Inventories consist of food items and supplies, which are stated at the
lower of average cost or market, generally using the first-in, first-out method.
As of August 31, 2003, the gross value of inventories was EUR 172 million.
Accounts Receivable
Concentration of credit risk within accounts receivable is limited because
a large number of customers make up the Group's customer base, thus spreading
risk associated with trade credit. The Group generally does not require
collateral or specific guarantees.
The allowance for doubtful accounts is estimated based upon the risk of
non-recoverability of certain client receivables.
Further information pertaining to accounts receivable is provided in note
3.10.
Marketable Securities and Deposits
Marketable securities and deposits represent short-term investments akin to
cash equivalents and are generally recorded at the lower of cost or market
value. Also included in marketable securities and deposits are 2,528,062 Sodexho
Alliance shares purchased for a total amount of EUR 89 million. These shares
are to be used to fulfill our obligation with respect to Sodexho Alliance
employees and also to Sodexho, Inc. employees, who held Sodexho Marriott
Services, Inc. stock options which were rolled over into options to purchase
Sodexho Alliance shares in connection with the acquisition of the remaining 53%
of Sodexho Marriott Services, Inc. shares (also see note 3.2). As a result of
the decline in value of Sodexho Alliance shares as of August 31, 2002, the
shares potentially in excess of those needed to fund the stock option plan were
provisioned by EUR 19 million during fiscal 2002 in order to reflect their
market value as of August 31, 2002. As a result of the sale of some of the
shares during fiscal 2003, the shares were provisioned by EUR 7 million as of
August 31, 2003.
The fair value of marketable securities is presented in note 3.17.
Restricted Cash
Restricted cash represents funds set aside in order to comply with
regulations governing the issuance of restaurant vouchers in France (EUR 154
million as of August 31, 2003) and as a guarantee for commitments entered into
by Mexican affiliates (EUR 12 million as of August 31, 2003).
Vouchers Payable
Vouchers payable represents the face value of vouchers in circulation or
presented to Sodexho but not yet reimbursed to the affiliate.
Financial Instruments
Group policy is to finance acquisitions through borrowings in the acquired
company's currency generally at fixed rates of interest. In most cases where
variable rate debt has been negotiated, the variable rate interest is swapped
into fixed rates through the use of cross-currency or interest-rate swap
agreements. Similarly, in most cases where acquisition financing has been
negotiated in a currency other than that of the acquired company, a
cross-currency or currency swap agreement is negotiated.
The cross-currency and interest rate swap agreements are used by the Group
to manage its currency and interest rate exposures on its borrowings. All such
agreements are designated as hedges at contract inception. Any interest rate
differential is recognized as an adjustment to interest expense over the term of
the related underlying debt. For swaps negotiated on inter-company debt, the
difference between the amount of the debt at the period end rate and at the
swapped rate is recorded as debt. As a policy, the Group does not engage in
speculative transactions, nor does the Group hold or issue financial instruments
for trading purposes.
The fair values of financial instruments are presented in note 3.17.
Provisions for Losses and Contingencies
The Group applies the recommendations of Regulation CRC 2000-6. Provisions
for contingencies and losses are recorded when it is probable that a legal,
equitable or constructive obligation to sacrifice economic benefits to a third
party in the future without an expectation of receiving proceeds of a similar
amount from the third party.
2.ANALYSIS OF OPERATING ACTIVITIES AND GEOGRAPHIC INFORMATION
After reallocating management responsibilities for the remote sites and
river and harbor cruises activities to the applicable regions within the food
and management services activities in fiscal 2003, the Group changed the manner
in which it reports its operating segments. Accordingly, the Group now reports
two principal operating segments, which are Food and Management Services and
Services Vouchers and Cards. The Food and Management Services activity is
further segmented into four geographic regions. The Group reports the following
principal and secondary segments:
Food and management services
o North America, which now includes river and harbor cruise activities in the
North American region.
o United Kingdom and Ireland, which now includes river and harbor cruise
activities in the United Kingdom and Ireland.
o Continental Europe, which now includes river and harbor cruise activities
in Continental Europe.
o Rest of the World, which now includes activities on remote sites.
Prior years have been restated to conform to the current presentation.
Fiscal year ended August 31,
2003 2002 2001
(millions of euro)
Revenues by Operating Activity:
Food and Management Services
North America......................... 5,427 6,039 5,719
Continental Europe.................... 3,585 3,491 3,099
United Kingdom and Ireland............ 1,453 1,681 1,727
Rest of World......................... 974 1,119 1,134
------ ------ ------
11,439 12,330 11,679
Service Vouchers and Cards............. 248 279 249
------ ------ ------
11,687 12,609 11,928
====== ====== ======
Fiscal year ended August 31,
2003 2002 2001
(millions of euro)
Revenues by Geographic Region:
North America....................... 5,427 6,038 5,719
United Kingdom and Ireland.......... 1,465 1,691 1,731
France.............................. 1,734 1,715 1,370
Rest of Europe...................... 1,978 1,901 1,834
Rest of World....................... 1,083 1,264 1,274
------ ------ ------
11,687 12,609 11,928
====== ====== ======
August 31,
2003 2002
(millions of euro)
Net Fixed Assets by Operating Activity:
Food and Management Services
North America............................ 2,720 3,015
Continental Europe....................... 715 712
United Kingdom and Ireland............... 876 954
Rest of World............................ 148 158
Service Vouchers and Cards................. 147 132
Holding Companies.......................... 34 34
------ ------
4,640 5,005
====== ======
August 31,
2003 2002
(millions of euro)
Net Fixed Assets by Geographic Region:
North America............................. 2,720 3,015
United Kingdom and Ireland................ 876 957
France.................................... 364 363
Rest of Europe............................ 418 413
Rest of the World......................... 262 257
------ ------
4,640 5,005
====== ======
Fiscal year ended August 31,
2003 2002 2001
(millions of euro)
EBITA by Operating Activity:
Food and Management Services
North America....................... 268 293 294
Continental Europe.................. 167 150 139
United Kingdom and Ireland.......... 21 9 87
Rest of World....................... 18 31 28
Service Vouchers and Cards............ 68 77 61
Corporate Expenses.................... (28) (35) (38)
------ ----- ------
514 525 571
====== ===== ======
August 31,
2003 2002
(millions of euro)
Group Employees by Geographic Zone:
North America........................... 119,009 117,689
United Kingdom and Ireland.............. 51,843 61,835
France.................................. 30,465 30,477
Rest of Europe.......................... 49,897 49,438
Rest of the World....................... 57,171 55,702
------- -------
308,385 315,141
======= =======
Following is a presentation of revenues and EBITA by activity under the prior
presentation.
Fiscal year ended August 31,
2003 2002 2001
(millions of euro)
Revenues by Operating Activity:
Food and Management Services
North America...................... 5,387 5,995 5,657
Continental Europe................. 3,501 3,413 3,034
United Kingdom and Ireland......... 1,444 1,671 1,717
Rest of World...................... 477 566 581
------ ------ ------
10,809 11,645 10,989
Remote Sites......................... 543 590 579
Service Vouchers and Cards........... 248 279 249
River and Harbor Cruises............. 87 95 111
------ ------ ------
11,687 12,609 11,928
====== ====== ======
Fiscal year ended August 31,
2003 2002 2001
(millions of euro)
EBITA by Operating Activity:
Food and Management Services
North America....................... 270 297 295
Continental Europe.................. 158 140 129
United Kingdom and Ireland.......... 22 11 87
Rest of World....................... 6 7 0
Remote Sites.......................... 22 26 30
Service Vouchers and Cards............ 68 77 61
River and Harbor Cruises.............. 7 2 7
Corporate Expenses.................... (39) (35) (38)
------ ----- -----
514 525 571
====== ===== =====
3. ANALYSIS OF THE INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH FLOWS
3.1 Financial Expense, Net
Year ended August 31,
2003 2002 2001
(millions of euro)
Interest income................. 24 39 34
Net variation in financial
provisions..................... (3) (26) 2
Net exchange gains.............. (8) 1 1
Interest expense................ (165) (180) (159)
------ ------ ------
(152) (166) (122)
====== ====== ======
The improvement in net financial expense of EUR 14 million in fiscal 2003
was the result of the prior year reflecting a EUR 19 million provision, as
described below. Exchange losses increased by EUR 9 million from the prior
year when significant exchange gains were realized by our Luncheon Ticket
subsidiary on its investments in strong currencies prior to the devaluation of
the Argentine peso. Interest expense for fiscal 2003 primarily included EUR 38
million of interest expense on the credit facility arranged in April 2001 at the
Sodexho, Inc. subsidiary, and interest of EUR 91 million on the 1996, 1999 and
2002 bond issuances. Reimbursements of borrowings of EUR 74 million and the
decline of the U.S. dollar against the euro reduced our interest expense by
EUR 15 million.
The increase in financial provisions in fiscal 2002 mainly arose from the
recording of a provision of EUR 19 million on Sodexho Alliance shares we
acquired during fiscal 2001 and fiscal 2002 in connection with employee stock
option programs in order to reflect the lower of cost or market. Interest
expense for fiscal 2002 million primarily included EUR 80 million of interest
expense on the credit facility arranged in April 2001, interest of EUR 58
million on the 1996, 1999 and 2002 bond issuances, and fees of EUR 11 million
incurred in connection with various intercompany swap arrangements.
Interest expense for fiscal 2001 primarily included EUR 72 million of
interest expense on the Sodexho, Inc. debt, EUR 9 million in financing charges
related to the acquisitions of Wood Dining Services, Sogeres and the remaining
shares of Sodexho Marriott Services, Inc., and interest of EUR 32 million on
the 1996 and 1999 bond issuances.
3.2 Exceptional Items
Net exceptional income of EUR 1 million in fiscal 2003 included
EUR 28.6 million received in fiscal as a purchase price complement in
connection with the fiscal 2001 sale of the shares in Corrections Corporation of
America. This income was offset by EUR 13.6 million in losses and provisions
pertaining to Sodexho Alliance shares held and stock option plans, EUR 7.6
million in restructuring costs in our U.S. and U.K. subsidiaries and litigation
expenses of EUR 5 million.
Net exceptional income totaled EUR 55 million in fiscal 2002 and
primarily included the following items:
o a gain of EUR 49 million on the sale of our kitchen equipment
business (Lockhart) in the United Kingdom;
o income of EUR 37 million from the reduction of the stock
compensation liability recorded in connection with the acquisition of
the remaining shares of Sodexho Marriott Services. The stock
compensation liability recorded related to the rollover of the Sodexho
Marriott Services stock options, which were unvested as of the
transaction date, into options to purchase Sodexho Alliance shares.
The liability was calculated at the acquisition date based on a share
price of EUR 53.47. A portion of this income resulted from our
purchase of Sodexho Alliance shares on the open market for a lower
price, to be used for the stock option program. The remaining amount
resulted from a decrease in the amount of provision required for "in
the money" options as a result of the decline in the price of Sodexho
Alliance shares;
o restructuring costs totaling EUR 11 million, primarily for loss
ontracts, and receivables and fixed asset writedowns in the United
Kingdom; and,
o the recording of a EUR 11 million provision for legal and other
costs related to a discrimination lawsuit filed by ten current and
former Sodexho, Inc. employees.
Net exceptional charges of EUR 51 million for fiscal 2001 primarily
reflected the following: EUR 20 million in transaction-related expenses,
notably the expenses incurred by the Special Committee of independent directors
of Sodexho Marriott Services, Inc., name change costs and refinancing costs
relating to that acquisition; EUR 7 million in losses on the sale of CCA
shares received as a dividend; and EUR 21 million in provisions on the Group's
49.95% share of Attendo Care (formerly, Partena Care), a nursing home management
business in Sweden of which 50.05% was sold in fiscal 2000.
3.3Income Tax Provision
Following is a reconciliation of income taxes computed at Sodexho
Alliance's statutory rate to the actual income tax provision (in millions of
euro).
Year ended August 31,
2003 2002 2001
Income before exceptional items,
income taxes, income from equity
investees, and goodwill amortization........ 362 359 449
Exceptional items............................ 1 55 (51)
------- ------- -------
Income before taxes.......................... 363 414 398
Sodexho Alliance tax rate.................... 35.43% 35.43% 36.43%
------- ------- -------
Theoretical tax provision.................... 129 147 145
Effect of differing jurisdictional tax rates. 2 (10) (1)
Permanent differences........................ (7) (4) (4)
Long-term capital gains offset against
long-term capital losses.................... 0 0 (2)
Other taxes.................................. 4 (4) 13
Net operating loss carryforwards utilized
in the current year but generated in prior
years and not previously recognized......... (2) (3) (3)
Current year non-recognition of net operating
loss carryforwards.......................... 5 8 9
------- ------- -------
Tax provision................................ 131 134 157
======= ======= =======
Current income taxes......................... 140 129 137
Deferred income taxes........................ (9) 5 20
------- ------- -------
Total........................................ 131 134 157
Withholding taxes............................ 3 2
------- ------- -------
Total income taxes........................... 134 136 157
======= ======= =======
3.4 Goodwill
Additions Decreases
August 31, during the during the Translation August 31,
2002 year year adjustments 2003
(millions of euro)
Sodexho,
Inc.(including
Wood Dining
Services)..Gross 1,039.8 9.5 2.3 (78.0) 969.0
Accumulated
Amortization (61.2) (32.9) 3.7 (90.4)
Sodexho Services
Group (formerly,
Gardner
Merchant)..Gross 272.1 (22.2) 249.9
Accumulated
Amortization (68.8) (8.6) 5.9 (71.5)
Sodexho Pass
do Brazil
(formerly,
Cardapio)..Gross 63.4 25.6 (1.4) 87.6
Accumulated
Amortization (9.7) (2.9) 0.1 (12.5)
Sodexho Management
Services (formerly,
Marriott
UK)........Gross 56.0 (4.6) 51.4
Accumulated
Amortization (9.0) (1.8) 0.8 (10.0)
Sogeres.... Gross 56.0 0.5 56.5
Accumulated
Amortization (2.1) (1.9) (4.0)
Sodexho Scandinavian
Holding....Gross 53.7 2.3 (0.2) 55.8
Accumulated
Amortization (9.0) (1.8) (10.8)
Sodexho
Espana.... Gross 28.5 28.5
Accumulated
Amortization (7.4) (0.9) (8.3)
Sodexho
Belgique...Gross 22.9 22.9
Accumulated
Amortization (8.0) (0.7) (8.7)
Tillery Valley
Foods......Gross 22.7 (1.9) 20.8
Accumulated
Amortization (4.5) (0.7) 0.4 (4.8)
Luncheon
Tickets....Gross 22.5 22.5
Accumulated
Amortization (3.0) (0.7) (3.7)
Sodexho
Italie.....Gross 17.9 0.2 17.7
Accumulated
Amortization (2.4) (0.7) (3.1)
Universal
Services...Gross 17.2 17.2
Accumulated
Amortization (1.6) (0.5) (2.1)
Other goodwill
(gross amount
less than 15
million....Gross 172.4 2.7 3.3 (2.4) 169.4
Accumulated
Amortization (42.7) (7.5) (2.7) 0.4 (47.1)
Total goodwill
Cost............ 1,845.1 40.6 5.8 (110.7) 1,769.2
Accumulated
amortization... (229.4) (61.6) (2.7) 11.3 (277.0)
--------- ------ ----- ------- --------
Net book value. 1,615.7 (21.0) 3.1 (99.4) 1,492.2
3.5 Intangible Assets
Addi- Dec- Changes Trans-
tions reases in conso- lation
August during during lidation adjust- August
31, 2002 the year the year scope ments 31, 2003
(millions of euro)
Market Shares:
North America
(food and
management
services) 1,851.0 (185.3) 1,665.7
North America
(remote sites) 44.4 (4.4) 40.0
United Kingdom
and Ireland 589.3 (48.9) 540.4
Netherlands 86.1 86.1
Sweden 77.9 (0.5) 77.4
Australia 10.2 0.5 10.7
France 137.0 137.0
------- ----- ----- ----- ------ --------
Total Cost 2,795.9 0.0 0.0 0.0 (238.6) 2,557.3
Diminutions
in value
(Australia) (1.2) (0.3) (0.1) (1.0)
-------- ----- ----- ----- ------- --------
Net book value 2,794.7 0.0 (0.3) 0.0 (238.7) 2,556.3
Other Intangible Assets:
Cost 190.6 57.6 24.8 (0.3) (35.8) 187.3
-------- ------ ----- ----- ------- --------
Accumulated
amortization
and diminutions
in value (45.2) (26.9) (4.9) 9.6 (57.6)
-------- ------ ----- ----- ------- --------
Net book value 145.4 30.7 19.9 (0.3) (26.2) 129.7
Totals:
Cost 2,986.5 57.6 24.8 (0.3) (274.4) 2,744.6
Accumulated
amortization
and diminutions
in value (46.4) (26.9) (5.2) 9.5 (58.6)
-------- ------ ----- ----- ------- --------
Net book value 2,940.1 30.7 19.6 (0.3) (264.9) 2,686.0
======== ====== ===== ===== ======= ========
3.6 Property, Plant and Equipment
Addi- Dec- Changes Trans-
tions reases in conso- lation
August during during lidation August-
31, 2002 the year the year scope ments 31, 2003
(millions of euro)
Land
Cost 8.3 (0.5) 7.8
Diminutions
in value (0.4) (0.4)
-------- ------ ----- ----- ------- --------
Net book value 7.9 0.0 0.0 0.0 (0.5) 7.4
Buildings
Cost 74.8 3.7 2.1 (5.2) 71.2
Accumulated
depreciation (32.9) (3.9) (1.0) 3.4 (32.4)
-------- ------ ------ ----- ------- --------
Net book value 41.9 (0.2) 1.1 0.0 (1.8) 38.8
Facilities and fixtures
Cost 121.4 15.5 9.0 (3.9) 124.0
Accumulated
depreciation (70.8) (15.5) (6.6) 8.8 (70.9)
-------- ------ ------ ----- ------- --------
Net book value 50.6 0.0 2.4 0.0 4.9 53.1
Plant and machinery
Cost 360.1 44.9 16.1 0.8 (43.3) 346.4
Accumulated
depreciation (224.4) (50.2) (25.6) 0.1 30.7 (218.2)
-------- ------ ------ ----- ------- --------
Net book value 135.7 (5.3) (9.5) 0.9 (12.6) 128.2
Vehicles
Cost 87.0 4.4 6.4 0.1 (3.7) 81.4
Accumulated
depreciation (67.2) (7.6) (5.8) 7.7 (61.3)
-------- ------ ------ ----- ------- --------
Net book value 19.8 (3.2) 0.6 0.1 4.0 20.1
Office and computer equipment
Cost 178.3 22.8 12.6 0.2 6.2 194.9
Accumulated
depreciation (126.3) (27.8) (13.7) (0.1) 5.2 (135.3)
-------- ------ ------ ----- ------- --------
Net book value 52.0 (5.0) (1.1) 0.1 11.4 59.6
Other fixed assets
Cost 94.3 30.9 5.1 2.6 122.7
Accumulated
depreciation (31.6) (10.8) (3.6) (11.8) (50.6)
-------- ------ ------ ----- ------- --------
Net book value 62.7 20.1 (1.5) 0.0 (9.2) 72.1
Totals:
Cost 924.2 122.2 51.3 1.1 (47.8) 948.4
Accumulated
amortization (553.6) (115.8) (56.3) 0.0 44.0 (569.1)
-------- ------ ------ ----- ------- --------
Net book value 370.6 6.4 (5.0) 1.1 (3.8) 379.3
======== ====== ====== ===== ======= ========
3.6.1 Capital Leases
Assets recorded under capital lease arrangements totaled EUR 48 million as
of August 31, 2003 (EUR 44 million as of August 31, 2002), which was net of
amortization of EUR 72 million.
3.7 Financial investments
Increases/ Changes Trans-
(decreases) in conso- lation
August during lidation adjust- August 31,
31, 2002 the year scope ments 2003
(millions of euro)
Investment securities
Cost 19.5 1.8 (0.2) (0.6) 20.5
Diminutions
in value (8.6) (1.4) 0.5 (9.5)
------ ------ ----- ----- -----
Net book value 10.9 0.4 (0.2) (0.1) 11.0
Other investments
Cost 23.3 (1.0) (0.1) 22.2
Diminutions
in value (1.3) (1.3)
------ ------ ----- ----- -----
Net book value 22.0 (1.0) 0.0 (0.1) 20.9
Receivables from investees
Cost 14.2 0.5 (0.2) (0.8) 13.7
Diminutions
in value 0.0 0.0
------ ------ ----- ----- -----
Net book value 14.2 0.5 (0.2) (0.8) 13.7
Loans receivable *
Cost 7.5 (1.3) (0.1) 6.1
Diminutions
in value (0.1) (0.1)
------ ------ ----- ----- ------
Net book value 7.4 (1.3) 0.0 (0.1) 6.0
Deposits and other *
Cost 12.9 (0.8) 0.4 (0.5) 12.0
Diminutions
in value 0.0 0.0
------ ------ ----- ----- ------
Net book value 12.9 (0.8) 0.4 (0.5) 12.0
Total financial investments
Cost 77.4 (0.8) 0.0 (2.1) 74.5
Diminutions
in value (10.0) (1.4) 0.0 0.5 (10.9)
------ ------ ----- ----- ------
Net book value 67.4 (2.2) 0.0 (1.6) 63.6
====== ====== ===== ===== ======
* Included in working capital in the cash flow statement.
As of August 31, 2003, investment securities principally include a EUR 3
million investment in Stadium Australia Management, in which the Group owns
15.8% of the shares, a EUR 3 million investment in Leoc Japan Co (previously,
Sodex Japan Company Ltd), of which it owns 9.3%, and a EUR 1 million
investment in Societe Privee de Gestion, in which the Group owns 10.7% of the
shares.
3.8 Investments in Equity Investees
Companies accounted for under the equity method are listed in note 4.4.
Current Trans-
year net Current Changes lation Gross
August income year in conso- adjust- balance,
31, 2002 (loss) distri- lidation ments and August
bution scope other(1) 31, 2003
(millions of euro)
Equity method
investees 10.9 4.3 (3.3) 1.0 6.4 19.3
====== ===== ====== ====== ======= ======
(1) Translation adjustments and other are net of EUR 7.6 million classified as
provisions for contingencies and losses as of August 31, 2003, which
corresponds to our negative investment in three equity method investees.
3.9 Prepaid Expenses, Other Receivables and Other Assets
Diminutions Diminutions
Gross value, in value, Gross value, in value,
August 31, August 31, August 31, August 31,
2003 2003 2002 2002
(millions of euro)
Advances 8 10
Other operating
receivables 265 (1) 238 (2)
Investment receivables 3 1
Financing receivables 2 1
----- ----- ------ ----
Total other receivables 278 (1) 250 (2)
Prepaid expenses 70 64
Deferred financing charges 22 29
Other deferred charges (1) 170 155
Deferred tax asset 98 110
----- ----- ------ ----
Total 638 (1) 608 (2)
===== ===== ====== ====
(1) This item is classified as fixed assets in the cash flow statement.
3.10 Accounts and Other Receivables
Allow-
ance for Due Net
Gross Doubtful Net book Due from Due book
value, Accounts, value, within one to after value,
August August August one five five August
31, 2003 31, 2003 31, 2003 year years years 31, 2002
(millions of euro)
Accounts
receivable 1,447 (64) 1,383 1,378 5 0 1,456
======= ====== ====== ====== ==== ==== ======
Other
receivables 278 (1) 277 248 29 0 248
======= ====== ====== ====== ==== ==== ======
Prepaid
expenses 70 0 70 68 1 1 64
======= ====== ====== ====== ==== ==== ======
The allowance for doubtful accounts represents 4.4% of the accounts
receivable balance as of August 31, 2003.
3.11 Deferred Charges
Net book Net book
value, Due Due from value,
August 31, within one to Due after August 31,
2003 one year five years five years 2002
Deferred
financing costs 22 6 15 1 29
===== ====== ======= ====== =======
Deferred charges 170 40 86 44 155
===== ====== ======= ====== =======
Included in deferred charges are investments in client facilities in the
U.S. totaling EUR 124 million as of August 31, 2003 as well as EUR 20
million of bid costs on long term contracts, which are amortized over the
shorter of their estimated useful life and 10 years.
3.12 Deferred taxes
August 31,
2003 2002
(millions of euro)
Deferred tax assets 98 110
Deferred tax liabilities (17) (18)
----- -----
Net deferred tax assets 81 92
===== =====
As of August 31, 2003, deferred tax assets which were not recorded because
their realization was not considered probable totaled EUR 25 million. As of
August 31, 2002, deferred tax assets which were not recorded because their
realization was not considered probable totaled EUR 24.8 million.
The principal items giving rise to deferred tax assets and liabilities were
as follows:
August 31, August 31,
2003 2002
(millions of (millions of
euro) euro)
Temporary differences:
Employee benefits liabilities 94 94
Other temporary differences (22) (21)
Net operating loss carryforwards 9 19
------ -----
Net deferred tax assets 81 92
====== =====
3.13 Shareholders' Equity
Changes in shareholders' equity are as follows:
Addi- Foreign
tional cur- Group
Shares paid rency Trea- Share-
out Common in Retained trans- sury Net holders'
standing stock capital earnings lation shares income equity
(millions of euro)
Share-
holders'
equity,
August
31,
2001 157,559,654 630 1,141 432 86 (31) 128 2,386
Share
capital
increase 1,461,762 6 50 56
Dividend
payments
by the
holding
company
(net of
divi-
dends on
treasury
shares) 41 (128) (87)
Net income
for the
period 202 202
Foreign
currency
translation
adjustment (159) (159)
---------- ---- ---- ---- ----- ----- ----- ------
Share
holders'
equity,
August
31,
2002 159,021,416 636 1,191 473 (73) (31) 202 2,398
=========== ==== ===== ==== ==== ===== ===== =======
Share
capital
increase 149 0
Reclas-
sifica-
tion of
deferred
taxes on
share
capital
increase
expenses (5) 5 0
Dividend
payments
by the
holding
company
(net of
dividends
on treasury
shares) 88 (183) (95)
Net income
for the
period 162 162
Foreign
currency
translation
adjustment
and other (215) (1) (216)
---------- ---- ---- ---- ----- ----- ----- ------
Share
holders'
equity,
August
31,
2003 159,021,565 636 1,186 566 (288) (32) 181 2,249
=========== ==== ===== ==== ==== ===== ===== =======
3.13.1Indirectly Held Treasury shares
As of August 31, 2003, Sofinsod had a 5.56% indirect interest in Sodexho
Alliance, SA through its 14.4% interest in the capital of Bellon SA, which in
turn held 38.63% of Sodexho Alliance, SA.
As of August 31, 2003, Sofinsod had a 1.58% indirect interest in Sodexho
Alliance, SA, through its 100% interest in La Societe Financiere De La Porte
Verte, which in turn owns 4.1% of Bellon S.A., which in turn holds 38.63% of
Sodexho Alliance, SA.
3.14 Minority Interests
Changes in minority interests are as follows:
August 31
2003 2002
(millions of euro)
Minority interests, beginning of year 73 131
Share capital increase 0 0
Dividends paid (11) (15)
Net income for the period 9 13
Change in consolidation scope (2) (54)
Currency translation and other (3) (2)
------ -----
Minority interests, end of year 66 73
====== =====
3.15 Provisions for Contingencies and Losses
Provisions for contingencies and losses include the following amounts:
Trans-
Release lation Change
without Diffe- in
August corres- rences Consoli- August
31, Inc- Re- ponding and dation 31,
2002 rease lease charge Other Scope 2003
(millions of euro)
Sodexho Inc.
acquisition
provisions 5 (1) 4
Payroll and
other taxes 39 7 (4) (4) (2) 1 37
Contract
termination
costs 22 3 (10) (5) 1 11
Client and
supplier
litigation 5 3 (3) 5
Employee
litigation 18 8 (7) (1) (2) 16
Large repairs 6 3 (3) (1) 5
Equity method
investees 0 8 8
Other 4 3 (1) (1) (1) (1) 3
---- ---- ---- ---- ---- ---- ----
99 27 (28) (6) (4) 1 89
==== ==== ==== ==== ==== ==== ====
The following table summarizes the net impact to the income statement line
items of the increases and releases to provisions for contingencies and losses
as of August 31, 2003:
Increases Releases
(millions of euro)
Operating 14 (21)
Financial 0 0
Exceptional 13 (13)
------ ------
27 (34)
====== ======
3.16 Borrowings and Financial Debt
Future payments on borrowings and other debt balances as of August 31, 2003
were due as follows:
Less One to More Total Total
than one five than five August 31, August 31,
year years years 2003 2002
(millions of euro)
Bonds
Euro 341 1,300 1,641 1,642
---- ---- ----- ----- -----
Total bonds 341 0 1,300 1,641 1,642
Bank borrowings (1)
U.S. Dollars 157 795 1 953 1,175
Euro (126) (324) 62 (388) (501)
Pounds Sterling 86 (1) 85 224
Other currencies 31 14 45 41
---- ---- ----- ----- -----
Total bank
borrowings 148 484 63 69 939
Capital lease obligations
U.S. Dollars 3 4 7 12
Euro 15 19 4 38 36
Other currencies 3 3 4
---- ---- ----- ----- -----
Total capital
lease obligations 18 26 4 48 52
Other borrowings
Euro 3 1 4 5
Other currencies 1 1
---- ---- ----- ----- -----
Total other
borrowings 1 3 1 5 5
Bank overdraft balance
Euro 25 25 18
Pounds Sterling 70 70 31
Other currencies 4 4 6
---- ---- ----- ----- -----
Total bank
overdrafts 99 0 0 99 55
---- ---- ----- ------ -----
Total 607 513 1,368 2,488 2,693
==== ==== ===== ====== =====
(1) Includes impact of swaps; see notes 3.16.2 and 3.16.3 for further
information.
3.16.1 Bond Issues
August 31, Translation August
2002 Increase Repayments Differences 31, 2003
(millions of euro, except for number of securities)
1996 bond issuance -
FRF 2,000,000,000
Principal 305 305
Accrued
interest 4 4 4 4
------ ----- ----- ------ ------
Total 309 4 4 0 309
Number of
securities 400,000 400,000
1999 bond issuance
- EUR 300,000,000
Principal 300 300
Accrued interest 7 6 7 6
------ ----- ----- ------ ------
Total 307 6 7 0 306
Number of
securities 300,000 300,000
2002 bond issuance -
EUR 1,000,000,000
Principal 1,000 1,000
Accrued interest 26 26 26 26
------ ----- ----- ------ ------
Total 1,026 26 26 0 1,026
------ ----- ----- ------ ------
Total 1,642 36 37 0 1,641
====== ===== ===== ====== ======
EUR 305 million bond issue
On May 22, 1996, Sodexho Alliance issued 400,000 bonds with a face value of
EUR 762.25 per bond, representing a total of EUR 304,898,000. The bonds are
redeemable at par on June 7, 2004 and bear interest at 6% per annum, which is
payable on June 7 annually. Each bond carried a warrant, entitling the bearer to
purchase one Sodexho Alliance share prior to June 7, 2004 for EUR 24.71. After
giving effect to share issuances and stock splits, each warrant currently
entitles the holder to 16.66 shares per warrant. There were 374,773 warrants and
400,000 bonds outstanding as of August 31, 2003.
euro)300 million bond issue
On March 16, 1999, Sodexho Alliance issued 300,000 bonds of EUR 1,000
each for total proceeds of EUR 300 million. The bonds will be fully redeemable
at par on March 16, 2009. The bonds carry interest at 4.625% per annum, which is
payable on March 16 annually. There were 300,000 bonds outstanding at August 31,
2003.
EUR 1 billion bond issue
On March 25, 2002, Sodexho Alliance issued bonds totaling EUR 1 billion,
maturing on March 25, 2009, and carrying interest of 5.875% payable on March 25
annually.
3.16.2 Other Borrowings
As of August 31, 2003, portions of the three tranches of the credit
facility entered into in April 2001 and guaranteed by Sodexho Alliance had been
reimbursed as follows:
>> Tranche A totalingEUR 1,932 million was fully reimbursed as August 31,
2002;
>> Tranche B totaling U.S.$930 million, with quarterly repayments over the
next five years, of which the entire amount was outstanding as of August
31, 2001, was reimbursed for an amount of U.S.$232 million (pursuant to the
swap agreement described in note 3.17 below the U.S. dollar variable
LIBOR-based rate on this debt has been swapped for a fixed rate); and
>> Tranche C totaling U.S.$150 million, to be utilized for short-term
financing, working capital needs and for bank guarantees and reimbursable
in full in five years, of which U.S. $20 million was utilized as of August
31, 2003.
Covenants
The EUR 305 million and EUR 300 million bond issues, redeemable on June
7, 2004 and March 16, 2009, respectively, are not subject to any financial
covenants.
The credit facilities arranged in April 2001 with a syndicate of banks
amounted to U.S. $718 million as of August 31, 2003 and include accelerated
repayment conditions typical of this type of arrangement. Also included in the
terms are various specific covenants related to the level of ownership in
Sodexho Alliance by Bellon S.A., which is not permitted to be lower than 33.3%,
as well as to ratios pertaining to the Group's consolidated net debt, its EBITA,
and its net financial expense. These ratios, which are evaluated at each
half-year point and calculated based on a rolling 12 months, are as follows:
August 31, 2003
Net debt/EBITDA* < 2.25
EBITDA/financial expense* > 3.5
* These four terms are defined in the credit agreement. These definitions
differ in several respects from accounting definitions. For example, in
the definition provided in the covenants, net debt does not include
restricted cash. As such, the financial covenants cannot be
recalculated from the published financial statements.
The Group was in compliance with these covenants as of August 31, 2003.
Should a covenant requirement not be met, the banks representing more than two
thirds of the credit facilities are authorized to require accelerated repayment
of the balance of the credit facilities. Accelerated repayment of the credit
facilities gives the holders of the EUR 1 billion bond issue the right to
demand repayment of the bonds.
3.16.3 Interest rate swap agreements
In accordance with Group policy, the majority of variable rate borrowings
are swapped to fixed interest rates. If borrowings are arranged other than in
local currency, a currency swap agreement is negotiated. As of August 31, 2003,
91% percent of borrowings were at fixed rates (including those swapped) and the
average interest rate for fiscal 2003 was 5.5%.
3.17 Financial Instruments
The table below summarizes the impact on the financial statements of the
financial instruments described in note 3.16.
Equivalent
in millions Borrowings
of euro Borrowings Borrowings Borrowings in other
in euro in USD in GBP currencies Total
Borrowings
subject to
cross currency
agreements:
UK borrowings
- GBP 60 million
Due to
the bank -
GBP 60 million
86 86
Due from
the bank -
EUR 93.26 million (93) (93)
Sodexho
Scandinavia
borrowings -
SEK 150 million
Due to
the bank -
SEK 150 million 16 16
Due from
the bank -
EUR 16.7 million (17) (17)
Sodexho, Inc.
borrowings -
US $300 million
Due to
the bank -
US $300 million 275 275
Due from
the bank -
EUR 338.5 million (339) (339)
Other subsidiary
borrowings
Due to
the bank 9 9
Due from the bank (7) (1) (8)
Borrowings subject to
interest rate swap
agreements 68 593 0 0 661
Borrowings not subject
to hedging arrangements 0 85 0 20 105
----- ----- ---- ---- -----
Total borrowings (388) 953 85 45 695
3.17.1 Cross currency Swaps
In order to match the cash flows on debt repayments with the currency of an
operating subsidiary in the United Kingdom, in October 1999, the Group
negotiated a cross currency swap (capped LIBOR in pounds sterling against 5.25%
in pounds sterling against euro) on an intercompany loan of EUR 93 million.
The decrease in the value of the pound sterling against the euro decreased
borrowings as converted to euro by EUR 7 million related to this instruments
as of August 31, 2003.
In June 1999, a cross currency swap was negotiated on a loan of EUR 50.1
million (EUR 39 million as of August 31, 2002) to Sodexho Scandinavia Holding
AB (4.15% against a variable interest rate in Swedish crowns). The related debt
at the swapped rate totaled EUR 16.7 million. The swap terminates in August
2004.
In March 2002, a cross currency swap was negotiated on an inter-company
loan of U.S. $309 million to Sodexho, Inc. (6.325% against 6.5775% and in euro
against U.S. dollars) reimbursable on March 25, 2007. As of August 31, 2003,
the debt at the swapped rate totaled EUR 339 million. The decrease in the
dollar against the euro led to a decrease in the debt as converted to euro of
EUR 64 million.
3.17.2 Interest Rate Swaps
Several interest rate swaps (2.1% to 5.9% against US dollar LIBOR) with the
following maturities were negotiated in order to convert variable rate interest
to fixed on U.S.$698 million (EUR 639 million) drawn on Tranche B of the
credit facility described above. Following are the maturities of the underlying
notional amounts.
2003-2004 2004-2005
Interest rate swaps
(in millions of U.S. dollars 328 370
Interest rate swaps
(equivalent in euro) 300 339
In October 1999, the Group negotiated an interest rate swap maturing in
2004 on a notional amount of EUR 68 million, which converted fixed rate debt
at 5.2% to Euribor.
Fair Values of Financial Instruments
Following are the fair values of the Group's financial instruments as of
August 31, 2003:
ASSETS Net book value Fair value Difference
(millions of euro)
Financial fixed assets
Investments 11 11 0
Receivables from investees 14 14 0
Loans receivable 6 6 0
Other long-term investments 21 21 0
Other financial fixed assets 12 12 0
----- ---- ----
Total financial fixed assets 64 64 0
Equity method investees 19 19 0
Marketable securities and other
Cash 45 45 0
Term deposits 133 133 0
Debt securities 114 114 0
Mutual funds - SICAV 149 149 0
Listed securities 0 0 0
Mutual funds - other 12 12 0
----- ---- ----
Total 453 453 0
Sodexho Alliance shares (1) 89 65 (24)
----- ---- ----
Total marketable securities and other 542 518 (24)
Restricted cash 166 166 0
----- ---- ----
Total 791 767 (24)
===== ==== ====
LIABILITIES
Bonds
2002 EUR 1 billion bond issuance 1,026 1,096 70
1999 EUR 300 million bond issuance 306 304 (2)
1996 EUR 305 million
(FRF 2,000 million) bond issuance 309 314 5
----- ----- ----
Total bonds 1,641 1,714 73
Bank debt
Sodexho, Inc. borrowings 663 672 9
Swap on intercompany
loan with Sodexho Holdings Ltd (6) (7) (1)
Swap on intercompany loan
with Sodexho, Inc (64) (68) (4)
Other bank debt 102 102 0
----- ----- ----
Total bank debt 695 699 4
Bank overdrafts 99 99 0
Other borrowings 53 58 5
Total borrowings 2,488 2,570 82
Other liabilities
SMS acquisition debt (1) 35 11 (24)
----- ----- ----
Total 2,523 2,581 58
===== ===== ====
(1) A portion of the acquisition cost for the shares of Sodexho Marriott
Services, Inc. (now Sodexho, Inc.) acquired in June 2001 related to the
rollover of employee stock options, was considered payable in Sodexho
Alliance shares, which have not yet been issued. A liability was recorded
in other liabilities as of the acquisition date. This liability has been
revalued to reflect the price paid by Sodexho Alliance for shares it
acquired on the open market to be used in connection with this stock option
program. As of August 31, 2003, the fair value of the Sodexho Alliance
shares wasEUR 24 million lower than its net book value; the fair value of
the related debt wasEUR 24 million lower than its net book value.
3.18 Other liabilities
August 31, 2003 August 31, 2002
(millions of euro)
Advances from clients 171 130
Tax and employee liabilities 974 985
Other operating liabilities 59 81
Other non-operating liabilities 38 55
Deferred revenues 35 29
Deferred tax liabilities 17 18
----- -----
1,294 1,298
===== =====
3.19 Statement of Cash Flows - Additional Information
The table below provides additional information on the balance sheet line
items impacting the cash flow statement, excluding exchange rate variations,
changes in consolidation scope, or other variations not impacting cash flows.
3.19.1 Change in Working Capital
Assets Liabilities Total Change
(millions of euro)
Inventories 9
Accounts receivable, net of
allowance for doubtful accounts (5)
Other operating receivables (1)
Advances 8
Accounts payable 6
Vouchers payable 43
Taxes and social charges payable 36
Other operating payables 26
Deferred revenues 0
----- ----- -----
Change in working capital from
operating activities 11 111 100
===== ===== =====
Investment related receivables 2
Investment related payables (17)
----- ------ ------
Change in working capital
from investing activities 2 (17) (19)
===== ====== ======
Financing related receivables 22
Financing related payables (1)
----- ------ ------
Change in working capital
from financing activities 22 (1) (23)
===== ====== ======
3.19.2 Acquisitions of Tangible and Intangible Assets and Subsidiaries
The following table presents the cash flows for tangible and intangible
fixed assets for fiscal 2003.
Acquisitions Disposals Net
(millions of euro)
Tangible and intangible assets,
including certain deferred charges (239) 14 (225)
Variation in financial assets (2) 1 (1)
----- ----- -----
Total change in tangible
and intangible assets (241) 15 (226)
Acquisitions (disposals) of subsidiaries (37) 2 (35)
Less: capital gains taxes 0
Less: cash in acquired and
disposed of companies, net 3 (1) 2
----- ----- -----
Total change in consolidation scope (34) 1 (33)
----- ----- -----
Total (275) 16 (259)
===== ===== =====
3.20 Commitments
Commitments made as of August 31, 2003 (millions of euro) were as follows:
August 31,
August 31, 2003 2002
Less than 1-5 years > 5 years Total Total
1 year
Financial guarantees
to third parties 14 45 0 59 41
Performance bonds on
operating leases 13 20 0 33 62
Client performance
bonds 0 39 9 48 22
Other commitments 0 10 0 10 18
------ ------ ----- ----- -----
Total 27 114 9 150 143
====== ====== ===== ===== =====
With respect to the above table, there are no other significant off balance
sheet commitments.
Sureties
In connection with its Service Vouchers and Cards activity, Sodexho
Alliance and its subsidiaries have secured cash amounts with different financial
institutions, totaling EUR 18 million as of August 31, 2003. Other surety
arrangements (security granted over equipment or buildings used for collateral)
agreed to by Sodexho Alliance and its subsidiaries in fiscal 2003 were not
significant.
3.20.1 Commitments to purchase or sell shares in companies
Commitments made:
o Patriot Medical Technologies, Inc.
The Group has entered into a put agreement with the minority shareholders
of Patriot Medical Technologies, Inc. ("Patriot"), to acquire the remaining
shares outstanding during the period from March 3, 2003 to March 3, 2004 for
a total of U.S. $234,000 (EUR 0.2 million). As of August 31, 2003, a
portion of the put option had already been exercised, in the amount of U.S.
$100,000.
o Medcheque
The Group, through its Service Vouchers and Cards subsidiary in Brazil, has
entered into a put agreement with the minority shareholders of Medcheque to
acquire the remaining 35% of the shares outstanding during the period from
July 2004 to July 2006 for a total price of between EUR 7.7 million
(minimum assuming purchase is made in July 2004) and EUR 9.8 million
(maximum assuming purchase is made in August 2006).
o Abra (subsidiary of Sodexho Scandinavian Holding AB)
The Group, through its Sodexho Scandinavian Holding AB subsidiary, has
entered into a put agreement with the minority shareholders of Abra (located
in Norway) to acquire the remaining 15% of the shares outstanding by November
2005, at the latest, for a price based upon a profit multiple. The minimum
purchase price amount per the agreement is EUR 1.3 million and it is
estimated at EUR 2.3 million, based on current projections.
o Altys Multiservices
The Group has entered into a put agreement to acquire 1.5% of the
shares of Altys Multiservice from the minority share holders between
October 1 and November 30, 2007 for a purchase price based on a multiple of
the average economic profits as defined contractually in the year of
exercise with an adjustment based on the following year's results.
o Sodexho Italia
The Group has entered into a put agreement to acquire the remaining 2% of
the shares of Sodexho Italia from the minority share holders on July 1, 2010
at the latest for a purchase price based on a multiple of the average
economic profits as defined contractually.
o Baren Menu
The Group has entered into a put agreement to acquire the remaining 5% of
the shares of Baren Menu in Germany from the minority share holders on
December 31, 2005 at the latest for a purchase price estimated at EUR 0.25
million.
o Sodexho MM Catering
The Group has entered into a put agreement to acquire the remaining 9.5% of
the shares of Sodexho MM Catering from the minority share holders at any time
for a purchase price based on a multiple of the average economic profits as
defined contractually for a minimum amount of EUR 0.2 million.
Commitments received:
o Patriot Medical Technologies, Inc.
The minority shareholders of Patriot have entered into a call agreement with
the Group, which allows the Group, during the period from September 3, 2003
and September 3, 2005, to acquire the remaining outstanding shares of
Patriot, if any, for the greater of U.S. $2 million and five times Patriot's
EBITDA, reduced by adjustments defined in the contract between the parties.
o Medcheque
The minority shareholders of Medcheque have entered into a call agreement
to sell the remaining shares to the Group in accordance with the terms
described above.
o Abra (subsidiary of Sodexho Scandinavian Holding AB)
The minority shareholders of Abra have entered into a call agreement to sell
the remaining shares to the Group in accordance with the terms described
above, in November 2005 at the latest.
o Sodexho Italia
The minority shareholder of Sodexho Italia has entered into a call agreement
to sell the remaining shares to the Group in accordance with the terms
described above, on July 1, 2010 at the latest.
o Altys Multiservices
The minority shareholders of Altys Multiservice have entered into a call
agreement to sell the remaining shares to the Group (18.5% as of August 31,
2003) between October 1 and November 30, 2005 for a purchase price based on
a multiple of the average economic profits as defined contractually in the
year of exercise with an adjustment based on the following year's results.
3.20.2 Other commitments
Securitization
Our food service subsidiaries in the United Kingdom have securitized without
recourse a portion of their client receivables for an amount of EUR 82
million as of August 31, 2003.
Commitments for stock options in Sodexho Alliance shares
The Group has the following stock option commitments:
o 2,518,517 shares with an average exercise price of U.S. $26.35 to certain
employees of Sodexho, Inc., in connection with the
Group's acquisition of 53% of Sodexho Marriott Services, Inc. in June 2001.
These options are exercisable in the following periods:
o As from August 31, 2003 through August 31, 2011 at the latest: 1,651,722
shares
o As from August 31, 2004 through August 31, 2011 at the latest: 648,256
shares
o As from August 31, 2005 through August 31, 2011 at the latest: 218,539
shares
o 5,085,838 Sodexho Alliance shares granted by the Board of Directors to
Group employees in connection with various stock option plans. These
options are exercisable in the following periods:
o From January 2004 to January 2009: 744,262 shares at an exercise price
ofEUR 24.00
o From March 2004 to January 2005: 223,246 shares at an exercise price of
EUR 39.86
o From January 2005 to January 2009: 744,263 shares at an exercise price of
EUR 24.00
o From March 2005 to January 2006: 319,135 shares at an exercise price of
EUR 48.42
o From January 2006 to October 2007: 432,790 shares at exercise prices of
EUR 21.87 andEUR 47.00
o From January 2006 to January 2009: 744,262 shares at an exercise price of
EUR 24.00
o From January 2006 to March 2008: 1,133,617 shares at an exercise price of
EUR 47.00
o From January 2007 to January 2009: 744,263 shares at an exercise price of
EUR 24.00
In connection with its acquisition of Sogeres, the Group committed to
maintain Sogeres' stock option plan dated August 1, 1997. The Group committed to
acquire the Sogeres shares from the optionees through September 2004 and has
recorded a related liability in its accounts. As of August 31, 2003 this
liability totals EUR 0.7 million. A second stock option was established for
which the Group has committed to increase the capital of Sogeres for the benefit
of the optionees and to buy their shares no later than February 20, 2008. In
connection with this agreement, a provision of EUR 3.5 million was recorded in
the consolidated financial statements as of August 31, 2003.
Operating lease commitments
Operating lease commitments are as follows:
Less than one year............EUR 65 million
From one to five years........EUR 119 million
More than five years..........EUR 36 million
Operating lease commitments primarily relate to central kitchens under
tri-partite agreements for EUR 40 million and rents for office space and
various equipment.
3.21 Retirement plans
The following table presents defined benefit obligations by geographic
zones:
United
Kingdom and Continental August 31, August 31,
Ireland Europe Others 2003 2002
Benefit obligation
to employees 341 131 5 477 468
Liability recorded 0 75 5 80 84
Fair value of assets 228 41 0 269 261
Obligations recorded in the balance sheet
Obligations recorded as a liability in the balance sheet relate to
retirement indemnities and related payments totaling EUR 80 million.
Other obligations
As of August 31, 2003, retirement plan obligations which were not recorded
as a liability in the balance sheet because of the existence of an external fund
totaled EUR 397 million. Partially offsetting this amount are external funds
totaling EUR 269 million.
United Kingdom and Ireland
In the United Kingdom and Ireland, the retirement plan obligations for
which there is an external fund relate to a complementary retirement plan based
on a percentage of ending salary (affected personnel working in the private
sector) or based on comparable payments in the public sector (affected personnel
working in the public sector).
The obligations have been calculated using the projected unit credit
valuation method using the following assumptions:
Discount rate.......................... 5.3%
Rate of salary increase................ 3.9%
Inflation rate......................... 2.6%
Rate of return on plan assets.......... 6.3%
It was decided during fiscal 2003 to close the plan to new employees
effective July 1, 2003 and to increase the contributions to the funds, which
should allow for full coverage of the obligation at the end of a period of eight
years.
Continental Europe
In Continental Europe, the main defined benefit plan is in the Netherlands,
where retirement plan indemnities are provided to certain employees. The
obligations are calculated using the projected unit credit valuation method with
the following assumptions:
Discount rate.......................... 5.75%
Rate of salary increase................ 3.0%
Inflation rate......................... 2.0%
Rate of return on plan assets.......... 5.9%
United States
Our subsidiaries in the United States do not have significant defined
benefit plans. There is a defined contribution plan.
4. OTHER INFORMATION
4.1 Compensation, Advances, Loans and Retirement Plan Commitments Made to
Members of the Sodexho Alliance Board of Directors
Compensation totaling EUR 120,000 was allocated to members of the Board
of Directors during fiscal 2003 and EUR 30,000 was paid to the defined
contribution retirement plan for members of the Board of Directors of Sodexho
Alliance. There were no advances or loans to members of the Board of Directors
of Sodexho Alliance as of August 31, 2003.
4.2 Related Parties
Bellon S.A. holds 38.63% of the capital of Sodexho Alliance. Pursuant to an
agreement between Bellon S.A. and Sodexho Alliance, Bellon S.A. invoiced Sodexho
AllianceEUR 2.4 million for consulting and advisory services during fiscal 2003.
Sodexho Alliance paid dividends ofEUR 37.5 million to Bellon S.A. during fiscal
2003.
4.3 Legal Proceedings
In connection with the expansion of its activities in Lebanon, Sodexho Pass
International SA (SPI), a subsidiary of Sodexho Alliance SA, acquired 40% of the
share capital of Sodexho Pass Lebanon. Prior to the commencement of operating
activities, SPI exerted its right to cancel the agreement due to a
misunderstanding with one of the partners, the manager of Sodexho Pass Lebanon.
The Lebanon partners claimed damages from SPI. On February 20, 2003, the
Arbitration Court ordered Sodexho Pass International to pay U.S. $2 million.
This ruling was final and not subject to appeal. The amount paid was expensed as
an exceptional item during fiscal 2003.
On March 8, 2001, ten current and former employees of Sodexho, Inc., the
majority of whom had worked for Marriott Management Services, Inc. (later known
as Sodexho Marriott Services, Inc., and now known as Sodexho, Inc.) filed a
lawsuit against Sodexho, Inc. in the U.S. District Court for the District of
Columbia, alleging that they and other African-American salaried employees were
discriminated against on the basis of their race. The plaintiffs' complaint
alleges unspecified damages on behalf of a class of over 2,600 current and
former employees of Sodexho, Inc. relating to the period commencing March 27,
1998 and ending on July 1, 2001,as well as reimbursement of plaintiffs' costs
and attorneys' fees. Sodexho, Inc. has denied the plaintiffs' allegations and is
vigorously defending the lawsuit. On June 25, 2002, the district court certified
the case as a class action for purposes of determining liability. Sodexho,
Inc.'s requests for permission to appeal this decision have been denied by both
the U.S. Court of Appeals for the District of Columbia and the U.S. Supreme
Court. The parties to this litigation are currently engaged in discovery. A
resolution of plaintiffs' claims in their favor could have a material effect on
our net income. In fiscal 2002, a provision of U.S. $10 million (EUR 11
million at the fiscal 2002 exchange rate and EUR 9 million as of August 31,
2003) was recorded for defense costs anticipated in connection with this
lawsuit.
We are involved in a number of other legal proceedings incidental to the
normal conduct of our business. We do not believe that liabilities relating to
the these proceedings are likely to be, in the aggregate, material to our
business or our consolidated financial position.
4.4 Subsequent Events
There have been no significant events arising subsequent to August 31,
2003.
4.4 List of Subsidiaries
A list of subsidiaries and the Group's percentage interest and the
percentage of voting rights held is provided below. Unless indicated otherwise
by a percentage, the Group owns 97% or more of the outstanding shares of the
subsidiary. The annotation "N" denotes the 19 companies consolidated for the
first time in fiscal 2003. Two of these companies were acquired during the year,
and the remainder were newly created entities or previously deconsolidated
companies. The annotation "EM" denotes the 11 companies accounted for by the
equity method. All other companies are fully consolidated.
% voting Principal
% interest rights activity Country
France
Societe Francaise
de Restauration FMS France
Comrest FMS France
Sofomedi FMS France
Sorescom FMS France
Sorepar FMS France
Altys Multiservices 80% 80% FMS France
Altys Gestion FMS France
EM Saggel Holding 30% 30% FMS France
Societe Francaise
de Services FMS France
Societe Francaise
de Restauration
et Services FMS France
Societe Marseillaise
de Restauration
et Services FMS France
Societe de
Developpement
des Services
de Proximite 92% 92% FMS France
Sodequip FMS France
Societe Havraise
de Restauration
et Services FMS France
N O.L. Restauration 70% 70% FMS France
Ecorest 51% 51% FMS France
Sodexho Prestige FMS France
S.I.R. FMS France
C.I.R. FMS France
Siges FMS France
La Normande SA FMS France
La Normande Sarl FMS France
Hedelrest FMS France
R.G.C. FMS France
Sagere FMS France
Sogerest FMS France
Societe Bretonne
de Restauration
et Services FMS France
Societe Thononaise
de Restauration et FMS France
Services
Sogeres
(sub-consolidation) FMS France
Bateaux Parisiens
(sub-consolidation) RHC France
Armement Lebert
Buisson RHC France
Societe des
Thermes de
Neyrac-les-bains RHC France
Emis FMS France
Catesco FMS France
Sodexho Cheques
et Cartes de
Services SVC France
Sodexho Pass
International HOL France
Sodexho France HOL France
Universal Sodexho SA HOL France
Sofinsod HOL France
Etinbis HOL France
Etin HOL France
Gardner Merchant Groupe HOL France
Loisirs Developpement HOL France
Holding Altys HOL France
Astilbe 86% 86% HOL France
Holding Sogeres HOL France
N Sodexho Amerique
du Sud HOL France
N Sodexho Management HOL France
N Sodexho Europe
Continentale HOL France
N Sodexho Asie Oceanie HOL France
Sodexho I.S. & T. HOL France
Siges Guyane FMS France
Societe Hoteliere
de Tourisme de Guyane FMS France
Sodex'Net FMS France
Guyane Proprete FMS France
La Salamandre FMS France
Societe Guyanaise
de Protection et
Gardiennage FMS France
Sodexho Antilles FMS France
% interest % voting Principal Country
rights activity
Americas
Sodexho, Inc.
(sub-
consolidation) FMS USA
N Patriot
Clinical
Services 91% 91% FMS USA
N Sodexho
Vending
Services 51% 51% FMS USA
Spirit Cruises FMS USA
Delta Catering
Management 49% 49% FMS USA
Universal
Sodexho
(USA), Inc. HOL USA
Universal
Services
Partnership FMS USA
Universal
Services
Enterprises
LLC FMS USA
Sodexho Pass
USA SVC USA
Energy
Catering
Services
LLC FMS USA
Universal
Sodexho
Empresa de
Servicios y
Campamentos FMS Venezuela
Universal
Sodexho
Services de
Venezuela FMS Venezuela
Universal
Sodexho
do Brazil
Comercial
Ltda FMS Brazil
Sodexho Do
Brazil 90% 90% FMS Brazil
Sodexho
Argentina FMS Argentina
Sodexho
Colombia 65% 65% FMS Colombia
Sodexho
Venezuela
Alimentacion
y Servicios 70% 70% FMS Venezuela
Sodexho Costa
Rica FMS Costa Rica
Sodexho Mexico FMS Mexico
Doyon Universal
Services JV 50% 50% FMS USA
Sodexho Peru FMS Peru
Sodexho sitios
remotos de Peru FMS Peru
EM B.A.S. 33% 33% FMS Chile
N, EM B.A.S. II 33% 33% FMS Chile
Siges Chile FMS Chile
Sodexho Chile
(sub-consolidation) FMS Chile
Sodexho servicios
de personnel FMS Mexico
Sodexho
mantenimiento
y servicios FMS Mexico
Sodexho Pass
do Brazil HOL Brazil
Medcheque 65% 65% SVC Brazil
Cardapio
informatica SVC Brazil
National
administracao
de restaurentes SVC Brazil
Sodexho Pass
Do Brazil
Commercial E
Servicio SVC Brazil
Sodexho Pass Chile SVC Chile
Sodexho Pass
Venezuela 64% 64% SVC Venezuela
Sodexho Pass
de Colombia 51% 51% SVC Colombia
Luncheon Ticket 60% 60% SVC Argentina
Prestaciones
Mexicanas SA
de CV SVC Mexico
Sodexho Servicios
Operativos SVC Venezuela
% interest % voting Principal Country
rights activity
Africa
Universal
Sodexho Afrique FMS France
Universal
Sodexho
North Africa FMS France
Sodexho Nigeria FMS Nigeria
Universal
Sodexho Gabon 90% 90% FMS Gabon
N Sodexho Angola FMS Angola
Sodexho Pass
Tunisie 49% 49% SVC Tunisia
Sodexho Maroc SVC Morocco
Universal
Sodexho
Ecuatorial
Guinea 70% 70% FMS Equatorial
Guinea
Sodexho Cameroun 70% 70% FMS Cameroon
Universal
Sodexho Congo FMS Congo
Sodexho
Southern
Africa
(sub-
consolidation) 55% 55% FMS South Africa
Sodexho
Investments
Ltd HOL South Africa
Sodexho Tanzanie FMS Tanzania
% interest % voting Principal Country
rights activity
Europe
Sodexho Monaco FMS Monaco
Sodexho Belgique FMS Belgium
Altys Belgium FMS Belgium
Restaura FMS Belgium
N Altys Suisse FMS Switzerland
N Altys Deutschland FMS Germany
Sodexho Luxembourg
(sub-consolidation) FMS Luxembourg
Sodexho Italia
(sub-consolidation) FMS Italy
Sodexho D.O.O. FMS Slovakia
Sodexho Oy FMS Finland
N Coffee Queen Oy 92% 92% FMS Sweden
Sodexho Scandinavian
Holding (sub-
consolidation) FMS Sweden
Sodexho Espana
(sub-consolidation) FMS Spain
Sodexho Portugal
II Restauracao e
Servicios 90% 90% FMS Portugal
Sodexho Portugal
Catering FMS Portugal
Sodexho Hellas 51% 51% FMS Greece
Sodexho Catering
& Services Gm FMS Germany
Eiring S.C.S.
Catering
Services GmbH FMS Germany
Plauen Menu 90% FMS Germany
Baren Menu GmbH 95% 95% FMS Germany
Sodexho A.O. FMS Russia
N Sodexho Euroasia FMS Russia
Imagor Services HOL Belgium
Sodexho Catering Czech
Spol Sro FMS Republic
Sodexho
Skolni Czech
Hidelny Sro FMS Republic
Sodexho
Spolocne FMS Slovakia
Sodexho
Magyarorszag
Kft FMS Hungary
Zona Vendeglato
Kft FMS Hungary
Sodexho
Toplu Yemek FMS Turkey
Sodexho Polska
Sp. Zoo FMS Poland
Sodexho MM
Catering GmbH 91% 91% FMS Austria
EM Agecroft
Prison United
Management 50% 50% FMS Kingdom
Sodexho
Services United
Group Ltd HOL Kingdom
United
EM HPC Limited 25% 25% FMS Kingdom
Sodexho
International United
Holdings Ltd HOL Kingdom
Keyline
Travel United
Management FMS Kingdom
Sodexho United
Limited FMS Kingdom
Sodexho
Prestige United
Limited FMS Kingdom
Universal
Sodexho United
Scotland FMS Kingdom
Harmondsworth
Detention United
Services ltd 51% 51% FMS Kingdom
United
UKDS FMS Kingdom
Tillery
Valley
Foods Ltd FMS Kingdom
Rugby
Hospitality United
2003 Ltd 55% 55% FMS Kingdom
Sodexho
Defence United
Services Ltd FMS Kingdom
Sodexho
Land United
Technology Ltd FMS Kingdom
N Sodexho
Investments United
Services Ltd FMS Kingdom
N, EM Peterborough
Prison United
Management Ltd 33% 33% FMS Kingdom
N, EM Ashford
Prison United
Services Ltd 33% 33% FMS Kingdom
Sodexho
Holding United
Limited HOL
Sodexho
Education United
Servic Kingdom
Sodexho
Management United
Services Ltd FMS Kingdom
Sodexho
Healthcare United
Services Ltd FMS Kingdom
Sodexho
Support United
Services HOL Kingdom
Universal
Sodexho
Norway FMS Norway
Universal
Sodexho United
Holdings Ltd HOL Kingdom
Universal
Services United
Europe Ltd FMS Kingdom
Universal
Sodexho
Nederlands BV FMS Netherlands
Primary
Management United
Aldershot 60% 60% FMS Kingdom
EM Mercia
Healthcare United
Holding Ltd 25% 25% FMS Kingdom
EM South
Manchester United
Healthcare Ltd 25% 25% FMS Kingdom
Sodexho
Holdings -
Ireland Ltd HOL Ireland
Sodexho
Ireland
Limited FMS Ireland
Sodexho BV FMS Netherlands
Sodexho
Nederland BV FMS Netherlands
Sodexho
Prestige BV FMS Netherlands
Sodexho
Pass Belgique 70% 70% SVC Belgium
Special Event SVC Belgium
Sodexho Pass
Luxembourg SVC Luxembourg
Sodexho
Pass GmbH SVC Germany
Sodexho
Card
Services GmbH SVC Germany
Sodexho
Pass srl SVC Italy
Sodexho
Pass Espana 95% SVC Spain
Ticket Menu 95% 95% SVC Spain
Sodexho
Pass Austria SVC Austria
Sodexho United
Pass Limited SVC Kingdom
Sodehxo
Pass Hungaria Kft SVC Hungary
N Sodexho
Pass Bulgaria SVC Bulgaria
Sodexho
Pass Ceska Czech
Republika SVC Republic
Sodexho
Pass Slovak
Republic SVC Slovakia
Sodexho
Pass Polska SVC Poland
Sodexho
Restoran
Servisleri AS 80% 80% SVC Turkey
Sodexho
Pass Romania SVC Romania
Catamaran United
Cruisers FMS Kingdom
Compagnie
Financiere
Aurore
International HOL Belgium
Pakzon HOL Switzerland
% interest % voting Principal Country
rights activity
Asian - Pacific,
Middle East
Kelvin United
Catering Arab
Services 49% 49% FMS Emirates
Teyseer
Services
Company 49% 49% FMS Qatar
Socat LLC 50% 50% FMS Oman
Saudi
N.C.M.S. 50% 50% FMS Arabia
Abbar & Saudi
Zainy 50% 50% FMS Arabia
United
Arab
SISA (FZE) FMS Emirates
Restauration
Francaise (New-
Caledonia) 72% 72% FMS France
Sodexho
Nouvelle
Caledonie 54% 54% FMS France
SRRS
(la Reunion) FMS France
Sodexho -
Singapore FMS Singapore
Sodexho
Malaysia FMS Malaysia
Sodexho -
Hong Kong Ltd FMS Hong Kong
Sodexho Korea
Co Ltd FMS Korea
Universal
Sodexho United
Eurasia FMS Kingdom
Universal
Remote Site
Services FMS Singapore
Aims
Corporation FMS Australia
PT Universal
Ogden
Indonesia 50% 50% FMS Indonesia
Sodexho -
Australia FMS Australia
N Rugby
Hospitality
2003 Pty 55% 100% FMS Australia
EM Serco
Sodexho
Defence
Services
Pty Ltd 50% 50% FMS Australia
Sodexho
Venues
Australia
Pty FMS Australia
EM Serco
Sodexho
Defence
Services
New Zealand 50% 50% FMS New Zealand
Minesite
Catering
Pty Ltd FMS Australia
Sodexho
(Tianjing)
Catering
Company Ltd FMS China
Sodexho
Services
Company
Ltd Shanghai FMS China
Sodexho
(Suzhou)
Catering Company FMS China
Beijing
Sodexho
Catering
Services
Company Ltd FMS China
Guangzhou
Sodexho
Management
Services Ltd FMS China
Sodexho
Pass
Shanghai SVC China
Sodexho
India FMS India
Sodexho
Pass
Services
India 74% 74% SVC India
N Sodexho
Services
Liban 60% 60% FMS Lebanon
Sakhalin
Support
Services 95% 95% FMS Russia
Allied
Support
Sakhalin FMS Russia
Business: FMS = Food and Management Services, SVC = Service Vouchers and Cards,
HOL = Holding Company
5. DIFFERENCES BETWEEN FRENCH GAAP AND U.S. GAAP
The Group's consolidated financial statements have been prepared in
accordance with French GAAP which, as applied by the Group, differs in certain
significant respects from accounting principles generally accepted in the United
States of America ("U.S. GAAP"). The effects of the application of U.S. GAAP to
net income and shareholders' equity are set forth in the tables below:
5.1 Reconciliation of consolidated net income (loss)
For the year ended August 31,
2003 2002 2001
(millions of euro, except per-share amounts)
Net income 162 202 128
---- ----- -----
U.S. GAAP adjustments: (1)
(a) Business combinations (39) (100) (135)
(b) Stock-based compensation 5 (10) (2)
(c) Pensions and postretirement
benefits (27) (3) 2
(d) Investments in marketable
equity securities - - (35)
(e) Detachable stock
purchase warrants (7) (7) (6)
(f) Derivative financial
instruments 22 (6) 9
(g) Treasury shares 4 19 0
(h) Other, net (2) (4) (22)
(i) Deferred income
tax effect 29 45 27
---- ----- -----
Total U.S. GAAP adjustments (15) (66) (162)
---- ----- -----
Net income (loss),
as determined under U.S. GAAP 147 136 (34)
==== ===== =====
Earnings (loss) per share,
as determined under U.S. GAAP
(j) Basic earnings (loss)
per share 0.94 0.86 (0.25)
(j) Diluted earnings (loss)
per share 0.94 0.85 (0.25)
(1) Refer to note 5.5 for explanations.
5.2 Reconciliation of consolidated shareholders' equity
August 31,
2003 2002
(millions of euro)
Shareholders' equity 2,249 2,398
U.S. GAAP adjustments: (1)
(a) Business combinations (352) (337)
(b) Stock-based compensation 4 (1)
(c) Pensions and postretirement benefits (63) (26)
(e) Detachable stock purchase warrants 5 12
(f) Derivative financial instruments 6 (16)
(g) Treasury shares (78) (100)
(h) Other, net 12 15
(i) Deferred income tax effects (47) (65)
----- ------
Total U.S. GAAP adjustments (513) (518)
----- ------
Shareholders' equity,
as determined under U.S. GAAP 1,736 1,880
===== ======
(1) Refer to note 5.5 for explanations.
5.3 Statement of comprehensive income
SFAS No. 130, "Reporting Comprehensive Income", established standards for
the reporting and display of comprehensive income and its components.
Comprehensive income includes net income and all changes in equity during a
period that relate to transactions with other than owners, including foreign
currency translation adjustments, unrealized gains and losses on marketable
securities classified as available-for-sale, minimum pension liability
adjustments and certain unrealized gains and losses on derivative financial
instruments.
For the year ended August 31,
2003 2002 2001
(millions of euro)
Net income (loss),
as determined under U.S. GAAP 147 136 (34)
---- ---- ----
(d) Unrealized gains and losses on
available-for-sale securities(1):
Net unrealized holding loss
arising during the period (31)
Reclassification adjustment for
losses included in net income 31
(f) Change in fair value of
cash flow hedge(1) 4 (7) (6)
(c) Additional minimum
pension liability(1) (9) (33)
Foreign currency translation adjustments (223) (130) (53)
---- ---- ----
Other comprehensive income (loss),
as determined under U.S. GAAP (228) (170) (59)
---- ---- ----
Comprehensive income (loss),
as determined under U.S. GAAP (81) (34) (93)
==== ==== ====
(1) Refer to note 5.5 for explanations.
5.4 Condensed U.S. GAAP statement of operations
For the year ended August 31,
2003 2002 2001(1)
(millions of euro)
Revenues 11,690 12,618 7,557
Other operating income 57 78 24
Operating expenses,
excluding goodwill and
intangible assets 11,232
amortization 12,166 7,284
Goodwill and intangible
assets amortization 115 126 144
------- ------- ------
Operating income 400 404 153
Interest expense 158 203 109
Equity in income
(loss) of investees 4 6 2
Other non-operating
income (expense) 16 33 (7)
------ ------- ------
Income before income taxes,
minority interest and
extraordinary item 262 240 39
Income tax expense 105 91 61
Minority interest
in net income of
consolidated subsidiaries 9 13 9
------ ------- ------
Income (loss) before
extraordinary item 147 136 (31)
Extraordinary loss
on extinguishment of debt - - (3)
------ ------- ------
Net income (loss) 147 136 (34)
====== ======= ======
(1) For fiscal 2001, the most significant differences between the amounts
reported in accordance with French GAAP and those reported under US GAAP
relate to the accounting for Sodexho, Inc. (formerly, Sodexho Marriott
Services, Inc.). See note 5.5 (a) for additional information on the nature
of this accounting difference.
5.5 Notes to reconciliation of consolidated net income and consolidated
shareholders' equity
(a) Business combinations
Under French GAAP, all of the Group's business combinations are accounted
for as purchases. The cost of an acquired company is assigned to the tangible
and intangible assets acquired and liabilities assumed on the basis of their
fair values at the date of acquisition. Any excess of purchase price over the
fair value of the tangible and intangible assets acquired is allocated to
goodwill, which is amortized over its estimated useful life. Where the Group has
established a strong presence in a geographic market through an acquisition, an
additional intangible asset, market share, is recorded in the allocation of
purchase price. In accordance with French GAAP, this market share intangible
asset is not amortized. However, it is evaluated annually for impairment as
described in note 1. Deferred taxes are not recorded with respect to goodwill or
market share under French GAAP.
Under U.S. GAAP, all of the Group's business combinations are accounted for
as purchases. In accordance with SFAS 141, "Business Combinations", and related
interpretations (APB 16 prior to July 1, 2001), the cost of an acquired company
is assigned to the tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values at the date of
acquisition. In accordance with U.S. GAAP, customer relationships, trademarks,
workforce (prior to July 1, 2001 only) and software intangible assets were
identified with respect to the Group's acquisitions. As a result, part of what
was allocated to market share and goodwill under French GAAP is reallocated to
these identified intangible assets for U.S. GAAP. The remaining excess of cost
over fair value of the net assets acquired is recorded as goodwill. In
accordance with SFAS 142 (APB 17 prior to September 1, 2001) all intangible
assets acquired, including customer relationships, trademarks and software are
amortized over their estimated useful lives. In accordance with APB 17, goodwill
and assembled workforce were amortized through fiscal 2001; thereafter assembled
workforce has been reclassified to goodwill, which is no longer amortized. A
deferred tax liability is recorded with respect to all intangible assets except
goodwill. Generally, the amount assigned to goodwill is increased by an amount
equal to the deferred taxes recorded.
A summary of the composition of the aggregate adjustments included in the
reconciliations of consolidated net income (loss) and consolidated shareholders'
equity related to the Group's business combinations follows:
For the year ended August 31,
2003 2002 2001
(millions of euro)
Sodexho, Inc (30) (88) (74)
Gardner Merchant (11) (21) (39)
Other 2 9 (22)
----- ----- ------
(39) (100) (135)
===== ===== ======
For the year ended August 31, 2001, the effects of deferred income taxes
and minority interests pertaining to Sodexho, Inc. were included in the business
combinations adjustment as follows:
For the year ended
August 31, 2001
(millions of euro)
Sodexho, Inc.:
Adjustment before deferred
income taxes and minority interest (200)
Effect of deferred income taxes 68
Effect of minority interest 58
-----
Total Sodexho, Inc (74)
=====
The deferred income tax effect related to the adjustments for the
acquisition of Sodexho, Inc. (for fiscal 2003 and 2002), Gardner Merchant and
other business combinations is included in the reconciliations of consolidated
net income (loss) and consolidated shareholders' equity within the caption
"Deferred income tax effects." There is no minority interest impact related to
the adjustments for the Gardner Merchant acquisition or other business
combinations.
As of August 31, 2003, the principal effects on the Group's balance sheet
related to the accounting for business combinations were to increase goodwill by
EUR 1.4 billion, decrease intangible assets other than goodwill by EUR 1.5
billion and increase deferred tax liabilities by EUR 0.3 billion. As of August
31, 2002, the principal effects on the Group's balance sheet related to the
accounting for business combinations were to increase goodwill by EUR 1.5
billion, decrease intangible assets other than goodwill by EUR 1.6 billion and
increase deferred tax liabilities by EUR 0.4 billion.
The following table presents the allocation of intangible assets and
goodwill, their estimated useful lives and the related amortization expense.
Amortization Expense
August 31, Estimated Year Ended August 31,
2003 2002 Useful Life 2003 2002 2001
(millions of euro) (years) (millions of euro)
Customer
relationships 1,438 1,599 10 - 19 87 97 57
Assembled
workforce - - 6 - - 7
Trademarks 30 33 5 - - -
Software and other 182 226 3 - 7 28 29 16
Goodwill 3,257 3,484 - - 64
------- ------- ----- ----- -----
4,907 5,342 115 126 144
===== ===== =====
Accumulated
amortization (820) (828)
------- -------
Total intangible
assets and
goodwill, net 4,087 4,514
======== ========
Incremental U.S. GAAP amortization with respect to software and other
intangible assets totaled EUR 7 million, EUR 7 million and EUR 6 million
in fiscal 2003, fiscal 2002 and fiscal 2001, respectively, and principally
related to leased assets which are capitalized under U.S. GAAP but treated as
operating leases under French GAAP.
Additional information with respect to the differences between French GAAP
and U.S. GAAP for the Group's significant acquisitions is provided below.
Sodexho, Inc. (formerly Sodexho Marriott Services, Inc.)
Under French GAAP, the Group consolidated Sodexho, Inc., of which it owned
47.4% as of August 31, 2000, until the Group acquired the remaining shares on
June 20, 2001 (at which time it owned 46.9% of Sodexho, Inc.). French GAAP
generally requires consolidation of greater than 40%-owned subsidiaries if there
is no single more significant shareholder. Under U.S. GAAP, Sodexho, Inc. is
required to be accounted for by the equity method until the date when the
remaining shares were acquired. The reconciling items included in the tables
above related to net income and shareholders' equity principally reflect the
impact of re-allocating market share and goodwill, as recorded under French
GAAP, to identified intangible assets, including customer contracts, software
and assembled workforce as well as the related deferred tax effects. These
assets are being amortized over their estimated useful lives of 17 years, seven
years and six years, respectively, under U.S. GAAP for purposes of the
reconciliation. The remaining excess was allocated to goodwill which was
amortized over its estimated useful life of 30 years through August 31, 2001.
In connection with the acquisition of the 53% of Sodexho, Inc. it did not
already own, Sodexho Alliance agreed to convert the unvested stock options into
unvested Sodexho Alliance stock options. Sodexho Alliance recorded a liability
amounting to EUR 79 million in connection with this agreement, computed as the
aggregate intrinsic value of the options (using the market value of the
underlying shares of EUR 53.47 based on the average Sodexho Alliance share
price over the 20 days preceding the transaction). The liability was recorded as
part of the cost of the acquisition. For the year ended August 31, 2002, the
liability was reduced (with a corresponding benefit recorded in the income
statement) by EUR 37 million, which was computed as the lesser of a) the
original provision and b) the difference between EUR 53.47 per share and the
acquisition cost of the related treasury shares (see note 5.5 (h)). For the year
ended August 31, 2003, the liability was reduced (with a corresponding benefit
recorded in the income statement) by EUR 13.5 million, which was computed as
the lesser of a) the original provision and b) the difference between
EUR 53.47 per share and the acquisition cost of the related treasury shares
(see note 5.5 (h)).
Under U.S. GAAP, the portion of the intrinsic value of the rolled over
unvested options related to future service was recorded as unearned compensation
in shareholders' equity. The fair value of these stock options was recorded as
shareholders' equity.
Prior to its consolidation beginning June 20, 2001 under U.S. GAAP, the
impact of the adjustment related to the accounting for Sodexho, Inc. between
French and U.S. GAAP was more pronounced than it is currently, now that Sodexho,
Inc. is fully consolidated under both U.S. GAAP and French GAAP. For fiscal 2001
the impact of the adjustment on the statement of operations and balance sheet
was to decrease revenues and operating income by EUR 4,379 million euro and
EUR 291 million, respectively, and to increase total assets and total
liabilities by EUR 551 million and EUR 675 million, respectively. Beginning
June 20, 2001, Sodexho, Inc. is consolidated under French and U.S. GAAP. The
impact of the adjustment on the income statement is reflected in the condensed
U.S. GAAP income statement in note 5.4.
Gardner Merchant ("GM")
In accounting for the acquisition of the worldwide operations of GM in
1995, the Group allocated a significant portion of the excess of purchase price
over the fair value over the tangible assets acquired and liabilities assumed to
market share, which is not subject to amortization. Under U.S. GAAP, the excess
of purchase price over the fair value of the tangible assets acquired and
liabilities assumed was partially allocated to identifiable intangible assets,
including customer contracts, trademarks and assembled workforce, which are
being amortized over their estimated useful lives of 14 years, five years and
four years, respectively. The remaining excess was allocated to goodwill which
was being amortized over its estimated useful life of 30 years through August
31, 2001.
(b) Stock-based compensation
Stock purchase plan
In fiscal 2001 the Group created the Sodexho Alliance International
Employee Stock Ownership Plan in which approximately 150,000 employees of
Sodexho Alliance and its majority-owned subsidiaries were eligible to
participate. The plan offered two options to subscribe for shares. The first,
called Alliance Plus, allowed employees to invest up to 2.5% of their gross
annual pay. Each cash contribution was matched on a non-recourse basis by an
unaffiliated bank with an additional contribution equal to nine times the
employee's investment to be used towards the purchase of additional shares. If
the stock appreciates in value during the term of the plan, the employees repay
the matching funds to the bank and a portion of the stock's appreciation from
the proceeds of the sale of the stock. If the stock depreciates in value, the
employee is not responsible for reimbursing the bank for its loss. Under the
second plan, called Alliance Classic, employees were given the option of
investing up to 25% of their gross annual pay. The employee in both cases
benefited from a discount of up to 20% of the fair market value of the shares at
the time the shares were issued and was limited to a total subscription of 25%
of gross annual pay. On October 18, 2001, the Board of Directors issued
1,385,848 shares at an issue price of EUR 44.10 per share for United States
employees and EUR 41.51 for other employees.
Under French GAAP, these transactions are recorded directly in equity upon
issuance. Under US GAAP, the plan is considered compensatory and, therefore,
results in the recognition of compensation expense for the difference, if any,
between the fair value, as determined on the measurement date, and the purchase
price of the shares. Total compensation expense recognized under US GAAP with
respect to this plan was EUR 11 million for the year ended August 31, 2002.
Stock options
In addition, the Group has historically granted certain employees options
to purchase common shares of Sodexho Alliance. Under French GAAP, these
transactions have no impact on the income statement. For U.S. GAAP, the Group
has elected to account for its stock-based compensation plans in accordance with
the intrinsic value method prescribed by APB Opinion No. 25 which requires that
companies recognize total compensation cost equal to the excess, if any, of the
market price of the share over the exercise price of the option on the
measurement date. The measurement date is defined as the first date on which the
number of shares the employee is entitled to receive and the exercise price are
known. Option grants for which both the number of shares an employee is entitled
to receive and the exercise price are known on the date of grant are referred to
as "fixed" stock option grants. All other grants are considered to be "variable"
stock option grants. For fixed stock option grants, total compensation cost is
measured only once, on the date of grant. For variable stock option grants, this
excess is estimated periodically at interim dates and final measurement occurs
on the measurement date. Compensation expense for both fixed and variable option
grants is recognized over the employee service period, which is generally the
vesting period of the option, in accordance with the provisions of FIN 28. Total
compensation expense recognized under U.S. GAAP with respect to these stock
options was EUR 0.3 million, EUR 0.8 million and EUR 1.2 million and for
each of the years ended August 31, 2003, 2002 and 2001, respectively.
Other stock-based compensation
In addition to traditional stock option plans, certain of the Group's
subsidiaries have stock-based compensation plans whereunder an employee is
granted a number of hypothetical shares in the subsidiary ("phantom shares").
The employee is entitled to any appreciation in the value, as determined by
application of a formula based on a multiple of adjusted EBITA, of those phantom
shares. The employee's interest in that appreciation vests 100% after completion
of a service period (generally, between four and five years). For French GAAP,
compensation expense is recognized currently for the amount of the total
appreciation in the value of the phantom shares (or change in value in
subsequent periods) as computed based on the contractual formula. For U.S. GAAP,
the total compensation expense is computed in the same manner; however, the
expense is recognized ratably over the service period. Total compensation
expense recognized under U.S. GAAP with respect to these plans was EUR 1.4
million and EUR 1 million for the years ended August 31, 2003 and 2001
compared to EUR 3.4 million and EUR 0.5 million recognized under French GAAP
for the same period. There was no compensation expense recognized under U.S.
GAAP with respect to these plans for the year ended August 31, 2002.
(c) Pensions and postretirement benefits
Prior to fiscal 2001, the Group accounted for certain of its pension and
similar obligations on a pay as you go basis for French GAAP purposes. In fiscal
2001, a new accounting policy was adopted for French GAAP (except for funded
plans as described below) under which pension and similar obligations are
accrued using the projected unit credit valuation method. Accrued pension
obligations were recorded as an adjustment directly to shareholders' equity as
of September 1, 2000. However, for funded plans to which the Group subsidiary
makes a contribution, the amount of the contribution is recorded as the annual
expense of the plan.
Under U.S. GAAP, the Group accounts for its pension plans in accordance
with SFAS 87, "Employers' Accounting for Pensions." Transition obligations have
been calculated as of September 1, 1999 as permitted for companies outside the
United States and have been amortized over a period of 15 years from the initial
implementation date of SFAS 87 in 1989 for pensions and of SFAS 106 in 1995 for
other post retirement benefits. For the funded plans where the accumulated
benefit obligation exceeded the fair value of the plan assets as of August 31,
2003 and 2002, an additional minimum liability has been recorded, with a
corresponding entry recorded net of tax as accumulated other comprehensive
income, a component of shareholders' equity.
(d) Investments in marketable equity securities
The adjustment for investments in marketable equity securities relates
principally to the Group's investment in Corrections Corporation of America
("CCA"). Under French GAAP, this investment was considered an investment in a
non-consolidated company. Due principally to the uncertainty of the outcome of
litigation between CCA and some of its shareholders, the investment was fully
provisioned in fiscal 2000. Under U.S. GAAP, marketable equity securities are
classified as trading securities, available-for-sale securities, or
held-to-maturity. Available-for-sale securities are reported at market value,
with unrealized gains and losses excluded from earnings and recorded directly in
equity as a separate component of accumulated other comprehensive income.
Unrealized gains and losses on available-for-sale securities are generally
transferred from accumulated other comprehensive income to the profit and loss
account when they are realized. However, unrealized losses which are considered
other than temporary in nature are transferred to the profit and loss account
when such determination is made. The Group's investment in CCA is considered
available-for-sale under U.S. GAAP. Accordingly, under U.S. GAAP the Group's
investment in CCA was written down to its market value (EUR 35 million) as of
August 31, 2000 which resulted in a lower write-down than under French GAAP in
that year. The decline was considered other than temporary and, therefore, was
recognized in earnings of the period. During fiscal 2001, when the investment
was sold, an additional charge (EUR 35 million) was recorded under U.S. GAAP
to reflect the incremental decline in value from the August 31, 2000 until the
sale date. As of August 31, 2001, the Group had divested its entire investment
in CCA.
(e) Detachable stock purchase warrants
Under French GAAP, detachable stock purchase warrants issued in connection
with the issuance of debt obligations are not separated and accounted for apart
from the related debt instrument. Under U.S. GAAP, proceeds received for debt
obligations issued with detachable stock purchase warrants are required to be
allocated between the debt obligation and the stock purchase warrants. Amounts
allocated to the stock purchase warrants are accounted for as additional paid in
capital and debt discount. The debt discount is required to be amortized to
interest expense over the life of the debt obligation by the effective interest
method.
(f) Derivative financial instruments
Under French GAAP, the Group's derivative financial instruments, which
primarily include interest rate and cross-currency swap agreements on debt
instruments, are considered to hedge the underlying debt. Any interest rate
differential is recognized as an adjustment to interest expense over the term of
the related underlying debt. For swaps negotiated on intercompany debt, the
difference between the amount of the debt at the period end rates and the
swapped rates is recorded as debt. Where the hedge is of a net investment in a
foreign subsidiary, the resulting foreign currency translation difference is
recorded in the currency translation adjustment account in shareholders equity.
Under U.S. GAAP, all derivative instruments are required to be recorded on
the balance sheet at their fair value. Changes in fair value are recorded
currently in earnings unless the item is designated, qualifies, and is effective
as a hedge. Fair value is defined as the amount that would be paid or received
to terminate the derivative instrument at the balance sheet date. Changes in the
fair value of derivatives designated as part of a hedge transaction are recorded
each period in current earnings or other comprehensive income, depending on the
type of hedge transaction. For cash flow hedge transactions in which the Group
is hedging the variability of cash flows related to a variable rate asset,
liability, or a forecasted transaction, changes in the fair value of the
derivative instrument will be reported in other comprehensive income. The gains
and losses on the derivative instrument that are reported in other comprehensive
income are reclassified to earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
ineffective portion of all hedges is recognized in current period earnings.
Under U.S. GAAP, the Group has accounted for all of its derivative
financial instruments (other than those of Sodexho, Inc.) at fair value with
changes in fair value of instruments recognized currently in earnings. The
aggregate adjustment reflected in the reconciliation of consolidated
shareholders' equity and consolidated net income (loss) as of and for the year
ended August 31, 2001 for "Derivative financial instruments" is comprised
entirely of derivative financial instruments accounted for at fair value.
Under U.S. GAAP, Sodexho, Inc.'s interest rate agreements have been
designated as cash flow hedges in accordance with SFAS No. 133. As of August 31,
2002, and for the fiscal years ended August 31, 2002 and 2001, these cash flow
hedges were determined to be effective hedges, and accordingly, changes in fair
value are reflected in the statement of comprehensive income. The aggregate
adjustment related to derivative financial instruments accounted for as cash
flow hedges in accordance with SFAS No. 133, which is included within the
caption "Business combinations" in the reconciliations of consolidated
shareholders' equity and consolidated net income (loss), amounted to an increase
in consolidated shareholders' equity of EUR 4 million as of August 31, 2003
and a decrease of EUR 7 million as of August 31, 2002, and no adjustment to
consolidated net income (loss) for the year ended August 31, 2001.
(g) Treasury shares
Under French GAAP, treasury shares are recorded, at cost, as an asset in a
company's balance sheet when re-purchased for re-issuance in connection with
stock-based compensation plans. A provision is recorded when the shares are
expected to re-issued at below their recorded cost. Upon issuance, the
difference between the proceeds and the recorded cost, after giving
consideration to provisions, if any, is recognized in the profit and loss
account as a gain or loss. No provisions were recorded under French GAAP with
respect to the Group's treasury shares for the years ended August 31, 2003, 2002
(except as described in the following paragraph) or 2001.
During the years ended August 31, 2002 and 2003, the Group acquired
treasury shares to be reissued in connection with the exercise of certain
employee stock options (see note 5.5 (a)). To the extent that the treasury
shares were related to options whose exercise price was higher than the fair
value of the shares at August 31, 2003 and 2002 ("out of the money options"),
the Group had provisioned EUR 7 million and EUR 19 million, respectively,
representing the difference between the fair market value of the treasury shares
as of August 31, 2003 and 2002, respectively, and their cost. No provision was
recorded with respect to treasury shares held for reissuance in connection with
the exercise of in the money options (also see note 3.17 to the consolidated
financial statements).
Under U.S. GAAP, treasury shares are recorded, at cost, as a reduction of
shareholders' equity. Any difference between the recorded cost and proceeds
received on a subsequent issuance of the shares is also reflected directly in
equity.
(h) Other, net
Other consists of the impacts on net income (loss) and shareholders' equity
for the differences between U.S. GAAP and French GAAP summarized in the table
below:
Net Income (Loss) for the Year Shareholders' Equity
Ended August 31, as of August 31,
2003 2002 2001 2003 2002
Foreign currency
transactions - - (8) - -
Provisions for
contingencies
and losses (3) (4) (1) 2 5
Leases 1 (1) (3) (6) (6)
Scope of
consolidation - - (1) - (1)
Organization costs - 1 (1) - 0
Indirectly-held
treasury shares - - - 31 31
Deferred charges
and other - - (8) (15) (14)
----- ----- ----- ----- -----
Total - Other, net (2) (4) (22) 12 15
===== ===== ===== ===== =====
Foreign currency transactions
Under French GAAP (prior to the adoption of Regulation CRC 99-02),
unrealized gains and losses resulting from assets and liabilities denominated in
currencies other than a company's functional currency are deferred as
liabilities and assets, respectively, on a company's balance sheet. A separate
provision is recorded to recognize the unrealized losses at the balance sheet in
the profit and loss account. Unrealized gains are recognized when realized.
Under U.S. GAAP, unrealized gains and losses resulting from assets and
liabilities denominated in currencies other than a company's functional currency
are both recognized in the profit and loss account. Subsequent to the adoption
of Regulation CRC 99-02 for French GAAP (September 1, 2000 for the Group), there
is no difference between French GAAP and U.S. GAAP related to foreign currency
transactions. For the year ended August 31, 2001, the difference included in the
reconciliation of net income (loss) represents the reversal of the cumulative
effect adjustment recorded for French GAAP upon adoption of the provisions of
Regulation CRC 99-02 on September 1, 2000.
Provisions for contingencies and losses
Provisions for contingencies and losses may be recognized when there is a
possibility of loss and prudence is an important, although not the only,
consideration. In general, provisions for risks and charges represent
liabilities which have not been settled, or for which the settlement amount or
other pertinent information is unknown, as of the balance sheet date. Such
amounts are reflected as charges in the income statement in the period in which
they are provisioned.
Under U.S. GAAP, provisions for contingencies and losses (liabilities) are
recognized for specific existing risks when the related loss is both estimable
and probable and subject to additional criteria in certain situations, such as
business combinations and restructurings.
In fiscal 2001, the Group recorded a provision under French GAAP in the
amount of EUR 6 million related to performance guarantees with respect to its
investment in Attendo Care. Under French GAAP, the related expense is included
in "Exceptional (expense) income, net" in the consolidated income statement. The
adjustment to net income (loss) for the year ended August 31, 2001 included in
the table above for "Provisions for contingencies and losses" includes a
positive adjustment of EUR 5 million related to Attendo Care for provisions
which are not recognizable under U.S. GAAP. The Attendo Care adjustment is
offset by a negative adjustment of EUR 6 million related to a variety of other
provisions, principally the impact in fiscal 2001 of adjustments to August 31,
2000 balances primarily related to major repairs, reengineering costs, certain
tax risks, flood contingencies and other provisions which did not meet U.S. GAAP
criteria for liability recognition.
Leases
Under French GAAP, leases that transfer substantially all of the risks and
rewards of ownership to the lessee are accounted for as capital leases. All
other leases are accounted for as operating leases.
Under U.S. GAAP, lease accounting is based on a series of established
quantitative criteria. These criteria are: (i) the lease automatically transfers
ownership of the asset to the lessee at the end of the lease, (ii) the lease
contains a bargain purchase option exercisable by the lessee, (iii) the term of
the lease is equal to or greater than 75% of the estimated useful life of the
leased asset at lease inception and (iv) the present value of the future minimum
lease payments to be made pursuant to the lease agreement represents 90% or more
of the fair value of the leased asset at inception of the lease. A lease meeting
any one of these criteria is required to be accounted for as a capital lease by
the lessee. All other leases are required to be accounted for as operating
leases.
The aggregate impact of the capitalization of leases for U.S. GAAP on
total assets is an increase of EUR 61 million and EUR 67 million as of
August 31, 2003 and 2002, respectively. The aggregate impact on total
liabilities (debt) is an increase of EUR 64 million and EUR 71 million as of
August 31, 2003 and 2002, respectively.
Consolidation
Under French GAAP, the Group does not consolidate certain insignificant
subsidiaries. Under U.S. GAAP, the Group consolidates all subsidiaries which it
has the ability to control regardless of significance. The net impact on the
Group financial statements of consolidating these subsidiaries in U.S. GAAP was
not material in any of the periods presented.
Organization costs
Under French GAAP, certain organization costs are capitalized and amortized
over a period not exceeding five years. Under U.S. GAAP, organization costs are
required to be expensed as incurred.
Indirectly-held treasury shares
Under French GAAP, certain of the Group's outstanding common shares which
are indirectly owned by consolidated subsidiaries of the Group are considered
treasury shares (see note 3.13.1). A portion of the Group's investment in these
subsidiaries is reclassified and treated as a reduction of equity in the
consolidated French GAAP financial statements. Under U.S. GAAP, these
indirectly-held shares are not considered treasury shares because the
subsidiaries of the Group do not control the entity which actually owns the
shares in the Group. Therefore, no such reclassification between investments and
shareholders' equity is made under U.S. GAAP. Indirectly-held treasury shares
are considered outstanding for purposes of computing earnings-per-share under
French and U.S. GAAP.
Deferred charges and other
Under French GAAP, certain costs, such as costs incurred for strategic
consultancy studies and, in certain cases, contract mobilization costs, can be
capitalized and amortized over their estimated useful lives of three to five
years, if the cost is expected to provide a future benefit. U.S. GAAP requires
that such costs be expensed as incurred.
(i) Deferred income tax effect of U.S. GAAP adjustments
This reconciliation item includes the tax effects of the U.S. GAAP
adjustments reflected in the reconciliations of shareholders' equity and net
income (loss) except for the adjustments related to SMS for fiscal 2001 (which
was recorded using the equity method of accounting through June 20, 2001 for
U.S. GAAP),which are reflected net of taxes in the business combinations
adjustment.
(j) Earnings per share
Under French GAAP, earnings per share is computed as the Group's share of
consolidated net income divided by the weighted average number of shares
outstanding during the period, including treasury shares. In the calculation of
diluted earnings per share under French GAAP, the denominator is increased by
the number of potential shares outstanding, and the numerator is increased by
the net-of-tax interest income on the proceeds which would have resulted from
the issuance of these shares. The potential shares included in diluted earnings
per share relate to stock options awarded but not yet exercised and warrants
outstanding from the 1996 bond issuance.
Under U.S. GAAP, companies are required to present their earnings per share
on a basic and diluted basis. Basic earnings per share are computed as net
income available to common shareholders divided by the weighted average shares
outstanding for the period. For purposes of computing the weighted average
shares outstanding for the period, treasury shares are not considered
outstanding. Diluted earnings per share are computed after giving effect to all
dilutive potential common shares outstanding during the period. Net income
available to common shareholders is adjusted to add back items such as interest
expense on convertible debt. The number of weighted average shares outstanding
is adjusted to include the number of additional common shares that would have
been outstanding if dilutive potential common shares had been issued. Dilutive
potential common shares includes such items as stock purchase options, stock
purchase warrants and convertible securities.
The number of shares used to compute basic and diluted earnings per share
under U.S. GAAP is summarized below:
August 31,
2003 2002 2001
Basic earnings (loss) per share 156,422,010 157,395,975 137,689,214
Diluted earnings (loss) per share 156,422,141 159,953,836 137,689,214
For Fiscal 2001, the number of weighted average shares used to compute
diluted earnings per share is the same as the number used to compute basic
earnings per share because the Group's outstanding stock options and warrants
are anti-dilutive for that period (since the Group reported a net loss for U.S.
GAAP). Had the Group reported net income the number of shares used to compute
Fiscal 2001 diluted earnings, per share in accordance with U.S. GAAP
would have been 141,039,135.
5.6 New U.S. GAAP accounting pronouncements
In January 2003, the FASB issued FASB Interpretation, FIN No. 46,
Consolidation of Variable Interest Entities, which is an interpretation of
Accounting Research Bulletin, ARB No. 51 Consolidation of Financial Statements.
FIN No. 46 provides additional guidance regarding how to identify variable
interest entities and how an enterprise assesses its interest in the variable
interest entity to determine whether an entity is required to be consolidated.
The interpretation establishes that an enterprise consolidate a variable
interest entity if the enterprise is the primary beneficiary of the variable
interest entity. The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entity's expected losses, receives a
majority of its expected residual returns, or both, as a result of holding
variable interests, which are the ownership, contractual, or other pecuniary
interests in an entity. This interpretation applies immediately to variable
interest entities created after January 31, 2003 and to variable interest
entities in which an enterprise obtains an interest after that date. For
interests in variable interest entities existing as of January 31, 2003, the
guidance of FIN No. 46 will apply in the first fiscal year or interim period
beginning after June 15, 2003. The adoption of FIN No. 46 did not have a
significant impact in the current year and is not expected to have a significant
impact in future years on our consolidated results of operations, financial
position, or cash flows.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which is an Interpretation of FASB
Statements No. 5, 57 and 107 and Recission of FASB Interpretation No. 34. FIN 45
relates to the accounting for and disclosure of guarantees and requires that
upon issuance of a guarantee, the entity (i.e., the guarantor) must recognize a
liability for the fair value of the obligation it assumes under that guarantee.
Many guarantees are embedded in purchase or sales agreements, service contracts,
joint venture agreements, or other commercial agreements and the guarantor in
many such arrangements does not receive a separately identifiable upfront
payment for issuing the guarantee. FIN 45 requires identical accounting for
guarantees issued with or without a separately identified premium. FIN 45 covers
guarantee contracts that have four specific characteristics, excludes some
guarantee contracts entirely from its scope and excludes certain types of
guarantees (a guarantee issued between parents and their subsidiaries) from its
initial recognition and measurement but for which they are subject to its
disclosure requirements. The initial recognition and initial measurement
provisions applied immediately to guarantees issued or modified after December
31, 2002. The adoption of FIN 45 did not have a significant impact in the
current year and is not expected to have a significant impact in future years on
our consolidated results.
EITF Issue No. 02-16, Accounting for Consideration Received from a Vendor
by a Customer (Including a Reseller of the Vendor's Products), addresses how a
customer of a vendor's products should account for cash consideration received
from the vendor. EITF 02-16 requires that, for new arrangements entered into
after December 31, 2002, cash consideration received by a customer from a vendor
is presumed to be a reduction of the prices of the vendor's products or services
and should be characterized as a reduction of cost of sales. However, that
presumption may be overcome if the consideration is either (1) a reimbursement
of costs incurred by the customer to sell the vendor's products, which should be
characterized as a reduction of that cost or (2) a payment for assets or
services delivered to the vendor, which should be characterized as revenue.
Additionally, if consideration received by the customer for reimbursement of
costs the customer incurred to sell the vendor's products is more than the
actual costs incurred by the customer, then any "excess" should be treated as a
reduction of the prices of the vendor's product. EITF 02-16 also requires that,
for arrangements entered into after November 21, 2002, assuming the customer can
reasonably estimate the rebate or refund and it is probable that the specified
target will be attained, such amount should be recognized as a reduction of the
cost of sales based on a systematic and rational allocation of the cash
consideration to each of the underlying transactions that results in progress by
the customer toward earning the rebate or refund. If attaining the milestone is
not probable, then the rebate or refund should be recognized as the milestone is
achieved. The adoption of EITF 02-16 did not have a significant impact on our
financial statements.
5.7 Other disclosures
The following are supplemental disclosures which pertain to the Group's
financial statements as prepared in accordance with French GAAP.
(a) Impairment of long-lived assets
Tangible fixed assets (property, plant and equipment) are written down to
estimated net realizable value when changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is determined for
each group of asset by considering management's expectations of future economic
and operating conditions of the respective assets to be held for use. Should
this determination indicate that an asset is impaired, a write-down is
recognized which is equal to the difference between carrying value and fair
value. Fair value is determined on the basis of market prices.
Intangible assets and goodwill are written down to estimated net realizable
value when negative conditions are identified. Impairment is determined based on
an estimation of value and future benefits of the intangible assets. Should this
determination indicate that an intangible asset or goodwill is impaired, the
related amortization period is revised or a write-down is recognized. Impairment
for market share intangible assets are recognized as a diminution in value in
accordance with the policy described in note 1.
(b) Allowance for doubtful accounts
Set forth below is a table which provides information on the Group's
allowance for doubtful accounts.
August 31,
2003 2002 2001
(millions of euro)
Balance at beginning of period 60 57 59
Additions 14 29 8
Deductions (3) (20) (11)
Scope of consolidation and
currency translation adjustment (7) (6) 1
----- ----- -----
Balance at end of period 64 60 57
===== ===== =====
(c) IAS 7 Consolidated Statements of Cash Flow
Following are consolidated statements of cash flows presented in accordance
with IAS 7:
Years ended August 31,
2003 2002 2001
(millions of euro)
Cash flows from operating activities
Group net income 162 202 128
Minority interests in net income 9 13 67
Net (income) loss from equity
method investees, net of
dividends received (1) (3) 2
Adjustments for:
Depreciation and provisions 153 187 113
Goodwill amortization 62 67 44
Deferred taxes (9) 5 20
Less: gains or losses
on disposal net of tax 14 (61) 26
------ ------ ------
Operating profit before working
capital changes 390 410 400
Increase in inventories (9) 8 (8)
Increase in account receivables 5 (29) (23)
Increase in prepaid expenses,
other receivables and other assets (7) (54) (7)
Increase in accounts pay 6 78 114
Increase in vouchers payab 43 126 110
Increase in other liabilities 62 80 (32)
------ ------ ------
Net cash flow from operating
activities 490 619 554
------ ------ ------
Cash flows from investing activities
Purchases of tangible and
intangible fixed asset (241) (297) (233)
Acquisitions of subsidiaries
net of cash acquired (34) (97) (1,741)
Proceeds on disposal
of fixed assets 14 81 31
Decrease (increase)
in loans to equity
method investees - 1 (4)
Other investing activities (18) (3) (12)
------ ------ --------
Net cash used in investing
activities (278) (315) (1,959)
------ ------ ------
Cash flows from financing activities
Dividends paid (94) (87) (74)
Dividends paid to minority
shareholders (11) (15) (9)
Proceeds from issuance of
share capital, including
minority interests - 59 1,020
Purchases of treasury shares 23 (90) (28)
Proceeds from long-term
borrowings 57 1,113 1,966
Repayment of borrowings (178) (1,146) (1,142)
Increase (decrease)
in bank overdrafts 47 7 11
Other financing activities (21) (1) (9)
------ ------ --------
Net cash provided by (used in)
financing activities (177) (160) 1,735
------ ------ ------
Net increase in cash and
cash equivalents 35 144 330
------ ------ --------
Cash and cash equivalents at
beginning of period 1,211 1,185 896
Net effect of exchange
rates on cash (54) (118) (41)
------ ------ --------
Cash and cash equivalents at
end of period 1,192 1,211 1,185
====== ====== ========
Cash and cash equivalents include marketable securities, which are short-term
investments readily convertible to cash and with maturities of three months or
less (excluding treasury shares totaling EUR 96 million, EUR 119 million and
EUR 28 million as of August 31, 2003, 2002 and 2001) and restricted cash,
which are compensating balances.
(d) Provisions for contingencies and losses
Following is supplemental information pertaining to the provisions for
contingencies and losses recorded by the Group in accordance with French GAAP as
listed in note 3.15:
Sodexho, Inc. acquisition provisions
The Sodexho, Inc. acquisition provisions were recorded in connection with
the 1998 transaction with Marriott Management Services, and primarily
represented an unfavorable contract for food and supply distribution and
restructuring costs, principally related to employee termination, relocation of
facilities and closures, related to Sodexho North America.
Payroll and other taxes
The payroll and other taxes provision relates to payroll and other tax
exposures, including sales and use taxes in the United States, in the various
countries in which the Group operates.
Contract termination costs
The provision for contract termination costs relates to anticipated costs
to exit certain client relationships, generally in acquisition situations.
Client, supplier and employee litigation
Client, supplier and employee litigation provisions relate to pending or
threatened litigation.
Large repairs
Large repairs provisions represent significant anticipated costs to
maintain certain facilities.
Incentive compensation
Provisions for incentive compensation were recorded with respect to the
subsidiary level formula based stock option plans, which were discontinued in
fiscal 2001.
Under-utilized premises
Under-utilized premises are recorded in order to fair value leased premises
of acquired companies.
Other
Other provisions include re-engineering costs, exchange loss risks and flood
contingencies related to the River and Harbor Cruises activity.
Exhibit 2.1 Composite Conformed Term and Revolving Facilities Agreement
TERM AND REVOLVING FACILITIES AGREEMENT
1,932,500,000 and US$1,080,000,000
FACILITY AGREEMENT
dated 6 April 2001
(as amended by a letter dated 27 April 2001 and an Amendment and Restatement
Agreement dated 8 June 2001) for SODEXHO ALLIANCE, S.A.
arranged by CITIBANK INTERNATIONAL plc GOLDMAN SACHS INTERNATIONAL and SG
INVESTMENT BANKING with SOCIETE GENERALE acting as Agent and SOCIETE GENERALE
acting as Issuing Bank
LINKLATERS
Ref: PHPS
CONTENTS
CLAUSE PAGE
SECTION 1
INTERPRETATION
1. Definitions and interpretation 1
SECTION 2
THE FACILITIES
2. The Facilities 20
3. Purpose 20
4. Conditions of Utilisation 21
SECTION 3
UTILISATION
5. Utilisation - Loans 24
6. Utilisation - Letters of Credit 26
7. Letters of Credit 31
8. Optional Currencies 35
SECTION 4
REPAYMENT, PREPAYMENT AND CANCELLATION
9. Repayment 37
10.Prepayment and cancellation 38
SECTION 5
COSTS OF UTILISATION
11. Interest 42 12. Interest Periods 44
13. Changes to the calculation of interest 46
14. Fees 47
SECTION 6
ADDITIONAL PAYMENT OBLIGATIONS
15. Tax gross up and indemnities 48
16. Increased costs 50
17. Other indemnities 52
18. Mitigation by the Lenders 53
19. Costs and expenses 53
SECTION 7
GUARANTEE
20. Guarantee and indemnity 55
SECTION 8
REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
21. Representations 58
22. Information undertakings 62
23. Financial Covenants 66
24. General undertakings 68
25. Events of Default 73
SECTION 9
CHANGES TO PARTIES
26. Changes to the Lenders 78
27. Changes to the Obligors 82
SECTION 10
THE FINANCE PARTIES
28. Role of the Agent and the Arranger 84
29. Conduct of business by the Finance Parties 88
30. Sharing among the Lenders 88
SECTION 11
ADMINISTRATION
31. Payment mechanics 90
32. Set-off 92
33. Notices 92
34. Calculations and certificates 94
35. Partial invalidity 94
36. Remedies and waivers 94
37. Amendments and waivers 95
38. Counterparts 95
SECTION 12
GOVERNING LAW AND ENFORCEMENT
39. Governing law 96
40. Enforcement 96
THE SCHEDULES
SCHEDULE PAGE
SCHEDULE 1 The Original Lenders 97
SCHEDULE 2 Conditions precedent 98
SCHEDULE 3 Requests 102
SCHEDULE 4 Mandatory Cost formulae 105
SCHEDULE 5 Form of Transfer Certificate 108
SCHEDULE 6 Form of Accession Letter 109
SCHEDULE 7 Form of Compliance Certificate 110
SCHEDULE 8 LMA Form of Confidentiality Undertaking 111
SCHEDULE 9 Timetables 116
SCHEDULE 10 Acquisition Financing Indemnity 118
SCHEDULE 11 Form of TEG Letter 120
SCHEDULE 12 Material Subsidiaries 122
SCHEDULE 13 Form of Letter of Credit 123
THIS AGREEMENT is dated 6 April 2001 and made between:
(1) SODEXHO ALLIANCE, S.A. (the "Company");
(2) CITIBANK INTERNATIONAL plc, GOLDMAN SACHS INTERNATIONAL and SG INVESTMENT
BANKING (whether acting individually or together, the "Arranger");
(3) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as lenders (the "Original
Lenders");
(4) SOCIETE GENERALE as agent of the Lenders (the "Agent"); and
(5) SOCIETE GENERALE as issuing bank of Letters of Credit (the "Issuing Bank").
IT IS AGREED as follows:
SECTION 1
INTERPRETATION
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement:
"AA" means Albert Abela Corporation.
"AA Group" means AA and its Subsidiaries and "member of the AA Group"
shall be construed accordingly.
"AA Acquisition" means each proposed acquisition by an AA Bidco or, as the
case may be in the case of the acquisition of the Wood Dining Services
business, by SMS of the relevant businesses from members of the AA Group
pursuant to an AA Acquisition Agreement.
"AA Acquisition Agreement" means each sale and purchase agreement and, if
applicable, attached schedules made between a member of the AA Group and an
AA Bidco or, as the case may be, the Company in respect of the Wood Dining
Services, Sogeres and other businesses and, in each case, any amendments
thereto and in the case of the Sogeres acquisition, the related substitution
agreement.
"AA Acquisition Costs" means all costs, fees and expenses and all
registration and other similar Taxes incurred by or on behalf of the Company
or any other member of the Group in connection with the AA Acquisitions and/
or the Facilities. "AA Bidcos" means the French and/or US companies
ncorporated by the Company for the purpose of carrying out the potential AA
Acquisitions.
"Accession Letter" means a document substantially in the form set out in
Schedule 6 (Form of Accession Letter). "Acquired Shares" means any of the
Shares which are acquired pursuant to an Offer and/or Market Purchases.
"Additional Borrower" means a company which becomes an Additional Borrower
in accordance with Clause 27 (Changes to the Obligors).
"Additional Guarantor" means a company which becomes an Additional Guarantor
in accordance with Clause 27 (Changes to the Obligors).
"Additional Obligor" means an Additional Borrower or an Additional
Guarantor.
"Adjusted Net Worth" means, at any time, the sum of:
(a) the amount of shareholders' funds ("capitaux propres") as shown in
the Group's then most recent consolidated balance sheet;
(b) the amount of minority interests ("interets minoritaires") as shown in
the Group's then most recent consolidated balance sheet; and
(c) the amount of goodwill arising on acquisitions ("ecarts de premiere
consolidation") which has been written off against reserves, minority
interests or amortised (but only to the extent that such write-off or
amortisation has been deducted in computing profit or reserves), such
amount to be calculated on a cumulative basis since 31 August 1994.
"Affiliate" means:
(a) in relation to any person, a Subsidiary of that person or a Holding
Company of that person or any other Subsidiary of that Holding Company;
and
(b) for the purposes of this Agreement:
(i) Citibank International plc, Citicorp USA, Inc. and Citibank, N.A.
will be treated as Affiliates of each other;
(ii) Goldman Sachs Credit Partners, L.P. and Goldman Sachs
International Bank will be treated as Affiliates of each other;
(iii)and except, for the avoidance of doubt, for the purposes of Clause
24.12 (Transactions with Affiliates and shareholders), Bellon S.A.
shall not be treated as an Affiliate.
"Agent's Spot Rate of Exchange" means the Agent's spot rate of exchange for the
purchase of the relevant currency with the relevant Base Currency in the London
foreign exchange market at or about 11:00 a.m. on a particular day.
"Authorisation" means an authorisation, consent, approval, resolution, licence,
exemption, filing or registration.
"Availability Period" means:
(a) in relation to Facility A1, the period from and including the date of this
Agreement to and including the date which is 90 days after the date of this
Agreement, provided that up to 200,000,000 only of Facility A1 shall be
available for drawing up to and including 30 November 2001;
(b) in relation to Facility A2, the period from and including the date of this
Agreement to and including the date which is 90 days after the date of this
Agreement;
(c) in relation to Facility B, the period from and including the date of this
Agreement to and including the date which is 90 days after the date of this
Agreement; and
(d) in relation to Facility C, the period from and including the date of
this Agreement to and including the Termination Date applicable to Facility
C.
"Available Commitment" means, in relation to a Facility, a Lender's Commitment
under that Facility minus:
(a) the Base Currency Amount of its participation in any outstanding
Utilisations under that Facility; and
(b) in relation to any proposed Utilisation, the Base Currency Amount of its
participation in any Utilisations that are due to be made under that
Facility on or before the proposed Utilisation Date, other than, in relation
to Facility C only, that Lender's participation in any Facility C
Utilisations that are due to be repaid or prepaid on or before the proposed
Utilisation Date.
"Available Facility" means, in relation to a Facility, the aggregate for the
time being of each Lender's Available Commitment in respect of that Facility.
"Base Currency" means:
(a) in relation to Facility A and all Facility A Loans, euro; and
(b) in relation to Facility B and a Facility B Loan and Facility C and a
Facility C Loan or Letter of Credit, US Dollars.
"Base Currency Amount" means, in relation to a Utilisation, the amount specified
in the Utilisation Request delivered by a Borrower for that Utilisation (or, if
the amount requested is not denominated in the Base Currency relative to that
Utilisation, that amount converted into the Base Currency relative to that
Utilisation at the Agent's Spot Rate of Exchange on the date which is three
Business Days before the Utilisation Date or, if later, on the date the Agent
receives the Utilisation Request) adjusted to reflect any repayment, prepayment,
consolidation or division of that Utilisation.
"Board" means the Board of Governors of the Federal Reserve System of the United
States (or any successor).
"Borrower" means the Company or an Additional Borrower.
"Break Costs" means the amount (if any) by which:
(a) the interest which a Lender should have received for the period from the
date of receipt of all or any part of its participation in a Loan or Unpaid
Sum to the last day of the current Interest Period in respect of that Loan
or Unpaid Sum had the principal amount or Unpaid Sum received been paid on
the last day of that Interest Period;
exceeds:
(b) the amount which that Lender would be able to obtain by placing an amount
equal to the principal amount or Unpaid Sum received by it on deposit with
a leading bank in the Relevant Interbank Market for a period starting on
the Business Day following receipt or recovery and ending on the last day
of the current Interest Period.
"Business Day" means a day (other than a Saturday or Sunday) on which banks are
open for general business in London, New York and Paris and:
(a) (in relation to any date for payment or purchase of a currency other than
euro) the principal financial centre of the country of that currency; or
(b) (in relation to any date for payment or purchase of euro) any TARGET Day.
"Canadian Dollars" means the lawful currency for the time being of Canada.
"Clean-up Period" means the period of 3 months:
(a) in respect of an AA Acquisition, from and including the Company, SMS or the
relevant AA Bidco, as the case may be, completing that AA Acquisition, being
the date on which the relevant business is transferred to the Company, SMS
or an AA Bidco, as the case may be, under the relevant Acquisition
Agreement; and
(b) in respect of the SMS Acquisition, from and including the Company or SMS
Bidco gaining control of SMS (with "control" having the meaning specified in
the definition of "Subsidiary").
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commitment" means, in relation to a Lender at any time, the aggregate of its
Facility A1 Commitment, its Facility A2 Commitment, its Facility B Commitment
and its Facility C Commitment.
"Commitment Letter" means the letter dated 5 March 2001 from, inter alia, each
Arranger and Lender to the Company relating to the underwriting of the
Facilities on the terms set out in such letter.
"Compliance Certificate" means a certificate substantially in the form set out
in Schedule 7 (Form of Compliance Certificate).
"Confidentiality Undertaking" means a confidentiality undertaking substantially
in a recommended form of the LMA as set out in Schedule 9 (LMA Form of
Confidentiality Undertaking) or in any other form agreed between the Company and
the Agent.
"Default" means an Event of Default or any event or circumstance specified in
Clause 25 (Events of Default) which would (with the expiry of a grace period,
the giving of notice, the making of any determination under the Finance
Documents or any combination of any of the foregoing) be an Event of
Default.
"EBITDA" means EBIT (as defined in Clause 23.2 (Definitions)) for the Group or
relevant member of the Group, as the case may be, plus depreciation and
amortisation plus or minus, as appropriate, changes in operating provisions as
determined in accordance with French GAAP.
"Environmental Approvals" means and includes (in relation to a person) any
permits, consents, licences, certificates, specifications, registrations and
other authorisations and approvals (including without limitation any conditions
which attach to the above) required under Environmental Laws to be obtained in
connection with the ownership, occupation, holding or use of any real property
or the conduct of business by that party at any real property.
"Environmental Claim" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, notices of non-compliance or
violation, investigations, proceedings, consent orders or consent agreements
relating in any way to any Environmental Laws or Environmental Approvals.
"Environmental Laws" means and includes (in relation to any person) the
following;
(a) all European community, national, regional or local statutes, treaty codes,
or other laws or legislation (including, without limitation, those of the
United States) concerning health, safety or Environmental Matters which are
applicable to the business or to any real property owned, occupied, held or
used by that person and all rules, regulations, ordinances, orders, notices,
directives, circulars, codes of practice and guidance notes made thereunder
including any amendment, re-enactment or consolidation thereof (whether or
not applicable at the date hereof); and
(b) judicial and administrative interpretation of each of the foregoing.
"Environmental Matters" means and includes in relation to a person's business
and any real property owned, occupied, held or used by that person all matters
related to pollution or protection of the environment including, without
limitation, harm to the health of human beings, animals, and plants including
without limitation public and employee health and safety, noise, emissions,
discharges, and releases of Hazardous Substances into air, water, sewage systems
and land, and the manufacture, processing, distribution, use, treatment,
storage, disposal, transport and handling of Hazardous Substances. "ERISA" means
the Employee Retirement Income Security Act of 1974 and the regulations
promulgated and rulings issued thereunder.
"ERISA Affiliate" means any person that for the purposes of Title IV of ERISA is
a member of the controlled group of a US Material Subsidiary, or under common
control with a US Material Subsidiary, within the meaning of Section 414 of the
Internal Revenue Code.
"ERISA Event" means:
(a) (i) the occurrence of a reportable event, within the meaning of Section 4043
of ERISA, with respect to any Plan unless the 30-day notice requirement with
respect to such event has been waived by the PBGC, or (ii) the requirements
of subsection (1) of Section 4043 (b) of ERISA (taking into account
subsection (2) of such Section) are met with respect to a contributing
sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event
described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of
ERISA is reasonably expected to occur with respect to such Plan within the
following 30 days;
(b) the application for a minimum funding waiver with respect to a Plan;
(c) the provision by the administrator of any Plan of a notice of intent to
terminate such Plan, pursuant to Section 4041(a)(2) of ERISA in a distress
termination pursuant to ERISA Section 4041(c) (including any such notice
with respect to a plan amendment referred to in Section 4041(e) of ERISA);
(d) the cessation of operations at a facility of a US Obligor or any ERISA
Affiliate in the circumstances described in Section 4062(e) of ERISA;
(e) the withdrawal by a US Material Subsidiary or any ERISA Affiliate from a
Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA;
(f) the conditions for imposition of a lien under Section 302(f) of ERISA shall
have been met with respect to any Plan;
(g) the adoption of an amendment to a Plan requiring the provision of security
to such Plan pursuant to Section 307 of ERISA;
(h) or the institution by the PBGC of proceedings to terminate a Plan pursuant
to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that constitutes grounds for the
termination of, or the appointment of a trustee to administer, such Plan.
"EURIBOR" means, in relation to any Loan in euro:
(a) the applicable Screen Rate; or
(b) (if no Screen Rate is available for the period of that Loan) the arithmetic
mean of the rates (rounded upwards to four decimal places) as supplied to
the Agent at its request quoted by the Reference Banks to leading banks in
the European Interbank market,
as of the Specified Time on the Quotation Day for the offering of deposits in
euro for a period comparable to the Interest Period of the relevant Loan.
"euro" means the single currency of the Participating Member States and, for the
avoidance of doubt, excludes National Currency Units.
"Event of Default" means any event or circumstance specified as such in Clause
25 (Events of Default).
"Facility" means Facility A, Facility B and/or, as the context may require,
Facility C.
"Facility A" means either or both of Facility A1 or Facility A2, as the case may
be.
"Facility A Loan" means a Facility A1 Loan or a Facility A2 Loan.
"Facility A1" means the term loan facility made available under this Agreement
as described in paragraph (a) of Clause 2.1 (The Facilities).
"Facility A1 Commitment" means:
(a) in relation to an Original Lender, the amount in the Base Currency relative
to Facility A1 set opposite its name under the heading "Facility A1
Commitment" in Schedule 1 (The Original Lenders) and the amount of any other
Facility A1 Commitment transferred to it under this Agreement; and
(b) in relation to any other Lender, the amount in the Base Currency relative to
Facility A1 of any Facility A1 Commitment transferred to it under this
Agreement, to the extent not cancelled, reduced or transferred by it under
this Agreement.
"Facility A1 Loan" means a loan made or to be made under Facility A1 or the
principal amount outstanding for the time being of that loan.
"Facility A1 Repayment Date" means the Termination Date applicable to Facility
A1.
"Facility A2" means the term loan facility made available under this Agreement
as described in paragraph (b) of Clause 2.1 (The Facilities).
"Facility A2 Commitment" means:
(a) in relation to an Original Lender, the amount in the Base Currency relative
to Facility A2 set opposite its name under the heading "Facility A2 Commitment"
in Schedule 1 (The Original Lenders) and the amount of any other Facility A2
Commitment transferred to it under this Agreement; and
(b) in relation to anyother Lender, the amount in the Base Currency relative to
Facility A2 of any Facility A2 Commitment transferred to it under this
Agreement, to the extent not cancelled, reduced or transferred by it under this
Agreement.
"Facility A2 Loan" means a loan made or to be made under Facility A2 or the
principal amount outstanding for the time being of that loan. "Facility A2
Repayment Date" means the Termination Date applicable to Facility A2.
"Facility B" means the term loan facility made available under this Agreement as
described in paragraph (c) of Clause 2.1 (The Facilities).
"Facility B Commitment" means: (a) in relation to an Original Lender, the amount
in the Base Currency relative to Facility B set opposite its name under the
heading "Facility B Commitment" in Schedule 1 (The Original Lenders) and the
amount of any other Facility B Commitment transferred to it under this
Agreement; and
(b) in relation to any other Lender, the amount in the Base Currency relative to
Facility B of any Facility B Commitment transferred to it under this Agreement,
to the extent not cancelled, reduced or transferred by it under this Agreement.
"Facility B Loan" means a loan made or to be made under Facility B or the
principal amount outstanding for the time being of that loan.
"Facility B Repayment Date" means each date specified in Clause 9.2 (Repayment
of Facility B Loans) for the payment of a Repayment Instalment.
"Facility C" means the revolving credit facility made available under this
Agreement as described in paragraph (d) of Clause 2.1 (The Facilities).
"Facility C Commitment" means:
(a) in relation to an Original Lender, the amount in the Base Currency relative
to Facility C set opposite its name under the heading "Facility C
Commitment" in Schedule 1 (The Original Lenders) and the amount of any other
Facility C Commitment transferred to it under this Agreement; and
(b) in relation to any other Lender, the amount in the Base Currency relative to
Facility C of any Facility C Commitment transferred to it under this
Agreement, to the extent not cancelled, reduced or transferred by it under
this Agreement.
"Facility C Loan" means a loan made or to be made under Facility C or the
principal amount outstanding for the time being of that loan.
"Facility C Utilisation" means a Facility C Loan or a Letter of Credit.
"Facility Office" means the office or offices notified by a Lender to the Agent
in writing on or before the date it becomes a Lender (or, following that date,
by not less than five Business Days' written notice) as the office or offices
through which it will perform its obligations under this Agreement.
"Fee Letter" means any letter or letters dated on or prior to the date of this
Agreement between the Arranger and the Company (or the Agent and the Company or
the Issuing Bank and the Company) setting out any of the fees referred to in
Clause 7.3(a) (Fees payable in respect of Letters of Credit) and Clause 14
(Fees).
"Finance Document" means this Agreement, any Syndication Agreement, the
Commitment Letter, any Fee Letter, any Accession Letter and any other document
designated as such by the Agent and the Company.
"Finance Party" means the Agent, the Arranger or a Lender.
"Financial Indebtedness" means any indebtedness for or in respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit facility;
(c) any amount raised pursuant to any note purchase facility or the issue of
bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase
contract which would, in accordance with French GAAP, be treated as a
finance or capital lease;
(e) receivables sold or discounted (other than any receivables to the extent
they are sold on a non-recourse basis);
(f) any amount raised under any other transaction (including any forward sale or
purchase agreement) having the commercial effect of a borrowing;
g) any derivative transaction entered into in connection with protection against
or benefit from fluctuation in any rate or price (and, when calculating the
value of any derivative transaction, only the marked to market value shall be
taken into account);
(h) shares which are expressed to be redeemable prior to the Termination Date
for Facility B and Facility C;
(i) any counter-indemnity obligation in respect of a guarantee, indemnity, bond,
standby or documentary letter of credit or any other instrument issued by a
bank or financial institution; and
(j) the amount of any liability in respect of any guarantee or indemnity for any
of the items referred to in paragraphs (a) to (i) above,
and for the avoidance of doubt no particular Financial Indebtedness shall be
taken into account more than once (so that, for example (i) a guarantee shall be
excluded to the extent the Financial Indebtedness guaranteed thereby is already
taken into account; (ii) there shall be excluded any performance guarantee
issued in favour of Spirit Marine in respect of the contractual arrangements
entered into by Spirit Cruises; and (iii) there shall also be excluded, for the
avoidance of doubt, Financial Indebtedness of any person (not being a member of
the Group) that is guaranteed by a member of the Group which guarantee thereof
is treated as Financial Indebtedness).
"French GAAP" means generally accepted accounting principles, standards and
practices in France under the "Plan Comptable General" and "Code de Commerce".
"French Obligor" means an Obligor incorporated in France.
"Group" means the Company and its Subsidiaries for the time being.
"Guaranteed Investments" means, in relation to any member of the Group, amounts
invested by that member of the Group in order to finance on behalf of a
customer, whether by "credit-bail" or leasing transaction or other means, the
construction and/or installation of a facility to be utilised in connection with
an operating contract awarded to it or any other member of the Group on terms
which provide that the financing cost of the relevant investment is not to be
borne by the relevant member of the Group. Guaranteed Investments shall not
include amounts invested by the Company or its Subsidiaries:
(a) prior to 1 September 2000; or
(b) to the extent that the inclusion of such amounts would at any time cause the
aggregate amount of all the Guaranteed Investments of the Group (taken
together with those of its Subsidiaries) to exceed an amount equal to 5 per
cent. of the Group's annual consolidated sales in its most recent financial
year, as shown in its most recently delivered accounts delivered under
Clause 22.1 (Financial statements).
"Hazardous Substances" means and includes pollutants, contaminants and
hazardous, flammable and toxic substances, materials, and waste whether solid,
semi-solid, liquid or gaseous and whether or not such pollutant, contaminant,
substance, material or waste is referred to specifically in any of the
Environmental Laws.
"Guarantor" means the Company or an Additional Guarantor.
"Holding Company" means, in relation to a company or corporation, any other
company or corporation in respect of which it is a Subsidiary excluding,
save for the purpose of Clause 24.12 (Transactions with Affiliates and
shareholders), Bellon S.A..
"Information Memorandum" means the document in the form approved by the Company
which, at the Company's request and on its behalf, is to be or was prepared in
relation to the syndication of the Facilities and distributed by the Arranger to
selected financial institutions.
"Insufficiency" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Interest Period" means, in relation to a Loan, each period determined in
accordance with Clause 12 (Interest Periods) and, in relation to an Unpaid Sum,
each period determined in accordance with Clause 11.4 (Default interest).
"Internal Revenue Code" means the Internal Revenue Code of 1986 and the
regulations promulgated and rulings issued thereunder.
"Lender" means:
(a) any Original Lender (provided that Citibank International plc and Citicorp
USA, Inc. shall be deemed to be a single Lender); and
(b) any bank, financial institution or other person which has become a Party in
accordance with Clause 26 (Changes to the Lenders),
which in each case has not ceased to be a Party in accordance with the terms of
this Agreement.
"Letter of Credit" means a letter of credit, substantially in the form set out
in Schedule 13 (Form of Letter of Credit) or in any other form requested by SMO
(or SMS Bidco on its behalf in the circumstances and on the terms set out in
Clause 4.1(e) (Initial conditions precedent)) and agreed by the Agent and the
Issuing Bank (in each case within 2 Business Days from the receipt of the form
of such letter of credit from SMO (or SMS Bidco, as the case may be)).
"LIBOR" means, in relation to any Loan:
(a) the applicable Screen Rate; or
(b) (if no Screen Rate is available for the currency or period of that Loan)
the arithmetic mean of the rates (rounded upwards to four decimal places)
as supplied to the Agent at its request quoted by the Reference Banks to
leading banks in the London Interbank market, as of the Specified Time on
the Quotation Day for the offering of deposits in the currency of that Loan
and for a period comparable to the Interest Period for that Loan.
"Loan" means a Facility A Loan, a Facility B Loan or a Facility C Loan.
"LMA" means the Loan Market Association. "Majority Lenders" means:
(a) until the Total Commitments have been reduced to zero, a Lender or Lenders
whose Commitments aggregate more than 662/3% of the Total Commitments (or,
if the Total Commitments have been reduced to zero and there are no
Utilisations then outstanding, aggregated more than 662/3% of the Total
Commitments immediately prior to the reduction); or
(b) at any other time, a Lender or Lenders whose participations in the
Utilisations then outstanding aggregate more than 662/3% of all the
Utilisations then outstanding,
and, for the purpose of calculating the Total Commitments and Utilisations, each
Facility B Commitment and Facility C Commitment of a Lender shall be taken into
account in euro at the Agent's Spot Rate of Exchange for the purchase of US
Dollars with euro on the date (as determined by the Agent) a Majority Lender
determination is, or is required to be, made.
"Mandatory Cost" means the
percentage rate per annum calculated by the Agent in accordance with Schedule 4
(Mandatory Cost Formulae).
"Margin" means, in relation to a Facility at any time, the basis points per
annum determined to be the Margin applicable to that Facility in accordance with
Clause 11.2 (Margin and adjustment).
"Market Purchases" means any purchase of Shares in SMS in the open market or by
private treaty (not pursuant to an Offer).
"Material Adverse Effect" means a material adverse effect on:
(a) the financial condition or business of the Group taken as a whole; or
(b) the ability of any Obligor to perform and comply with its payment
obligations under any Finance Document.
"Material Subsidiary" means, at any time, a Subsidiary of the Company:
(a) whose revenues (excluding intra-Group items) then accounts for at least 5
per cent. of the consolidated revenues of the Group; or
(b) whose EBITDA (excluding intra-Group items) then accounts for at least 5
per cent. of the consolidated EBITDA of the Group; or whose gross
assets (excluding intra-Group items) then accounts for at least 5 per
cent. of the consolidated gross assets of the Group.
For this purpose:
(i) (the revenues, EBITDA or gross assets of a Subsidiary of the Company will
be determined from its financial statements (on an unconsolidated basis)
upon which the latest audited financial statements of the Group have been
based;
(ii) if a Subsidiary of the Company becomes a member of the Group after the
date on which the latest audited financial statements of the Group have
been prepared, the revenues, EBITDA or gross assets of that Subsidiary
will be determined from its latest financial statements;
(iii) the revenues, EBITDA or gross assets of the Group will be determined from
its latest audited or half yearly financial statements; and
(iV) if a Material Subsidiary disposes of all or substantially all of its
assets to another Subsidiary of the Company, it will immediately cease to
be a Material Subsidiary and the other Subsidiary (if it is not already)
will immediately become a Material Subsidiary; the subsequent financial
statements (audited or half yearly) of those Subsidiaries and the Group
will be used to determine whether those Subsidiaries are Material
Subsidiaries or not.
If there is a dispute as to whether or not a company is a Material Subsidiary, a
certificate of the auditors of the Company will be, in the absence of manifest
error, conclusive.
"Month" means a period starting on one day in a calendar month and ending on the
numerically corresponding day in the next calendar month, except that:
(a) if the numerically corresponding day is not a Business Day, that period
shall end on the next Business Day in that calendar month in which that
period is to end if there is one, or if there is not, on the immediately
preceding Business Day; and
(b) if there is no numerically corresponding day in the calendar month in which
that period is to end, that period shall end on the last Business Day in
that calendar month.
The above rules will only apply to the last Month of any period.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA which is a defined benefit plan within the meaning of
Section 3(35) of ERISA, to which a US Obligor or any ERISA Affiliate is making
or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of a US Obligor or
any ERISA Affiliate and at least one person other than that US Obligor and the
ERISA Affiliates or (b) was so maintained and in respect of which a US Obligor
or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA
in the event such plan has been or were to be terminated.
"National Currency Unit" means a currency unit (other than euros) of a
Participating Member State.
"Net Debt Proceeds" means the cash proceeds (net of commissions, VAT and other
equivalent Taxes and transaction costs) received by a member of the Group as a
result of issuing any note, bond, or other debt securities (whether issued to
the public or by means of private placement) by the Company or any of its
Subsidiaries in any of the capital markets of the United States, Europe or Japan
but excluding:
(a) any such debt securities issued in the ordinary course of their day to day
business with maturities of less than 6 months; and
(b) any such debt security issued after the date of this Agreement up to a
maximum aggregate amount for the Company and its Subsidiaries of 50,000,000
(or its equivalent in other currencies) outstanding at any one time; and
(c) any such debt securities issued by SMS or its Subsidiaries until the earlier
of (i) SMS becoming a wholly-owned Subsidiary of the Company and (ii) the
Company otherwise being able to control the use of any such proceeds
received by SMS or its Subsidiaries.
"Net Equity Proceeds" means the cash proceeds (net of commissions, VAT and other
equivalent Taxes and transaction costs) received by the Company as a result of
the issue by the Company in the international capital markets or elsewhere
(whether by public offer or private placement) of any share or stock (including
the proposed Rights Issue) or any other instrument convertible into any share or
stock provided that no such cash proceeds shall constitute Net Equity Proceeds
to the extent that such cash proceeds also constitute Net Debt Proceeds and
there shall be excluded from Net Equity Proceeds cash proceeds relating to:
(a) stock options of the Company;
(b) the exercise of warrants existing as at the date of this Agreement; and
(c) the proposed international share ownership plan for employees.
"Obligor" means a Borrower or a Guarantor.
"Offer" means an offer (which is recommended by the Special Committee) for all
or part of the Shares that are not already owned by the Company made or proposed
to be made by or on behalf of the Company or SMS Bidco, as the case may be,
substantially on the terms and conditions set out in the Tender Offer Statement,
as that offer may from time to time be amended, extended, revised or waived
without causing a breach of this Agreement.
"Offer Costs" means all costs, fees and expenses (and Taxes on them) and all
registration and other similar Taxes incurred by or on behalf of the Company or
any other member of the Group in connection with the Offer and/or the
Facilities.
"Optional Currency" means a currency (other than, in relation to a
Facility, a Loan or a Letter of Credit, the Base Currency relative to that
Facility, Loan or Letter of Credit, as the case may be) which complies with the
conditions set out in Clause 4.3 (Conditions relating to Optional Currencies).
"Original Financial Statements" means in relation to the Company, the audited
consolidated financial statements of the Group for the financial year ended 31
August 2000.
"Participating Member State" means any member state of the European
Communities that adopts or has adopted the euro as its lawful currency in
accordance with legislation of the European Union relating to European Monetary
Union.
"Party" means a party to this Agreement and includes its successors in
title, permitted assigns and permitted transferees.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor).
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Qualifying Lender" has the meaning given to it in Clause 15 (Tax gross-up and
indemnities).
"Quotation Day" means, in relation to any period for which an interest rate is
to be determined:
(a) (if the currency is sterling) the first day of that period;
(b) (if the currency is euro) two TARGET Days before the first day of that
period; or
(c) (for any other currency) two Business Days before the first day of that
period,
unless market practice differs in the Relevant Interbank Market for a currency,
in which case the Quotation Day for that currency will be determined by the
Agent in accordance with market practice in the Relevant Interbank Market (and
if quotations for that currency and period would normally be given by leading
banks in the Relevant Interbank Market on more than one day, the Quotation Day
will be the last of those days).
"Rating" has the meaning ascribed thereto in Clause 11.2(g) (Margin and
adjustment).
"Reference Banks" means, in relation to LIBOR, the principal London offices of
Citibank N.A., Societe Generale and HSBC Bank PLC and, in relation to EURIBOR,
the principal office in Brussels of Citibank International plc, the principal
office in Paris of Societe Generale and the principal office in Paris of HSBC
Bank PLC or such other banks as may be appointed by the Agent in consultation
with the Company.
"Regulation D" means Regulation D of the Board as from time to time in effect
and all official rulings and interpretations thereunder or thereof. "Regulation
T" means Regulation T of the Board as from time to time in effect and all
official rulings and interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board as from time to time in effect
and all official rulings and interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board as from time to time in effect
and all official rulings and interpretations thereunder or thereof. "Relevant
Interbank Market" means in relation to euro, the European Interbank market and,
in relation to any other currency, the London Interbank market.
"Repayment Instalment" means each instalment for repayment of the Facility B
Loans specified in Clause 9.2 (Repayment of Facility B Loans).
"Repeating Representations" means each of the representations set out in Clause
21 other than those set out in Clauses 21.7 (Information Memorandum), 21.8
(Financial statements), 21.13 (Material Subsidiaries), 21.14 (Solvency),
21.15 (Tax liabilities) and, following the completion of the Offer or, as the
case may be, relevant AA Acquisition, 21.19 (The Offer and AA Acquisitions).
"Reservations" means:
(a) the principle that equitable remedies are at the discretion of the court;
(b) the limitation on enforcement by laws relating to insolvency, liquidation,
reorganisation, court schemes, moratoria, administration and other laws
affecting the rights of creditors generally;
(c) the time barring of claims; and
(d) similar principles and rights.
"Rights Issue" means the increase in share capital (augmentation de capital) in
respect of shares of the Company proposed to be carried out and completed by the
Company in connection with the SMS Acquisition.
"Rollover Loan" means one or more Facility C Loans:
(a) made or to be made on the same day that one or more maturing Facility C
Loans is or are due to be repaid;
(b) the aggregate amount of which is equal to or less than the maturing Facility
C Loan(s) (unless it is more than the maturing Facility C Loan(s) solely
because it arose as a result of the operation of Clause 8.2 (Unavailability
of a currency));
(c) in the same currency as the maturing Facility C Loan(s) (unless
it arose as a result of the operation of Clause 8.2 (Unavailability of a
currency)); and
(d) made or to be made to the same Borrower for the purpose of refinancing the
maturing Facility C Loan(s).
"S&P" means Standard & Poor's Corporation.
"Screen Rate" means:
(a) in relation to LIBOR, the British Bankers Association Interest Settlement
Rate for the relevant currency and period; and
(b) in relation to EURIBOR, the percentage rate per annum determined by the
Banking Federation of the European Union for the relevant period,
displayed on the appropriate page of the Telerate screen. If the agreed page is
replaced or service ceases to be available, the Agent may specify another page
or service displaying the appropriate rate after consultation with the Company
and the Lenders.
"Security" means a mortgage, charge, pledge, lien or other security
interest securing any obligation of any person or any other agreement or
arrangement having a similar effect.
"Selection Notice" means a notice substantially in the form set out in Part II
of Schedule 3 (Requests) given in accordance with Clause 12 (Interest Periods)
in relation to Facility A or Facility B.
"Shares" means all the issued shares of each class in the capital of SMS
(including any issued while an Offer remains open for acceptance).
"Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of a US Obligor or
any ERISA Affiliate and no person other that US Obligor and the ERISA Affiliates
or (b) was so maintained and in respect of which a US Obligor or any ERISA
Affiliate could have liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated.
"SMO" means Sodexho Operations, LLC.
"SMO Credit Agreement" means the US$735,000,000 credit agreement dated as of 30
January 1998 among SMO as borrower, the lenders party thereto, SMS as parent
guarantor, and Morgan Guaranty Trust Company of New York, as documentation agent
and administrative agent for the lender parties thereto.
"SMO Drawn Debt" means:
(a) the amounts outstanding under the US$ 500,000,000 term loan facility
provided under the SMO Credit Agreement; and
(b) any outstandings under the SMO Revolving Facilities.
"SMO Guarantee" means the unlimited guarantee given or to be given by SMO of all
amounts due under this Agreement, by SMO acceding as an Additional Guarantor to
this Agreement, in the circumstances set out in Clause 27.3 (Additional
Guarantors).
"SMO Revolving Facilities" means the US$ 235,000,000 revolving credit facility
of SMO provided under the SMO Credit Agreement.
"SMS" means Sodexho Marriott Services, Inc.
"SMS Acquisition" means the acquisition by the Company or SMS Bidco of Shares,
whether pursuant to an Offer or Market Purchases.
"SMS Bidco" means the US company incorporated by the Company for the purpose of
carrying out the SMS Acquisition.
"SMS Existing Facility" means the existing US$ 620,000,000 syndicated term
facility between SMS and the banks and financial institutions named therein,
dated as of 30 January 1998, as amended.
"Special Committee" means the committee of SMS's board of directors formed to
consider the proposal made by the Company to SMS's board of directors in January
2001.
"Specified Time" means a time determined in accordance with Part I of
Schedule 9 (Timetables) for Loans and Part II of Schedule 9 (Timetables) for
Letters of Credit.
"Spirit Cruises" means Spirit Cruises Inc. of 5700 Lake Wright Drive, Ste 203,
VA 32502 Norfolk, United States.
"Spirit Marine" means Spirit Marine of 5700 Lake Wright Drive, Ste 203, VA 32502
Norfolk, United States.
"Sterling" means the lawful currency for the time being in the United Kingdom.
"Subsidiary" means, subject to Clause 1.4 (SMS and SMO as Subsidiaries), any
company or corporation:
(a) which is controlled, directly or indirectly, by the first-mentioned company
or corporation;
(b) more than half the issued share capital of which is beneficially owned,
directly or indirectly, by the first-mentioned company or corporation; or
(c) which is a subsidiary of another subsidiary of the first-mentioned company
or corporation,
and, for these purposes, a company or corporation shall be treated as being
controlled by another if that other company or corporation is able to control
the composition of its board of directors or equivalent body or similarly direct
its affairs.
"Syndication Agreement" means each or any agreement to be entered into between
the Parties to novate rights and obligations under this Agreement to persons
becoming Parties as a result of the syndication of the Facilities in each case
in a form and substance acceptable to the Arranger and the Company (each acting
reasonably).
"Syndication Date" means the earlier of:
(a) the Arranger notifying the Company that syndication of the Facilities has
been completed; and
(b) 30 August 2001.
"TARGET" means Trans-European Automated Real-time Gross Settlement
Express Transfer payment system.
"TARGET Day" means any day on which TARGET is open for the settlement of
payments in euro.
"Tax" means any tax, levy, impost, duty or other charge or withholding
of a similar nature (including any penalty, interest payable or any
other costs which may be incurred in connection with any failure to pay
or any delay in paying any of the same) imposed by a governmental
authority.
"Taxes Act" means the Income and Corporation Taxes Act 1988.
"Tender Offer Statement" means the tender offer statement filed, or to
be filed, with the Securities and Exchange Commission of the United
States setting out the terms and conditions on which the Offer is being
made to the holders of the Shares resident in the United States.
"Termination Date" means:
(a) in relation to Facility A1 and Facility A2, the date which, subject to
Clause 5.5 (Extension of Facility A1 and Facility A2), is 364 days after
the date of this Agreement; and
(b) in relation to Facility B and Facility C, the date which is five years
after the date of this Agreement.
"Total Commitments" means the aggregate of:
(a) the Total Facility A Commitments; and (b) the Total Facility B Commitments
and the Total Facility C Commitments, being US$1,080,000,000 at the date of
this Agreement.
"Total Facility A Commitments" means the aggregate of the Total Facility
A1 Commitments and the Total Facility A2 Commitments, being EUR
1,932,500,000 at the date of this Agreement.
"Total Facility A1 Commitments" means the aggregate of the Facility A1
Commitments, being EUR 600,000,000 at the date of this Agreement.
"Total Facility A2 Commitments" means the aggregate of the Facility A2
Commitments, being EUR 1,332,500,000 at the date of this Agreement.
"Total Facility B Commitments" means the aggregate of the Facility B
Commitments, being US$930,000,000 at the date of this Agreement.
"Total Facility C Commitments" means the aggregate of the Facility C
Commitments, being US$150,000,000 at the date of this Agreement.
"Transfer Certificate" means a certificate substantially in one of the
forms set out in Schedule 5 (Form of Transfer Certificate) or any other
form agreed between the Agent and the Company.
"Transfer Date" means, in relation to a transfer, the later of:
(a) the proposed Transfer Date specified in the Transfer Certificate; and
(b) the date on which the Agent executes the Transfer Certificate.
"Unpaid Sum" means any sum due and payable but unpaid by an Obligor
under the Finance Documents.
"US company" means a company incorporated in the United States.
"US Dollars" or "US$" means the lawful currency for the time being of
the United States.
"United States" means the United States of America.
"US GAAP" means the generally accepted accounting principles, standards
and practices in the United States.
"US Obligor" means an Obligor which is a US Person.
"US Material Subsidiary" means a Material Subsidiary which is a US
Person.
"US Person" means a United States Person within the meaning of Code
section 7701(a)(30).
"Utilisation" means a Loan or a Letter of Credit.
"Utilisation Date" means the date on which a Utilisation is made or is
to be made.
"Utilisation Request" means a notice substantially in the form set out
in Part I (or where applicable, Part III) of Schedule 3 (Requests).
"VAT" means value added tax as provided for in the Value Added Tax Act
1994 and any other tax of a similar nature.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle E
of Title IV of ERISA.
1.1 Construction
(a) Any reference in this Agreement to:
(i) "assets" includes present and future properties, revenues and rights of
every description;
(ii) the "European interbank market" means the interbank market for euro
operating in Participating Member States; (iii) a "Finance Document" or any
other agreement or instrument is a reference to that Finance Document or
other agreement or instrument as amended or novated; (iv) "indebtedness"
includes any obligation (whether incurred as principal or as surety) for
the payment or repayment of money, whether present or future, actual or
contingent; (v) a "person" includes any person, firm, company, corporation,
government, state or agency of a state or any association, trust or
partnership (whether or not having separate legal personality) or two or
more of the foregoing; (vi) a "regulation" includes any regulation, rule,
official directive, request or guideline (whether or not having the force
of law) of any governmental, intergovernmental or supranational body,
agency, department or regulatory, self-regulatory or other authority or
organisation;
(vii)"syndication" shall include (unless the contrary intention appears) a
reference to each phase of primary syndication (being sub-underwriting,
general syndication or otherwise) on the basis set out in the Commitment
Letter and "launch of syndication" shall be the date on which potential
Lenders are invited to become a Lender. (viii) a provision of law is a
reference to that provision as amended or re-enacted; and (ix) unless a
contrary indication appears, a time of day is a reference to London time.
(b) Section, Clause and Schedule headings are for ease of reference only.
(c) Unless a contrary indication appears, a term used in any other Finance
Document or in any notice given under or in connection with any Finance
Document has the same meaning in that Finance Document or notice as in this
Agreement.
(d) A Default (other than an Event of Default) is "continuing" if it has not
been remedied or waived and an Event of Default is "continuing" if it has
not been waived.
1.2 Third Party Rights
A person who is not a party to this Agreement has no right under the
Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the
benefit of any term of this Agreement.
1.3 SMS and SMO as Subsidiaries
Notwithstanding that at the date of this Agreement SMS and SMO may not
satisfy the requirements to qualify as a Subsidiary, as set out in the
definition thereof, each of SMS and SMO shall be deemed to be a Subsidiary
(and consequently a member of the Group and Material Subsidiary (to the
extent it satisfies the criteria therefor)) under this Agreement from the
date of this Agreement other than in relation to the following Clauses or,
as specified below, parts of the following Clauses:
(a) Clause 21.15 (Tax liabilities);
(b) Clause 22.4(b) and (c) (Information: miscellaneous) provided that SMS and
SMO shall be deemed to be a member of the Group as specified in such
Clauses to the extent the Company has actual knowledge of such details or
information, as the case may be, in relation to SMS or SMO;
(c) Clause 22.11 (Environment) provided that SMS and SMO shall be deemed to be
a member of the Group as specified in such Clause to the extent the Company
has actual knowledge of such matters and the Company (not SMS or SMO) shall
notify the Agent of the same;
(d) Clause 24.2 (Compliance with laws) and Clause 24.3(a) (Negative pledge);
(e) the reference to Group in the first line of Clause 24.4 (Disposals); and
(f) Clause 24.8 (Insurance), Clause 24.9 (The Offer), Clause 24.11 (Taxes) and
Clause 24.12 (Transactions with Affiliates and shareholders).
For the avoidance of doubt, SMS and SMO shall be a Subsidiary (and
consequently a member of the Group and Material Subsidiary (to the
extent it satisfies the criteria therefor)) for each of the Clauses
referred to in (a) to (f) above, as soon as it satisfies the
requirements of being a "Subsidiary" as set out in that definition.
SECTION 2
2 THE FACILITIES
2.1 The Facilities
Subject to the terms of this Agreement, the Lenders make available to:
(a) the Company and/or, following their accession under Clause 27.2
(Additional Borrowers), SMS and/or AA Bidcos, a multicurrency term
loan facility in an aggregate amount equal to the Total Facility A1
Commitments;
(b) the Company and/or, following its accession under Clause 27.2
(Additional Borrowers), SMS Bidco, a multicurrency term loan facility
in an aggregate amount equal to the Total Facility A2 Commitments;
(c) the Company and, following their accession under Clause 27.2
(Additional Borrowers), SMS and/or SMO, a US Dollars term loan
facility in an aggregate amount equal to the Total Facility B
Commitments; and
(d) SMO, following its accession under Clause 27.2 (Additional Borrowers),
a multicurrency revolving credit facility in an aggregate amount equal
to the Total Facility C Commitments.
2.2 Lenders' rights and obligations
(a) The obligations of each Lender under the Finance Documents are
several. Failure by a Lender to perform its obligations under the
Finance Documents does not affect the obligations of any other Party
under the Finance Documents. No Finance Party is responsible for the
obligations of any other Finance Party under the Finance Documents.
(b) The rights of each Lender under or in connection with the Finance
Documents are separate and independent rights and any debt arising
under the Finance Documents to a Lender from an Obligor shall be a
separate and independent debt.
(c) A Finance Party may, except as otherwise stated in the Finance
Documents, separately enforce its rights under the Finance Documents.
3 PURPOSE
3.1 Purpose
(a) The Company and/or, as the case may be, SMS and/or AA Bidcos shall
apply all amounts they borrow under Facility A1 in or towards
financing or refinancing:
(i) consideration payable by the Company and/or, as the case may be,
SMS and/or AA Bidcos for an AA Acquisition under an AA
Acquisition Agreement;
(ii) Financial Indebtedness (if any) existing within the AA businesses
acquired at the time of, and which remains outstanding following,
an AA Acquisition; and (iii)AA Acquisition Costs.
(b) The Company and/or SMS Bidco shall apply all amounts they borrow under
Facility A2 in or towards financing or refinancing:
(i) consideration payable by the Company and/or SMS Bidco for the
acquisition by it of those Shares to be acquired by it pursuant
to an Offer;
(ii) consideration payable by the Company and/or SMS Bidco in relation
to (A) any merger of SMS and SMS Bidco in connection with the
Offer and (B) the cash-out of employee options on the Shares in
relation to the Offer;
(iii)consideration payable by the Company and/or SMS Bidco in making
Market Purchases up to an aggregate maximum amount of not more
than EUR 250,000,000; and
(iv) Offer Costs.
(c) the Company, SMS and/or SMO, as the case may be, shall apply all
amounts borrowed by it under Facility B to refinance or repurchase the
SMS Existing Facility and the SMO Drawn Debt.
(d) SMO shall apply all amounts utilised by it under Facility C:
(i) to refinance SMO Drawn Debt to the extent not refinanced by
amounts borrowed under Facility B; and
(ii) to finance the working capital requirements (including letters of
credit) of SMO following the refinancing of all SMO Drawn Debt
under Facility B and/or Facility C and the cancellation in full
of the credit facilities provided under the SMO Credit Agreement.
3.2 Monitoring No Finance Party is bound to monitor or verify the
application of any amount borrowed pursuant to this Agreement.
4 CONDITIONS OF UTILISATION
4.1 Initial conditions precedent No Borrower, subject to paragraph
(a) below, may deliver a Utilisation Request unless the Agent has received
all of the documents and other evidence listed in Part 1A of Schedule
2 (Conditions Precedent) in form and substance satisfactory to the
Agent.
(b) No Borrower (as applicable) may deliver a Utilisation Request for a
Utilisation of Facility A1 unless the Agent has received, in relation
to the AA Acquisition to be funded pursuant to such Utilisation
Request, all of the documents and other evidence listed in Part 1B of
Schedule 2 (Conditions Precedent) in form and substance satisfactory
to the Agent.
(c) No Borrower (as applicable) may deliver a Utilisation Request for a
Utilisation of Facility A2 unless the Agent has received, subject to
the following sentence, all of the documents and other evidence listed
in Part 1C of Schedule 2 (Conditions Precedent) in form and substance
satisfactory to the Agent. As regards a Utilisation of Facility A2 for
the purpose of making Market Purchases, to the extent not already
satisfied with regard to the making of an Offer, the Agent need only
have received the documents and other evidence listed in paragraphs
(b), (c) and
(d) in Part 1C of Schedule 2 (Conditions Precedent) in form and substance
satisfactory to the Agent. (d) The Agent shall, in each case, notify
the Company and the Lenders promptly upon being so satisfied. (e)
Notwithstanding the above, SMS Bidco may deliver a Utilisation Request
for and on behalf of SMS and/or SMO, as the case may be, in relation
to a Utilisation of Facility B and/or Facility C notwithstanding that:
(a) SMS Bidco itself is not able to be a Borrower of Facility B or
Facility C; and (b) SMS and/or SMO may not, at the time of delivery of
such Utilisation Request by SMS Bidco, have acceded to this Agreement
as Additional Borrowers,
provided that SMS Bidco may only deliver such a Utilisation Request
if:
(i) SMS and/or, as the case may be, SMO have not at that time acceded
as an Additional Borrower; and
(ii) the documents and other evidence listed in Part 1A of Schedule 2
(Conditions Precedent) have been received in form and
substance satisfactory to the Agent.
Reference in this Agreement to a Borrower delivering a Utilisation
Request shall include, for the avoidance of doubt, SMS Bidco in the
circumstances and on the terms set out in this Clause 4.1(e).
4.2 Further conditions precedent
The Lenders will only be obliged to comply with Clause 5.4 (Lenders'
participation) if on the date of the Utilisation Request and on the
proposed Utilisation Date:
(i) in the case of a Rollover Loan, no Event of Default is continuing or
would result from the proposed Loan and,
(ii) in the case of any other Utilisation, no Default is continuing or
would result from the proposed Utilisation; and the Repeating
Representations to be made by each Obligor are true in all material
respects.
4.3 Conditions relating to Optional Currencies
(a) A currency will constitute an Optional Currency in relation to a
Utilisation if:
(i) it is readily available in the amount required and freely
convertible into the Base Currency relative to that Utilisation
in the Relevant Interbank Market on the Quotation Day and the
Utilisation Date for that Utilisation; and
(ii) in the case of Facility A1, it is US Dollars or Sterling, in the
case of Facility A2, it is US Dollars and, in the case of
Facility C, it is Canadian Dollars.
(b) Euro will only be made available in the euro unit.
4.4 Maximum number of Utilisations
(a) A Borrower may not deliver a Utilisation Request (as appropriate) if
as a result of the proposed Utilisation more than 20 Loans in
aggregate and more than 25 Letters of Credit in aggregate would be
outstanding, provided that up to 31 August 2001 there may be
additional Loans outstanding to the extent such additional Loans are
drawn for the same purpose and in the same currency as an existing
Loan, by the same Borrower as for that existing Loan and provided that
such additional Loan has an Interest Period maturing at the same time
as another Loan drawn under the same Facility such that the same are
consolidated into one Loan at the end of the relevant Interest Period.
(b) A Borrower may not request that a Facility A Loan or Facility B Loan
be divided if, as a result of the proposed division, the provisions of
paragraph (a) above would be breached.
(c) Any Loan made by a single Lender under Clause 8.2 (Unavailability of a
currency) shall not be taken into account in this Clause 4.4.
4.5 Limit on timing and amount of Utilisations
(a) No more than 200,000,000 of Facility A1 may be drawn between the
period commencing the date falling 90 days after the date of this
Agreement and 30 November 2001 (the "Additional A1 Period"). If the
undrawn amount of the Total Facility A1 Commitments would, but for
this Clause, exceed 200,000,000 on the date falling 90 days after the
date of this Agreement, the Total Facility A1 Commitments shall be
automatically cancelled by the requisite amount on such date so that,
if not already utilised by such date, a maximum additional amount of
200,000,000 only may be drawn by the Company, SMS and/or AA Bidcos, as
the case may be, during the Additional A1 Period.
(b) A drawing may only be made by SMS under Facility A1 following the
refinancing, repayment and cancellation in full of each of the SMS
Existing Facility and the SMO Credit Agreement.
(c) The Lenders and the Agent shall not be obliged to fund any Loan(s) and
the Issuing Bank shall not be obliged to issue any Letter of Credit
requested by SMS Bidco in the circumstances and on the terms set out
in Clause 4.1(e) (Initial conditions precedent) unless the Agent has
received, in form and substance satisfactory to it:
(i) a certified copy of the formal notice of cancellation by SMS
and SMO (which is irrevocable) of the SMS Existing Facility
and the SMO Credit Agreement; and
(ii) the provisions of Clause 27.2(a) (Additional Borrowers) has
been complied with in all respects in relation to SMS and SMO so
that they are Additional Borrowers,
in each case prior to the time of the proposed funding or issue of
such Letter of Credit. If such funding is not able to proceed or
Letter of Credit able to be issued on the basis of (i) or (ii) above
not being complied with, the provisions of Clause 17.2(c) (Other
indemnities) shall apply in relation to such requested Utilisations.
(d) Facility B and Facility C may only be utilised following the initial
drawing of Facility A2.
(e) Facility C may only be utilised after Facility B has been drawn in
full or, if drawn in part, any undrawn portion of Facility B has been
cancelled and provided that the SMO Drawn Debt has been (or is to be
pursuant to Facility C) refinanced in full and the SMO Credit
Agreement has been cancelled in full.
SECTION 3
UTILISATION
5 UTILISATION - LOANS
5.1 Delivery of a Utilisation Request A Borrower may utilise a Facility
by delivery to the Agent of a duly completed Utilisation Request not
later than the Specified Time.
5.2 Completion of a Utilisation Request
(a) Each Utilisation Request is irrevocable and will not be regarded as
having been duly completed unless:
(i) it identifies the Facility to be utilised;
(ii) the proposed Utilisation Date is a Business Day within the
Availability Period applicable to that Facility;
(iii)the currency and amount of the Utilisation comply with Clause
5.3 (Currency and amount);
(iv) the proposed Interest Period complies with Clause 12 (Interest
Periods);
(v) it specifies the account and bank (which must be in the principal
financial centre of the country of the currency of the
Utilisation or, in the case of euro, the principal financial
centre of a Participating Member State in which banks are open
for general business on that day or London) to which the proceeds
of the Utilisation are to be credited;
(vi) in the case of a requested Utilisation of Facility A1, the
Utilisation Request is accompanied by such documents and/or
evidence in form and substance satisfactory to the Agent as is
applicable to that relevant AA Acquisition or other purpose for
which such proceeds may be used as set out in Part 1B of Schedule
2 (Conditions Precedent) to the extent the same have not
previously been provided pursuant to this Clause 5.2(vi) or
Clause 4.1(b) (Initial Conditions Precedent) in relation to that
AA Acquisition or other permitted purpose now proposed to be
funded;
(vii)in the case of a requested Utilisation of Facility A2, (A)in
the case of the first request for such a Utilisation, the Offer
continues to be recommended by the Special Committee and (B) each
Utilisation Request is accompanied by a certificate of the
Company confirming how many shares and stock options have been
bought to date (whether pursuant to the Facilities or otherwise)
since the date of this Agreement and how many are to be acquired
by way of the proposed Loan the subject of the Utilisation
Request; and (
viii)in the case of a requested Utilisation of Facility B or Facility
C by SMS Bidco in the circumstances and on the terms set out in
Clause 4.1(e) (Initial conditions precedent), each Utilisation
Request is accompanied, so far as practicable, by a certified
copy of the formal notice of cancellation (which is irrevocable)
by SMS and SMO of the SMS Existing Facility and the SMO Credit
Agreement in form and substance satisfactory to the Agent. If it
is not possible for such notice of cancellation to accompany the
Utilisation Request the provisions of Clause 4.5(c) (Limit on
timing and amount of Utilisations) shall apply in relation to the
Utilisations requested by SMS Bidco.
(b) Only one Loan may be requested in each Utilisation Request.
5.3 Currency and amount
(a) The currency specified in a Utilisation Request must be in the
Base Currency relating to that Facility or an Optional Currency.
(b) The amount of the proposed Loan must be an amount which is not
more than the Available Facility and which is a minimum of, in
the case of Facility A, 5,000,000, and in the case of Facility B
and Facility C, US$ 5,000,000 or, in each case, the relevant
Optional Currency equivalent or, if less, the Available Facility.
5.4 Lenders' articipation
(a) If the conditions set out in this Agreement have been met, each Lender
shall make its participation in each Loan available through its
Facility Office.
(b) The amount of each Lender's participation in each Loan will be equal
to the proportion borne by its Available Commitment to the Available
Facility in each case in respect of the relevant Facility immediately
prior to making the Loan.
(c) The Agent shall notify each Lender of the amount, currency and the
Base Currency Amount of each Loan by the Specified Time.
5.5 Extension of Facility A1 and Facility A2
(a) The Company shall be entitled on one occasion only to request an
extension of Facility A1 and/or Facility A2 for a period of one year by
giving notice to the Agent (an "Extension Request") not later than five
Business Days before the Termination Date applicable to Facility A1
and/or Facility A2, as the case may be, specifying the Facility or
Facilities to be extended. The Extension Request shall be made in
writing and shall be unconditional and irrevocable. The Agent shall
forward a copy of the Extension Request (if any) to the Lenders as soon
as practicable after receipt thereof. Upon receipt of the Extension
Request, subject to this Clause 5.5, the Facility A1 Repayment Date
and/or the Facility A2 Repayment Date, as the case may be, for the
amount extended (and the corresponding Termination Date) shall be
extended by one year provided that:
(i) no Extension Request may be delivered if there is a Default
continuingat such time, and the Facility A1 Repayment Date and
Facility A2 Repayment Date shall not be so extended if on the
date of such extension there is a Default continuing;
(ii) no more than EUR 500,000,000 in aggregate may be extended under
Facility A1 and/or Facility A2 pursuant to this Clause 5.5; and
(iii)no more than EUR 375,000,000 may be extended under Facility A1
pursuant to this Clause 5.5.
(b) The Company shall pay to the Agent (on behalf of the Lenders) a fee of
10 basis points flat on the principal amount extended pursuant to this
Clause 5.5 on the date on which it gives the Agent notice pursuant to
paragraph (a) above.
6. UTILISATION - LETTERS OF CREDIT
6.1 General
(a) In this Clause 6 and Clause 7 (Letters of Credit):
(i) "Affected Lender" means a Lender:
(A) whose long term unsecured unguaranteed debt credit rating (or,
if it does not have such a rating, that of its Parent) is BBB-
or less (S&P) or Baa3 or less (Moody's Investors' Services,
Inc.); or
(B) which, if neither it nor its Parent has a long term unsecured
unguaranteed debt credit rating, in the opinion of the Issuing
Bank, has suffered a material adverse change in its financial
condition; or
(C) which is subject to any insolvency, moratorium or rehabilitation
procedure or which seeks protection from, or begins negotiations
with, its creditors, with a view to the general readjustment or
rescheduling of its indebtedness.
In this definition, "Parent" means an entity of which the
relevant Lender is a Subsidiary;
(ii)"Available Letter of Credit Facility" means, in relation to Letters
of Credit available under Facility C, the Letter Facility of Credit
Sub-Limit or, if less, the Available Facility for C minus:
(A) the Base Currency Amount of any outstanding Letters of Credit;
and
(B) in relation to any proposed Letter of Credit, the Base Currency
Amount of any Letters of Credit that are due to be made on or
before the proposed Utilisation Date;
(iii) "L/C Proportion" means, in relation to a Lender in respect of any
Letter of Credit, the proportion (expressed as a percentage) borne
by that Lender's Available Commitment under Facility C to the
Available Facility for Facility C immediately prior to the issue of
that Letter of Credit, adjusted to reflect any assignment or
transfer under this Agreement to or by that Lender;
(iv) "Letter of Credit Sub-Limit" means US$75,000,000;
(v) "Maturity Date" means, for a Letter of Credit, the last day of its
Term;
(vi)"Term" means each period determined under this Agreement for which
the Issuing Bank is under a liability under a Letter of Credit which
cannot extend beyond the Termination Date applicable to Facility C;
(vii) a Letter of Credit is "repaid" or "prepaid" if:
(A) SMO provides cash cover for that Letter of Credit;
(B) the maximum amount payable under the Letter of Credit is reduced
in accordance with its terms; or
(C) the Issuing Bank is satisfied that it has no further liability
under that Letter of Credit,
and the amount by which a Letter of Credit is repaid or
prepaid under sub-paragraphs (vii)(A) and (vii)(B) above is
the amount of the relevant cash cover or reduction; and
(viii) "cash cover" is provided for a Letter of Credit if SMO or, as the
case may be, an Affected Lender pays an amount in the currency of
the Letter of Credit to an interest-bearing account in the name of
SMO or, as the case may be, the Affected Lender and the following
conditions are met:
(A) the account is with the Agent (if the cash cover is to be
provided for all the Lenders) or with a Lender (if not an
Affected Lender and if the cash cover is to be provided for that
Lender) or with the Issuing Bank (if the cash cover is to be
provided for an Affected Lender or for the Issuing Bank from an
Affected Lender);
(B) withdrawals from the account may only be made to pay a Finance
Party amounts due and payable to it under this Agreement in
respect of that Letter of Credit until no amount is or may be
outstanding under that Letter of Credit; and
(C) SMO or the Affected Lender, as the case may be, has executed a
security document over that account, in form and substance
satisfactory to the Agent or the Finance Party with which that
account is held, creating a first ranking security interest over
that account.
(b) Any reference in this Agreement to:
(i) a "Finance Party" includes the Issuing Bank;
(ii)the Interest Period of a Letter of Credit will be construed as a
reference to the Term of that Letter of Credit;
(iii) an amount borrowed includes any amount utilised by way of Letter
of Credit;
(iv)a Utilisation made or to be made by SMO includes a Letter of Credit
issued on its behalf;
(v) a Lender funding its participation in a Utilisation includes a
Lender participating in a Letter of Credit;
(vi)amounts outstanding under this Agreement include amounts
outstanding under any Letter of Credit; and
(vii) an outstanding amount of a Letter of Credit at any time is the
maximum amount that is or may be payable by SMO under or in respect
of that Letter of Credit at that time.
(c) Clause 5 (Utilisation - Loans) does not apply to a Utilisation by way of
Letter of Credit other than Clause 5.2(a)(viii) (Completion of a
Utilisation Request).
6.2 Facility C
Facility C may be utilised by way of Letters of Credit by SMO only up to
a maximum Base Currency Amount equal to the Letter of Credit Sub-Limit
or, if less, the Total Facility C Commitments at the time of the
relevant Utilisation. Facility A or Facility B may not be utilised by
way of Letters of Credit.
6.3 Delivery of a Utilisation Request for Letters of Credit
(a) SMO or, in the circumstances and on the terms set out in Clause 4.1(e)
(Initial conditions precedent), SMS Bidco on SMO's behalf, may request a
Letter of Credit to be issued by delivery to the Agent of a duly
completed Utilisation Request in the form of Part III of Schedule 3
(Requests) not later than the Specified Time, subject to paragraph (a)
of Clause 4.4 (Maximum number of Utilisations).
(b) The Agent shall (notwithstanding the provisions of Clause 6.6(d) (Issue
of Letters of Credit)) promptly notify the Issuing Bank of the receipt
of, and contents of, such Utilisation Request.
6.4 Completion of a Utilisation Request for Letters of Credit
Each Utilisation Request for a Letter of Credit is irrevocable and will
not be regarded as having been duly completed unless:
(a) it specifies that it is for a Letter of Credit;
(b) the proposed Utilisation Date is a Business Day within the Availability
Period for Facility C;
(c) the currency and amount of the Letter of Credit comply with Clause 6.5
(Currency and amount);
(d) the form of Letter of Credit is attached or has been approved by the
Agent and the Issuing Bank prior to the delivery of such Utilisation
Request;
(e) the Maturity Date of the Letter of Credit falls on or before the
Termination Date for Facility C;
(f) the delivery instructions for the Letter of Credit are specified;
(g) the identity of the beneficiary of the Letter of Credit is approved by
the Issuing Bank (which approval or non-approval shall be given by the
Issuing Bank to SMO within 1 Business Day of request for such approval);
and
(h) the provisions of Clause 5.2(a)(viii) (Completion of a Utilisation
Request) have been complied with.
6.5 Currency and amount
(a) The currency specified in a Utilisation Request must be the Base
Currency relative to Facility C or Canadian Dollars.
(b) The amount of the proposed Letter of Credit must be an amount whose Base
Currency Amount is not more than the Available Letter of Credit Facility
and which is:
(i) if the currency selected is the Base Currency, for Facility C a
minimum of US$50,000 or, if less, the Available Letter of Credit
Facility; or
(ii)if the currency selected is Canadian Dollars, the relevant Optional
Currency equivalent of US$50,000 or, if less, the Available Letter
of Credit Facility.
6.6 Issue of Letters of Credit
(a) If the conditions set out in this Agreement have been met, the Issuing
Bank shall issue the Letter of Credit on the Utilisation Date.
(b) The Issuing Bank will only be obliged to comply with paragraph (a) above
if on the date of the Utilisation Request and on the proposed
Utilisation Date:
(i) in the case of a Letter of Credit renewed in accordance with
sub-clause 6.8 (Renewal of a Letter of Credit), no Event of Default
is continuing or would result from the proposed Utilisation and, in
the case of any other Utilisation, no Default is continuing or would
result from the proposed Utilisation; and
(ii)the Repeating Representations to be made by each Obligor are true
in all material respects.
(c) The amount of each Lender's participation in each Letter of Credit will
be equal to the proportion borne by its Available Commitment for
Facility C to the Available Facility for Facility C immediately prior to
the issue of the Letter of Credit.
(d) The Agent shall determine the Base Currency Amount of each Letter of
Credit which is to be issued in an Optional Currency and shall notify
the Issuing Bank and each Lender of the details of the requested Letter
of Credit and its participation in that Letter of Credit by the
Specified Time including, for the avoidance of doubt, the amount, the
currency and the Term.
6.7 Protection of Issuing Bank
(a) Notwithstanding anything to the contrary in this Agreement:
(i) an Issuing Bank is not obliged to issue a Letter of Credit if there
is at the time an Affected Lender, unless the Affected Lender or,
failing the Affected Lender (but subject to paragraph (b)(i) below),
SMO has provided the Issuing Bank with cash cover in respect of the
Affected Lender's participation in the relevant Letter of Credit;
and
(ii)forthwith on demand by the Issuing Bank an Affected Lender shall
provide cash cover to the Issuing Bank:
(A) in respect of any proposed Letter of Credit for the purposes of
paragraph (a)(i) above; and/or
(B) in respect of the Affected Lender's participation in all
outstanding Letters of Credit issued by the Issuing Bank.
(b) If an Affected Lender does not provide cash cover as required by
paragraph (a)(ii) above:
(i) to allow a proposed Letter of Credit to be issued in the amount
requested in the relevant Utilisation Request, SMO may itself (but
is not obliged to) provide cash cover to the Issuing Bank and shall,
in respect of such Letter of Credit, be entitled to receive amounts
under this Agreement payable in respect of such Utilisation relating
to that Letter of Credit as if it were a Lender hereunder; and
(ii)the Company may (but is not obliged), to the extent it is able,
replace that Affected Lender with another existing Lender or a new
Lender, in each case in accordance with Clause 26 (Changes to the
Lenders) and Clause 7.2 (Assignments and transfers), or give notice
to the Agent of cancellation of the Facility C Commitments of that
Lender and its intention to procure the repayment of that Affected
Lender's participation in Utilisations under Facility C. On receipt
of such a notice, the Facility C Commitments of the Affected Lender
shall immediately be reduced to zero. On the last day of each
Interest Period for a Facility C Loan which ends after the Company
has given notice to the Agent as specified above (or, if earlier,
the date specified by the Company in that notice), SMO shall repay
that Affected Lender's participation in that Facility C Loan. SMO
shall also, within 5 Business Days of giving such notice on the
Agent, provide cash cover to the Affected Lender in respect of its
participation in all outstanding Letters of Credit. On the
cancellation of an Affected Lender's Facility C Commitment under
this paragraph, the Total Facility C Commitments shall be reduced
accordingly.
6.8 Renewal of a Letter of Credit
(a) SMO may request any Letter of Credit issued on its behalf be renewed
by delivery to the Agent of written notice by the Specified Time (a
"Renewal Request").
(b) The Finance Parties shall treat any Renewal Request in the same way
as a Utilisation Request for a Letter of Credit (including, for the
avoidance of doubt, Clause 6.6(d) (Issue of Letters of Credit))
except that the conditions set out in paragraphs (d) and (g) of
Clause 6.4 (Completion of a Utilisation Request for Letters of
Credit) shall not apply.
(c) The terms of each renewed Letter of Credit shall be the same as
those of the relevant Letter of Credit immediately prior to its
renewal, except that:
(i) its amount may be less than the amount of the Letter of Credit
immediately prior to its renewal; and
(ii)its Term shall start on the date which was the Maturity Date of
the Letter of Credit immediately prior to its renewal, and shall
end on the proposed Maturity Date specified in the Renewal
Request.
(d) If the conditions set out in this Agreement have been met, the
Issuing Bank shall amend any Letter of Credit pursuant to a Renewal
Request.
6.9 Revaluation of Letters of Credit
(a) If any Letters of Credit are denominated in an Optional Currency,
the Agent shall at six monthly intervals after the date of this
Agreement, recalculate the Base Currency Amount of each Letter of
Credit by notionally converting into the Base Currency the
outstanding amount of that Letter of Credit on the basis of the
Agent's Spot Rate of Exchange on the date of calculation.
(b) SMO shall, if requested by the Agent, ensure that within three
Business Days of such request sufficient Facility C Utilisations are
prepaid to prevent the Base Currency Amount of the Utilisations by
way of Letter of Credit exceeding the Letter of Credit Sub-Limit or,
if less, the Total Facility C Commitment at that time following any
adjustment to a Base Currency Amount under paragraph (a) above.
6.10 Information
(a) The Issuing Bank will inform the Agent:
(i) promptly upon the issue of a Letter of Credit, of the identity
of the beneficiary thereunder, the principal amount and the
expiry date of such Letter of Credit; and
(ii)at the end of each quarter, of the amount, currency and Term of
any Letters of Credit then outstanding.
In each case, the Agent will promptly notify the Lenders of the same.
(b) The Agent will notify the Company and the Issuing Bank promptly on
receiving notification from any Party that a Lender has become an
Affected Lender.
7. LETTERS OF CREDIT
7.1 Immediately payable
If a Letter of Credit or any amount outstanding under a Letter of Credit
is expressed to be immediately payable, SMO shall repay or prepay that
amount immediately.
7.2 Assignments and transfers
(a) Notwithstanding any other provision of this Agreement, the consent of
the Issuing Bank is required for any assignment or transfer of any
Lender's rights and/or obligations under Facility C except on an
assignment or transfer to an Affiliate of a Lender (of at least the
same (or equivalent) long term unsecured unguaranteed debt credit
rating as the transferring Lender) or to another existing Lender (who
is not an Affected Lender) and provided that the consent of the
Issuing Bank will be deemed to be given if, within 15 Business Days of
receipt of an application for consent, it has not been expressly
refused.
(b) If paragraph (a) and the conditions and procedure for transfer
specified in Clause 26 (Changes to the Lenders) are satisfied, then on
the Transfer Date the Issuing Bank and the New Lender shall acquire
the same obligations between themselves as they would have acquired
and assumed had the New Lender been an Original Lender with the rights
and/or obligations acquired or assumed by it as a result of the
transfer and to that extent the Issuing Bank and the Existing Lender
shall each be released from further obligations to each other under
this Agreement.
7.3 Fees payable in respect of Letters of Credit
(a) The Company shall pay to the Issuing Bank a fronting fee in respect of
each Letter of Credit in the amount and at the times agreed in the
letter dated on or about the date of this Agreement between the
Issuing Bank and the Company. A reference in this Agreement to a Fee
Letter shall include the letter referred to in this paragraph.
(b) The Company shall pay to the Agent (for the account of each Lender) a
letter of credit fee in an amount per annum equal to the applicable
Margin from time to time for Facility C on the outstanding amount each
day of each Letter of Credit for the period from the issue of that
Letter of Credit until its Maturity Date. This fee shall be
distributed according to each Lender's L/C Proportion of that Letter
of Credit.
(c) The accrued letter of credit fee on a Letter of Credit shall be
payable on the last day of each successive period of three months (or
such shorter period as shall end on the Maturity Date for that Letter
of Credit) starting on the date of issue of that Letter of Credit.
Accrued letter of credit fee is also payable to the Agent on the
cancelled amount of any Lender's Facility C Commitment at the time the
cancellation is effective if that Commitment is cancelled in full and
the Letters of Credit prepaid or repaid in full.
7.4 Claims under a Letter of Credit
(a) SMO irrevocably and unconditionally authorises the Issuing Bank to pay
any claim made or purported to be made under a Letter of Credit
requested by it and which appears on its face to be in order (a
"claim").
(b) SMO shall immediately on demand pay to the Agent for the Issuing Bank
an amount equal to the amount of any claim.
(c) SMO acknowledges that the Issuing Bank:
(i) is not obliged to carry out any investigation or seek any
confirmation from any other person before paying a claim; and
(ii) deals in documents only and will not be concerned with the
legality of a claim or any underlying transaction or any
available set-off, counterclaim or other defence of any person.
(d) The obligations of SMO under this Clause will not be affected by:
(i) the sufficiency, accuracy or genuineness of any claim or any
other document; or
(ii) any incapacity of, or limitation on the powers of, any person
signing a claim or other document.
(e) The Issuing Bank shall promptly notify the Agent once a claim has been
made on it under a Letter of Credit.
7.5 Indemnities
(a) SMO shall immediately on demand indemnify the Issuing Bank against any
cost, loss or liability incurred by the Issuing Bank (otherwise than
by reason of the Issuing Bank's gross negligence or wilful misconduct)
in acting as the Issuing Bank under any Letter of Credit requested by
SMO. The Issuing Bank shall be entitled to use any cash cover provided
under this Agreement by SMO in relation to the Letter of Credit the
subject to the relevant demand for the purposes of this indemnity.
(b) Each Lender shall (according to its L/C Proportion) immediately on
demand indemnify the Issuing Bank against any cost, loss or liability
incurred by the Issuing Bank (otherwise than by reason of the Issuing
Bank's gross negligence or wilful misconduct) in acting as the Issuing
Bank under any Letter of Credit (unless the Issuing Bank has been
reimbursed by an Obligor pursuant to a Finance Document). The Issuing
Bank shall be entitled to use any cash cover provided by an Affected
Lender in relation to the Letter of Credit the subject of the relevant
demand under this Agreement for the purposes of this indemnity.
(c) If any Lender is not permitted (by its constitutional documents or any
applicable law) to comply with paragraph (b) above), then that Lender
will not be obliged to comply with paragraph (b) and shall instead be
deemed to have taken, on the date the Letter of Credit is issued (or
if later, on the date the Lender's participation in the Letter of
Credit is transferred or assigned to the Lender in accordance with the
terms of this Agreement), an undivided interest and participation in
the Letter of Credit in an amount equal to its L/C Proportion of that
Letter of Credit. On receipt of demand from the Agent, that Lender
shall pay to the Agent (for the account of the Issuing Bank) an amount
equal to its L/C Proportion of the amount demanded. The last sentence
of paragraph (b) above shall apply to this paragraph mutatis mutandis.
(d) SMO shall immediately reimburse any Lender for any payment it makes to
the Issuing Bank under this Clause 7.5 (Indemnities) in respect of
that Letter of Credit.
(e) The obligations of each Lender under this Clause are continuing
obligations and will extend to the ultimate balance of sums payable by
that Lender in respect of any Letter of Credit, regardless of any
intermediate payment or discharge in whole or in part.
(f) The obligations of any Lender under this Clause will not be affected
by any act, omission matter or thing which, but for this Clause, would
reduce, release or prejudice any of its obligations under this Clause
(without limitation and whether or not known to it or any other
person) including:
(i) any time, waiver or consent granted to, or composition with, any
Obligor, any beneficiary under a Letter of Credit or other
person;
(ii) the release of any other Obligor or any other person under the
terms of any composition or arrangement with any creditor or any
member of the Group;
(iii)the taking, variation, compromise, exchange, renewal or release
of, or refusal or neglect to perfect, take up or enforce, any
rights against, or security over assets of, any Obligor, any
beneficiary under a Letter of Credit or other person or any
non-presentation or non-observance of any formality or other
requirement in respect of any instrument or any failure to
realise the full value of any security;
(iv) any incapacity or lack of power, authority or legal personality
of or dissolution or change in the members or status of an
Obligor, any beneficiary under a Letter of Credit or any other
person;
(v) any amendment (however fundamental) or replacement of a Finance
Document, any Letter of Credit or any other document or security;
(vi) any unenforceability, illegality or invalidity of any obligation
of any person under any Finance Document, any Letter of Credit or
any other document or security; or
(vii) any insolvency or similar proceedings.
7.6 Rights of contribution
No Obligor will be entitled to any right of contribution or indemnity
from any Finance Party in respect of any payment it may make under this
Clause 7.
7.7 Role of the Issuing Bank
(a) Nothing in this Agreement constitutes the Issuing Bank as a trustee or
fiduciary of any other person.
(b) The Issuing Bank shall not be bound to account to any Lender for any
sum or the profit element of any sum received by it for its own
account.
(c) The Issuing Bank may accept deposits from, lend money to and generally
engage in any kind of banking or other business with any member of the
Group.
(d) The Issuing Bank may rely on:
(i) any representation, notice or document believed by it to be
genuine, correct and appropriately authorised; and
(ii) any statement made by a director, authorised signatory or
employee of any person regarding any matters which may reasonably
be assumed to be within his knowledge or within his power to
verify.
(e) The Issuing Bank may engage, pay for and rely on the advice or
services of any lawyers, accountants, surveyors or other experts.
(f) The Issuing Bank may act in relation to the Finance Documents through
its personnel and agents.
(g) The Issuing Bank is not responsible for:
(i) the adequacy, accuracy and/or completeness of any information
(whether oral or written) supplied by the Issuing Bank, the
Agent, the Arranger, an Obligor or any other person given in or
in connection with any Finance Document or the Information
Memorandum; or
(ii) the legality, validity, effectiveness, adequacy or enforceability
of any Finance Document or any other agreement, arrangement or
document entered into, made or executed in anticipation of or in
connection with any Finance Document.
7.8 Exclusion of liability
(a) Without limiting paragraph (b) below, the Issuing Bank will not be
liable for any action taken by it under or in connection with any
Finance Document, unless directly caused by its gross negligence or
wilful misconduct.
(b) No Party may take any proceedings against any officer, employee or
agent of the Issuing Bank in respect of any claim it might have
against the Issuing Bank or in respect of any act or omission of any
kind by that officer, employee or agent in relation to any Finance
Document and any officer, employee or agent of the Issuing Bank may
rely on this Clause.
7.9 Credit appraisal by the Lenders
Without affecting the responsibility of any Obligor for information
supplied by it or on its behalf in connection with any Finance Document,
each Lender confirms to the Issuing Bank that it has been, and will
continue to be, solely responsible for making its own independent
appraisal and investigation of all risks arising under or in connection
with any Finance Document, including but not limited to, those listed in
paragraphs (a) to (d) of Clause 28.14 (Credit appraisal by the Lenders).
7.10 Partial payments
(a) Notwithstanding any other provision of this Agreement, if the Agent
receives a payment that is insufficient to discharge all the amounts
then due and payable by an Obligor under the Finance Documents, the
Agent shall apply that payment towards the obligations of that Obligor
under the Finance Documents in the order set out in paragraph (a) of
Clause 31.5 (Partial Payments), except that payments shall secondly be
applied in or towards payment pro rata of any sums due to the Issuing
Bank under this Agreement and the order set out in sub-paragraphs
31.5(a)(ii) to (a)(iv) shall be varied accordingly.
(b) Paragraph (a) above will override any appropriation made by an
Obligor.
7.11 Address for notices
The address, fax number (and the department or officer, if any, for
whose attention the communication is to be made) and electronic mail
address of the Issuing Bank for any communication or document to be made
or delivered under or in connection with the Finance Documents is, in
the case of its address and fax number (and relevant department or
officer), that identified with its name below and, in the case of its
electronic mail address, that notified in writing to the Agent prior to
the date of this Agreement or any substitute address, fax number (or
department or officer) or electronic mail address as the Issuing Bank
may notify to the Agent by not less than five Business Days' notice.
7.12 Amendments and Waivers
Notwithstanding any other provision of this Agreement, an amendment or
waiver which relates to the rights or obligations of the Issuing Bank
may not be effected without the consent of the Issuing Bank.
8. OPTIONAL CURRENCIES
8.1 Selection of currency
A Borrower (or the Company on behalf of a Borrower) shall select the
currency of a Facility A Loan or a Facility C Utilisation in a
Utilisation Request.
8.2 Unavailability of a currency
If before the Specified Time on any Quotation Day:
(a) the Agent has received notice from a Lender that the Optional Currency
requested is not readily available to it in the amount required; or
(b) a Lender notifies the Agent that compliance with its obligation to
participate in a Facility A Loan or a Facility C Loan in the proposed
Optional Currency would contravene a law or regulation applicable to
it,
the Agent will give notice to the relevant Borrower to that effect by
the Specified Time on that day. In this event, any Lender that gives
notice pursuant to this Clause 8.2 will be required to participate in
the Facility A Loan or Facility C Loan, as the case may be, in the Base
Currency relative to that Facility (in an amount equal to that Lender's
proportion of the Base Currency Amount or, in respect of a Rollover
Loan, an amount equal to that Lender's proportion of the Base Currency
Amount of the maturing Facility C Loan that is due to be repaid) and its
participation will be treated as a separate Facility A Loan or Facility
C Loan, as the case may be, denominated in the Base Currency during that
Interest Period.
8.3 Exchange rate movements
(a) Inrespect of successive Interest Periods of a Facility A Loan
denominated in an Optional Currency, the Agent shall calculate the
amount of the Facility A Loan in that currency for the next following
Interest Period (by calculating the amount of that currency equal to
the Base Currency Amount of that Facility A Loan at the Agent's Spot
Rate of Exchange at the Specified Time) and (subject to paragraph (b)
below):
(i) if the amount calculated is less than the existing amount of that
Facility A Loan in the Optional Currency during the then current
Interest Period, promptly notify the Borrower that has borrowed
that Facility A Loan and that Borrower shall pay, on the last day
of that Interest Period, an amount equal to the difference; or
(ii) if the amount calculated is more than the existing amount of that
Facility A Loan in the Optional Currency during the then current
Interest Period, promptly notify each Lender and, if no Event of
Default is continuing, each Lender shall, on the last day of that
Interest Period, pay its participation in an amount equal to the
difference.
(b) If the calculation made by the Agent pursuant to paragraph (a) above
shows that the amount of the Facility A Loan in the Optional Currency
has increased or decreased by less than 10 per cent. compared to its
Base Currency Amount, no notification shall be made by the Agent and
no payment shall be required under paragraph (a) above.
8.4 Agent's calculations
(a) All calculations made by the Agent pursuant to this Clause 8 will take
into account any repayment, prepayment, consolidation or division of
Facility A Loans to be made on the last day of the first Interest
Period.
(b) Each Lender's participation in a Loan will, subject to paragraph (a)
above, be determined in accordance with paragraph (b) of Clause 5.4
(Lenders' participation).
SECTION 4
REPAYMENT, PREPAYMENT AND CANCELLATION
9. REPAYMENT
9.1 Repayment of Facility A Loans
(a) Each Borrower (as applicable) shall repay each Facility A1 Loan made
to it on the Facility A1 Repayment Date.
(b) Each Borrower (as applicable) shall repay each Facility A2 Loan made
to it on the Facility A2 Repayment Date.
(c) No Borrower may reborrow any part of Facility A which is repaid.
9.2 Repayment of Facility B Loans
(a) Each Borrower to which Facility B Loans are made shall repay Facility
B Loans so that, on each of the following dates below, the aggregate
amount of Facility B Loans shall be reduced by the amount set opposite
that date:
Facility B Repayment Date Repayment Instalment
30 November 2001 US$26,000,000
28 February 2002 US$26,000,000
30 May 2002 US$30,000,000
31 August 2002 US$30,000,000
30 November 2002 US$30,000,000
28 February 2003 US$30,000,000
30 May 2003 US$30,000,000
31 August 2003 US$30,000,000
30 November 2003 US$39,000,000
28 February 2004 US$39,000,000
30 May 2004 US$39,000,000
31 August 2004 US$39,000,000
30 November 2004 US$39,000,000
28 February 2005 US$39,000,000
30 May 2005 US$39,000,000
31 August 2005 US$39,000,000
30 November 2005 US$39,000,000
28 February 2006 US$39,000,000
The Termination Date for Facility B US$308,000,000
(b) If the aggregate amount of Facility B Loans outstanding at the end of
the Availability Period for Facility B is less than US$930,000,000,
the amount of each Repayment Instalment under paragraph (a) above
shall be reduced accordingly on a pro rata basis.
(c) No Borrower may reborrow any part of Facility B which is repaid.
9.3 Repayment of Facility C Loans
SMO shall repay each Facility C Loan on the last day of its Interest
Period.
10.PREPAYMENT AND CANCELLATION
10.1 Illegality
If it becomes unlawful in any jurisdiction for a Lender to perform any
of its obligations as contemplated by this Agreement or to fund its
participation in any Utilisation:
(a) that Lender shall promptly notify the Agent upon becoming aware of
that event;
(b) upon the Agent notifying the Company, the Commitment of that Lender
will be immediately cancelled; and
(c) each Borrower shall repay that Lender's participation in the
Utilisations made to that Borrower on the last day of the Interest
Period for each Utilisation occurring after the Agent has notified the
Company or, if earlier, the date specified by the Lender in the notice
delivered to the Agent (being no earlier than the last day of any
applicable grace period permitted by law).
10.2 Change of control of Company
(a) If Bellon S.A. ceases to hold at least 331/3 per cent. of the shares
and/or voting rights of the shares of the Company (a "loss of
control"):
(i) the Company shall promptly notify the Agent upon becoming aware
of that event;
(ii) no Borrower may make a Utilisation unless otherwise agreed by the
Majority Lenders; and
(iii)unless all of the Lenders have agreed to such loss of control,
the Agent shall, by not less than 10 days' notice to the Company,
cancel the Facilities and declare all outstanding Utilisations,
together with accrued interest, and all other amounts accrued
under the Finance Documents immediately due and payable,
whereupon the Facilities will be cancelled and all such
outstanding amounts will become immediately due and payable.
(b) A Lender shall be deemed to have agreed to a loss of control if it has
not approved or disapproved of such loss of control by the date
falling 30 Business Days after receiving notice from the Company of
such loss of control
10.3 Change of control of Borrowers (other than Company)
(a) If any Borrower (other than the Company) ceases to be (or the Company
intends that it should cease to be) a Subsidiary of the Company:
(i) the Company shall promptly notify the Agent of its intention that
such Borrower shall cease to be a Subsidiary;
(ii) no such Borrower may make a Utilisation unless otherwise agreed
by the Majority Lenders following such notification; and
(iii)the Agent shall, by no later than the date on which, but prior
to, such Borrower ceasing to be a Subsidiary of the Company,
cancel the Facilities outstanding to that Borrower and declare
all outstanding Utilisations to that Borrower, together with
accrued interest, and all other amounts accrued under the Finance
Documents and due from that Borrower immediately due and payable,
whereupon such Facilities will be cancelled (to the extent stated
above) and all such outstanding amounts from the Borrower will
become immediately due and payable.
10.4 Mandatory prepayment of equity and debt proceeds
(a) If any member of the Group receives any Net Equity Proceeds or Net
Debt Proceeds after the date of this Agreement, the Company shall
ensure that those proceeds (or an amount equal thereto) are used to
reduce permanently the Facilities in accordance with paragraph (b) or
(d) below.
(b) Net Equity Proceeds (subject to paragraph (d) below) and Net Debt
Proceeds shall be applied:
(i) firstly, to prepay or, as the case may be, cancel Facility A and
the Commitments of the Lenders under Facility A shall be reduced
rateably;
(ii) secondly, after Facility A Commitments have been reduced to zero
and all Facility A Loans have been repaid, prepaid or cancelled
in full, to prepay or, as the case may be, cancel Facility B and
the Commitments of the Lenders under Facility B shall be reduced
rateably provided that this paragraph (b)(ii) shall only apply if
the Company has, at the time such Net Equity Proceeds or Net Debt
Proceeds are received, a Rating of BBB- or lower; and
(iii)thirdly, after (if applicable) the Facility B Commitments have
been reduced to zero and, if Facility B Loans have been repaid,
prepaid or cancelled in full, towards such purposes as the
Company or relevant member of the Group so decides.
(c) Any amounts to be applied in prepaying or cancelling Facility B
pursuant to paragraph (b)(ii) above shall be so applied pro rata
against each Repayment Instalment.
(d) Net Equity Proceeds relating to the Rights Issue shall be applied:
(i) firstly, to prepay or, as the case may be, cancel Facility A2 and
the Commitments of the Lenders under Facility A2 shall be reduced
rateably;
(ii) secondly, against amounts (if any) incurred by the Company for
the purpose of making Market Purchases to the extent such amounts
do not exceed EUR 150,000,000 and provided such amounts have been
incurred by the Company by the time of completion of the Rights
Issue;
(iii)thirdly, to prepay or, as the case may be, cancel Facility A1
and the Commitments of the Lenders under Facility A1 shall be
reduced rateably; and
(iv) fourthly, against Facility B (to the extent applicable) in
accordance with paragraph (b)(ii) above.
(e) Net Debt Proceeds and Net Equity Proceeds shall be applied on the
earlier of (i) the date falling 3 Months after the end of the current
Month of receipt by the relevant member of the Group of the Net Debt
Proceeds or Net Equity Proceeds, as the case may be, and (ii) the last
day of the current Interest Period applicable to each relevant
Facility to be prepaid pursuant to paragraph (b) or (d) above,
following receipt by the relevant member of the Group of the Net Debt
Proceeds or Net Equity Proceeds, as the case may be, unless, in either
case, the Company elects by notice in writing to the Agent to make the
relevant prepayment before such time.
10.5 Voluntary cancellation
The Company may, if it gives the Agent not less than 5 Business Days'
(or such shorter period as the Majority Lenders may agree) prior notice,
cancel the whole or any part (being a minimum amount of, in the case of
Facility A, EUR 5,000,000 and, in the case of Facility B and Facility C,
US$5,000,000) of an Available Facility. Any cancellation under this
Clause 10.5 shall reduce the Commitments of the Lenders rateably under
that Facility.
10.6 Voluntary prepayment of Facility A Loans and Facility B Loans
(a) The Borrower to which a Facility A Loan or Facility B Loan has been
made may, if it gives the Agent not less than 5 Business Days' (or
such shorter period as the Majority Lenders may agree) prior notice,
prepay the whole or any part of any Facility A Loan or Facility B Loan
(but, if in part, being an amount that reduces the Base Currency
Amount of the Facility A Loan by a minimum amount of EUR 5,000,000 and
the amount of the Facility B Loan by a minimum amount of US$
5,000,000).
(b) A Facility A Loan or Facility B Loan may only be prepaid after the
last day of the Availability Period applicable to that Facility (or,
if earlier, the day on which the applicable Available Facility is
zero).
(c) Any prepayment of Facility B under this Clause 10.6 shall satisfy the
obligations under Clause 9.2 (Repayment of Facility B Loans) in
chronological order.
10.7 Voluntary prepayment of Facility C Loans
SMO may, if it gives the Agent not less than 5 Business Days' (or such
shorter period as the Majority Lenders may agree) prior notice, prepay
the whole or any part of a Facility C Loan (but if in part, being an
amount that reduces the Base Currency Amount of the Facility C Loan by a
minimum amount of US$ 5,000,000).
10.8 Right of repayment and cancellation in relation to a single Lender
(a) If:
(i) any sum payable to any Lender by an Obligor is required to be
increased under paragraph (c) of Clause 15.2 (Tax gross-up); or
(ii) any Lender claims indemnification from the Company under Clause
15.3 (Tax indemnity) or Clause 16.1 (Increased costs),
the Company may, whilst the circumstance giving rise to the
requirement or indemnification continues, give the Agent notice of
cancellation of the Commitments of that Lender and its
intention to procure the repayment of that Lender's participation in
the Utilisations.
(b) On receipt of a notice referred to in paragraph (a) above, the
Commitments of that Lender shall immediately be reduced to zero.
(c) On the last day of each Interest Period which ends after the Company
has given notice under paragraph (a) above (or, if earlier, the date
specified by the Company in that notice), each Borrower to which a
Utilisation is outstanding shall repay that Lender's participation in
that Utilisation. In addition, in relation to Facility C, SMO shall
provide cash-cover (as defined in Clause 6.1 (General)) in relation to
that Lender's participation in all outstanding Letters of Credit
within 5 Business Days of giving the notice specified in paragraph
(a).
10.9 Restrictions
(a) Any notice of cancellation or prepayment given by any Party under this
Clause 10 shall be irrevocable and, unless a contrary indication
appears in this Agreement, shall specify the date or dates upon which
the relevant cancellation or prepayment is to be made and the amount
of that cancellation or prepayment.
(b) Any prepayment under this Agreement shall be made together with
accrued interest on the amount prepaid and, subject to any Break
Costs, without premium or penalty.
(c) No Borrower (as applicable) may reborrow any part of Facility A or
Facility B which is prepaid.
(d) Unless a contrary indication appears in this Agreement, any part of
Facility C which is prepaid may be reborrowed in accordance with the
terms of this Agreement.
(e) The Borrowers shall not repay or prepay all or any part of the
Utilisations or cancel all or any part of the Commitments except at
the times and in the manner expressly provided for in this Agreement.
(f) No amount of the Total Commitments cancelled under this Agreement may
be subsequently reinstated.
(g) If the Agent receives a notice under this Clause 10 it shall promptly
forward a copy of that notice to either the Company or the affected
Lender, as appropriate.
SECTION 5
COSTS OF UTILISATION
11.INTEREST
11.1 Calculation of interest
The rate of interest on each Loan for each Interest Period is the
percentage rate per annum which is the aggregate of the applicable:
(a) Margin;
(b) LIBOR or, in relation to any Loan in euro, EURIBOR; and
(c) Mandatory Cost, if any.
11.2 Margin and adjustment
(a) Subject to the following provisions of this Clause 111.2, the Margin
will be 60 basis points per annum in respect of Facility A and 70
basis points per annum in respect of Facility B and Facility C.
(b) The Margin for all Utilisations in a Facility will be adjusted in
accordance with paragraph (e) below to the number of basis points per
annum specified below the reference to that Facility in the table
below and set opposite the Rating assigned by S&P at such time to the
Company:
Rating Margin (bps p.a.)
Facility A Facilities B and C
A- (or higher) 50 60
BBB+ 60 70
BBB 70 80
BBB- 90 100
BB+ (or lower) 140 165
(c) (i) The Margin as shown in the table set out in paragraph (b) above
will, in respect of each Facility, be reduced in accordance with
paragraph (e) below by 15 basis points (the "Reduction") if and
whenever Net Equity Proceeds from the Rights Issue have been
received by the Company and, to the extent required by Clause
10.4 (Mandatory prepayment of equity and debt proceeds), used to
prepay and/or cancel the Facilities, in an amount (the "Required
Amount") equal to or greater than, subject to the proviso below,
50 per cent. of the aggregate of (A) the total aggregate amount
spent in euro (or the euro equivalent) by or on behalf of members
of the Group since the date of this Agreement on each of the AA
Acquisitions and the SMS Acquisition, in each case, whether
completed in whole or in part and (B) the Available Commitments
under Facility A1 and Facility A2 provided that, in any event,
for the purposes of this Clause, the Required Amount need not
exceed EUR 900,000,000.
(ii) For the purposes of paragraph (i) above, the Company shall notify
the Agent at the time it considers that it has qualified for the
Reduction as set out in paragraph (i) above which notification
shall be accompanied with a certificate of the Company confirming
how much it has spent for the purposes of (A) above and what it
calculates the Required Amount to be. The Agent shall promptly
notify the Company that it has qualified for the Reduction (or
not, as the case may be) as soon as possible following its
receipt of the notification, certificate and calculation
specified above.
(d) The Reduction shall also apply, in accordance with paragraph (e)
below, if:
(i) no part of the SMS Acquisition has been made and Facility A2,
Facility B and Facility C have been cancelled in full and the
Commitments relating to such Facilities reduced to zero; or
(ii) no more than EUR 450,000,000 (or its equivalent) in aggregate has
been spent on the SMS Acquisition and AA Acquisitions (whether
that be a partial AA Acquisition or partial SMS Acquisition,
including by way of Market Purchases). Such determination shall
be made at the end of the Availability Period for Facility A1 and
Facility A2 or such earlier date on which the Available
Commitments under Facility A1 and Facility A2, as the case may
be, are cancelled to the extent that the aggregate of the Total
Facility A1 Commitments and Total Facility A2 Commitments does
not exceed EUR 450,000,000.
(e) Any adjustment to the Margin (whether upwards on downwards) in
accordance with paragraphs (b), (c) or (d) above or (f)(ii) or (iii)
below will apply for all purposes under this Agreement immediately on,
as appropriate:
(i) the date of publication of any relevant change to the Rating
assigned to the Company; or
(ii) the date on which the Facilities have been prepaid and/or
cancelled following the receipt by the Company of the Net Equity
Proceeds from the Rights Issue provided that, whether before or
after the date of such prepayment and/or cancellation, the Agent
has notified the Company that it has qualified for the Reduction;
or
(iii)the date on which the condition in Clause 111.2(d)(i) or (ii) as
the case may be, is satisfied; or (iv) the date on which a
substitute Rating is assigned to the Company as provided in
paragraph (f)(ii) or (iii) below, as the case may be.
(f) For the purpose of this Clause 111.2, Clause 10.4(b) (Mandatory
prepayment of equity and debt proceeds) and Clause 24.4 (Disposals):
(i) "Rating" means the long term credit rating of the Company last
published by S&P (taking into account the AA Acquisitions and the
SMS Acquisition, to the extent made) and not withdrawn prior to
the Quotation Day for an Interest Period;
(ii) if at any time the Company does not have a Rating assigned to it
by S&P, the Company and the Agent (acting on the instructions of
the Majority Lenders) shall negotiate (in good faith) a
substitute Rating having regard to the Company's financial
condition and Rating existing immediately prior to it ceasing to
have a Rating from S&P; and
(iii)if, after 15 Business Days, the Company and the Agent are unable
to agree a new Rating notwithstanding the provisions of paragraph
(ii) above, a Rating for the purpose of the table set out in
paragraph (b) above shall be deemed to be BB+.
(g) Promptly after becoming aware of the same the Company shall inform the
Agent in writing if any change in the Rating assigned to the Company
occurs or the circumstances contemplated in paragraph (f)(ii) above
arise.
11.3 Payment of interest
The Borrower to which a Loan has been made shall pay accrued interest on
that Loan on the last day of each Interest Period (and, if the Interest
Period is longer than six Months, on the dates falling at six monthly
intervals after the first day of the Interest Period).
11.4 Default interest
(a) If an Obligor fails to pay any amount payable by it under a Finance
Document on its due date, interest shall accrue on the overdue amount
from the due date up to the date of actual payment (both before and
after judgment) at a rate which is the sum of 1 per cent and the rate
which would have been payable if the overdue amount had, during the
period of non-payment, constituted a Loan in the currency of the
overdue amount for successive Interest Periods, each of a duration
selected by the Agent (acting reasonably).
(b) However if the overdue amount is principal of a Loan and became due on
a day other than the last day of an Interest Period relating to that
Loan, the first Interest Period applicable to that overdue amount
shall be of a duration equal to the unexpired portion of that Interest
Period and the rate of interest on that overdue amount for that
Interest Period shall be the sum of 1 per cent and the rate applicable
to it immediately before it became due.
(c) Any interest accruing under this Clause 111.4 shall be immediately
payable by the Obligor on demand by the Agent.
11.5 Notification of rates of interest
The Agent shall promptly (and in any event within 2 Business Days of the
determination of the same) notify the Lenders and the relevant Borrower
of the determination of a rate of interest under this Agreement.
12.INTEREST PERIODS
12.1 Selection of Interest Periods
(a) A Borrower (or (i) the Company on behalf of a Borrower or (ii) SMS
Bidco on behalf of SMS and SMO in the circumstances and on the terms
set out in Clause 4.1(e) (Initial conditions precedent)) may select an
Interest Period for a Loan in the Utilisation Request for that Loan or
(if the Loan has already been borrowed) in a Selection Notice.
(b) Each Selection Notice for a Facility A Loan and/or Facility B Loan is
irrevocable and must be delivered to the Agent by the relevant
Borrower (or the Company on behalf of a Borrower) not later than the
Specified Time.
(c) If the Company or other appropriate Borrower fails to deliver a
Selection Notice to the Agent in accordance with paragraph (b) above,
the relevant Interest Period will be one Month.
(d) Subject to this Clause 12, a Borrower may select an Interest Period of
1, 2, 3 or 6 (or, to the extent available to each Lender, 9 or 12)
Months or any other period agreed between the Company and the Agent
(acting on the instructions of all the Lenders). In addition, the
Company or other appropriate Borrower may select an Interest Period of
less than one month in relation to Facility B if necessary to ensure
that there are sufficient Facility B Loans which have an Interest Period
ending on a Facility B Repayment Date for the Company or other
appropriate Borrower to make the Repayment Instalment due on that date.
(e) An Interest Period for a Loan shall not extend beyond the Termination
Date applicable to its Facility (or, in the case of Facility A where
the Termination Date has been extended for a portion of that Facility
pursuant to Clause 5.5 (Extension of Facility A1 and Facility A2),
beyond the Termination Date applicable to the relevant portion of
Facility A).
(f) Each Interest Period for a Facility A Loan and/or a Facility B Loan
shall start on the Utilisation Date or (if already made) on the last
day of its preceding Interest Period.
(g) A Facility C Loan has one Interest Period only.
12.2 Changes to Interest Periods
(a) Prior to determining the interest rate for an Interest Period
beginning before the Syndication Date, the Agent may after
consultation (where practicable) with the Company shorten that
Interest Period to a duration of 1 month (or such shorter duration as
may be necessary to ensure that the Interest Period ends on a date on
which rights and obligations under this Agreement are to be novated to
persons becoming Parties as a result of the syndication of the
Facilities). The Company may request that Interest Periods be
similarly shortened until 30 August 2001 in order to harmonise
Interest Periods with its existing swap payment dates.
(b) Prior to determining the interest rate for a Facility B Loan, the
Agent may shorten an Interest Period for any Facility B Loan to the
extent necessary to ensure there are sufficient Facility B Loans with
an Interest Period ending on a Facility B Repayment Date for the
Company or other appropriate Borrower to make the Repayment Instalment
due on that Facility B Repayment Date.
(c) If the Agent makes any of the changes to an Interest Period referred
to in this Clause 112.2, it shall promptly notify the Company and the
Lenders.
12.3 Non-Business Days
If an Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period will instead end on the next Business
Day in that calendar month (if there is one) or the preceding Business
Day (if there is not).
12.4 Consolidation and division of Facility A and Facility B Loans
(a) Subject to paragraph (b) below, if two or more Interest Periods relate
to Facility A1 Loans, Facility A2 Loans or Facility B Loans in the
same currency, to the same Obligor and end on the same date, those
Facility A1 Loans, Facility A2 Loans or Facility B Loans (as the case
may be) will, unless the Company or other appropriate Borrower
specifies to the contrary in the Selection Notice for the next
Interest Period, be consolidated into, and treated as, a single
Facility A1 Loan, Facility A2 Loan or Facility B Loan (as the case may
be) on the last day of the Interest Period.
(b) Subject to Clause 4.4 (Maximum number of Loans), if the Company or
other appropriate Borrower requests in a Selection Notice that a
Facility A1 Loan, a Facility A2 Loan or a Facility B Loan be divided
into two or more Facility A1 Loans, Facility A2 Loans or Facility B
Loans, that Facility A1 Loan, Facility A2 Loan or Facility B Loan (as
the case may be) will, on the last day of its Interest Period, be so
divided.
12.5 Taux Effectif Global
In order to comply with the provisions of Articles L313-1 and L313-2 of
the French consumer Code (Code de la Consommation), the effective global
rate ("taux effectif global") calculated in accordance with the articles
referred to above is as set out in a letter dated the date of this
Agreement from the Agent to the Company substantially in the form of
Schedule 11 (Form of TEG Letter).
13.CHANGES TO THE CALCULATION OF INTEREST
13.1 Absence of quotations Subject to Clause 113.2 (Market disruption), if
LIBOR or, if applicable, EURIBOR is to be determined by reference to
the Reference Banks but a Reference Bank does not supply a quotation
by the Specified Time on the Quotation Day, the applicable LIBOR or
EURIBOR shall be determined on the basis of the quotations of the
remaining Reference Banks.
13.2 Market disruption
(a) If a Market Disruption Event occurs in relation to a Loan for any
Interest Period, then the rate of interest on each Lender's share
of that Loan for the Interest Period shall be the rate per annum
which is the sum of:
(i) the Margin;
(ii) the rate notified to the Agent by that Lender as soon as
practicable and in any event before interest is due to be
paid in respect of that Interest Period, to be that which
expresses as a percentage rate per annum the cost to that
Lender of funding its participation in that Loan from
whatever source it may reasonably select; and
(iii)the Mandatory Cost, if any, applicable to that Lender's
participation in the Loan.
(b) In this Agreement "Market Disruption Event" means:
(i) at or about noon on the Quotation Day for the relevant
Interest Period the Screen Rate is not available and none or
only one of the Reference Banks supplies a rate to the Agent
to determine LIBOR or, if applicable, EURIBOR for the
relevant currency and period; or
(ii) before close of business in London on the Quotation Day for
the relevant Interest Period, the Agent receives
notifications from a Lender or Lenders (whose participations
in a Loan exceed 35 per cent. of that Loan) that the cost to
it of obtaining matching deposits in the Relevant Interbank
Market would be in excess of LIBOR or, if applicable,
EURIBOR.
13.3 Alternative basis of interest or funding
(a) If a Market Disruption Event occurs and the Agent or the Company
so requires, the Agent and the Company shall enter into
negotiations (for a period of not more than thirty days) with a
view to agreeing a substitute basis for determining the rate of
interest.
(b) Any alternative basis agreed pursuant to paragraph (a) above
shall, with the prior consent of all the Lenders and the Company,
be binding on all Parties.
13.4 Break Costs
(a) Each Borrower shall, within three Business Days of demand by a
Finance Party, pay to that Finance Party its Break Costs
attributable to all or any part of a Loan or Unpaid Sum being
paid by that Borrower on a day other than the last day of an
Interest Period for that Loan or Unpaid Sum.
(b) Each Lender shall, as soon as reasonably practicable after a
demand by the Agent, provide a certificate confirming the amount
of its Break Costs for any Interest Period in which they accrue.
14.FEES
14.1 Commitment fee
(a) The Company shall pay to the Agent (for the account of each
Lender) a fee in the Base Currency relative to the Facility for
which the fee is payable computed at the rate of: (i) 331/3 per
cent. of the applicable Margin which would apply to a Facility A
or Facility B Loan drawn, on the daily amount of that Lender's
Available Commitment under Facility A during the Availability
Period applicable to Facility A and on the daily amount of that
Lender's Available Commitment under Facility B during the
Availability Period applicable to Facility B; and (ii) 50 per
cent. of the applicable Margin which would apply to a Facility C
Loan drawn, on the daily amount of that Lender's Available
Commitment under Facility C during the Availability Period
applicable to Facility C.
(b) The accrued commitment fee is payable on the last day of each
successive period of three Months which ends during the relevant
Availability Period, on the last day of the Availability Period
and on the cancelled amount of the relevant Lender's Commitment
at the time the cancellation is effective.
14.2 Arrangement fee
The Company shall pay to the Agent (on behalf of the Arranger, who
shall distribute the proceeds to the market at their sole discretion)
the fees in the amount and at the times agreed in a Fee Letter.
14.3 Agency fee
The Company shall pay to the Agent (for its own account) an agency fee
in the amount and at the times agreed in a Fee Letter.
SECTION 6
ADDITIONAL PAYMENT OBLIGATIONS
15. TAX GROSS UP AND INDEMNITIES
15.1 Definitions
(a) In this Clause 15:
"Protected Party" means a Finance Party which is or will be, for
or on account of Tax, subject to any liability or required to
make anypayment in relation to a sum received or receivable (or
any sumdeemed for the purposes of Tax to be received or
receivable)under a Finance Document, or any Finance Party that
will suffer a reduction in any payment made pursuant to a
Finance Document by reason of a Tax Deduction.
"Qualifying Lender" means a Lender which is (on the date a
payment fallsdue):
(i) with respect to any payment made pursuant to a Finance
Document, a resident of a jurisdiction (the "Payee
Jurisdiction") that has concluded a double taxation treaty
in force as of the date hereof with the jurisdiction (the
"Payor Jurisdiction") in which the payor of the payment is
resident which exempts Payor Jurisdiction source interest
payments made to Payee Jurisdiction residents from Tax
Deductions (a "Treaty Lender");
(ii) able to fulfil the conditions imposed by French law, taking
into account, as the case may be, any applicable
international treaty signed by France, in order for any sum
payable by an Obligor which is resident in France to the
Agent for the account of the Facility Office of such person
not to be subject to any Tax Deduction; or
(iii)with respect to payments from US Obligors, a US Person (a
"US Lender").
"Tax Credit" means a credit against, relief or remission for, or
repayment of any Tax.
"Tax Deduction" means a deduction or withholding for or on
account of Tax from a payment under a Finance Document.
"Tax Payment" means an increased payment made by an Obligor to a
Finance Party under Clause 15.2 (Tax gross-up) or a payment under
Clause 15.3 (Tax indemnity).
(b) In this Clause 15 a reference to "determines" or "determined"
means a determination made in the absolute discretion of the
person making the determination.
15.2 Tax gross-up
(a) Each Obligor shall make all payments to be made by it without any
Tax Deduction, unless a Tax Deduction is required by law.
(b) The Company or a Lender shall promptly upon becoming aware that
an Obligor must make a Tax Deduction (or that there is any change
in the rate or the basis of a Tax Deduction) notify the Agent
accordingly. If the Agent receives such notification from a
Lender it shall notify the Company and that Obligor.
(c) If a Tax Deduction is required by law to be made by an Obligor
the amount of the payment due from that Obligor shall, subject to
paragraphs (d) and (e) below, be increased to an amount which
(after making any Tax Deduction) leaves an amount equal (on a net
after Tax basis) to the payment which would have been due if no
Tax Deduction had been required.
(d) In the case of a Tax Deduction for or on account of US Federal
withholding tax required by law to be made by a US Obligor,
paragraph (c) shall only apply if the Lender:
(i) is a Treaty Lender or a US Lender unless (in the case of a
Treaty Lender) the US Obligor is able to demonstrate the Tax
Deduction is required to be made as a result of the Lender
failing to comply with paragraph (h) below; or
(ii) is not or has ceased to be a Treaty Lender to the extent
that this altered status results from any change after the
date of this Agreement in (or in the interpretation,
administration or application of) any law or double taxation
agreement or any published practice or published concession
of any relevant taxing authority.
(e) In the case of a Tax Deduction for or on account of French law to
be made by a French Obligor, paragraph (c) shall only apply if
the Lender:
(i) is a Qualifying Lender; or
(ii) is not or has ceased to be a Qualifying Lender to the extent
that this altered status results from any change after the
date of this Agreement in (or in the interpretation,
administration, or application of) any law or double
taxation agreement or any published practice or published
concession of any relevant taxing authority.
(f) If an Obligor is required to make a Tax Deduction, that
Obligor shall make that Tax Deduction and any payment
required in connection with that Tax Deduction within the
time allowed and in the minimum amount required by law.
(g) Within thirty days of making either a Tax Deduction or any
payment required in connection with that Tax Deduction, the
Obligor making that Tax Deduction shall deliver to the Agent for
the Finance Party entitled to the payment original receipts or
certified copies thereof and, if not available, other evidence
reasonably satisfactory to that Finance Party that the Tax
Deduction has been made or (as applicable) any appropriate
payment paid to the relevant taxing authority.
(h) A Treaty Lender and each Obligor which makes a payment to which
that Treaty Lender is entitled shall co-operate in completing any
procedural formalities necessary for that Obligor to obtain
authorisation to make that payment without a Tax Deduction. With
respect to payments made from or on behalf of a Borrower which is
a US Person, each Treaty Lender shall supply to that Borrower's
paying agent a properly completed and executed United States
Internal Revenue Service Form W-8BEN (a "Form W-8BEN") as of the
date hereof, and will supply additional Forms W-8BEN (or
appropriate successor forms) within 30 days of written request by
that Borrower.
15.3 Tax indemnity (a) The Company shall (within three Business Days of
demand by the Agent) pay to a Protected Party an amount equal (on a
net after Tax basis) to the loss, liability or cost which that
Protected Party determines will be or has been (directly or
indirectly) suffered for or on account of Tax by that Protected Party.
(b) Paragraph (a) above shall not apply with respect to any Tax
assessed on a Finance Party:
(i) under the law of the jurisdiction in which that Finance
Party is incorporated or, if different, the jurisdiction (or
jurisdictions) in which that Finance Party is treated as
resident for tax purposes; or
(ii) under the law of the jurisdiction in which that Finance
Party's Facility Office is located in respect of amounts
received or receivable in that jurisdiction,
(iii)if that Tax is imposed on or calculated by reference to the
net income received or receivable (but not any sum deemed to
be received or receivable) by that Finance Party.
(c) A Protected Party making, or intending to make, a claim pursuant
to paragraph (a) above shall promptly notify the Agent of the
event which will give, or has given, rise to the claim, following
which the Agent shall notify the Company.
(d) A Protected Party shall, on receiving a payment from an Obligor
under this Clause 15.3, notify the Agent.
15.4 Tax Credit If an Obligor makes a Tax Payment and the relevant Finance
Party determines that:
(i) a Tax Credit is attributable to that Tax Payment; and
(ii) that Finance Party has obtained, utilised and retained that Tax
Credit,
the Finance Party shall pay an amount to the Obligor which that
Finance Party determines will leave it (after that payment) in the
same after-Tax position as it would have been in had the Tax Payment
not been made by the Obligor.
15.5 Stamp taxes The Company shall pay and, within three Business Days of
demand, indemnify each Finance Party against any cost, loss or
liability that Finance Party incurs in relation to all stamp duty,
registration and other similar Taxes payable in respect of any Finance
Document.
15.6 Value added tax (a) All consideration payable under a Finance Document
by an Obligor to a Finance Party shall be deemed to be exclusive of
any VAT. If VAT is chargeable, the Obligor shall pay to the Finance
Party (in addition to and at the same time as paying the
consideration) an amount equal to the amount of the VAT.
(b) Where a Finance Document requires an Obligor to reimburse a
Finance Party for any costs or expenses, that Obligor shall also
at the same time pay and indemnify that Finance Party against all
VAT incurred by that Finance Party in respect of the costs or
expenses save to the extent that the Finance Party has received
repayment or credit in respect of such VAT.
16. INCREASED COSTS
16.1 Increased costs
(a) Subject to Clause 16.3 (Exceptions) the Company shall, within three
Business Days of a demand by the Agent, pay for the account of a
Finance Party the amount of any Increased Costs incurred by that
Finance Party or any of its Affiliates as a result of (i) the
introduction of or any change in (or in the interpretation or
application of) any law or regulation or (ii) compliance with any law
or regulation made after the date of this Agreement.
(b) In this Agreement "Increased Costs" means:
(i) a reduction in the rate of return from the Facility or on a
Finance Party's (or its Affiliate's) overall capital;
(ii) an additional or increased cost;
(iii)a reduction of any amount due and payable under any Finance
Document;
(iv) the imposition, modification or application of any reserve,
special deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or
any other acquisition of funds by, any office of a Finance Party
which is not otherwise included in the determination of LIBOR or
EURIBOR under this Agreement, including, without limitation, the
imposition of any reserves with respect to "Eurocurrency
Liabilities" under Regulation D (for which purpose, the
Utilisations shall be deemed to constitute Eurocurrency
Liabilities and to be subject to such reserve requirements
without benefit of or credit for proration, exceptions or offsets
which may be available from time to time to any Finance Party
under Regulation D); or
(v) an imposition on a Finance Party of any condition,
whichis directly incurred or suffered by a Finance Party or any of
its Affiliates to the extent that it is attributable to that
Finance Party having entered into its Commitment or funding or
performing its obligations under any Finance Document.
16.2 Increased cost claims
(a) A Finance Party intending to make a claim pursuant to Clause 16.1
(Increased costs) shall notify the Agent of the event giving rise to
the claim, following which the Agent shall promptly notify the
Company.
(b) Each Finance Party shall, as soon as practicable after a demand by the
Agent, provide a certificate to the Agent and the Company confirming
the amount of its Increased Costs (and setting out in reasonable
detail the basis of calculation of such Increased Costs).
16.3 Exceptions
(a) Clause 16.1 (Increased costs) does not apply to the extent any
Increased Cost is:
(i) attributable to a Tax Deduction required by law to be made
by an Obligor;
(ii) compensated for by Clause 15.3 (Tax indemnity) (or would
have been compensated for under Clause 15.3 (Tax indemnity)
but was not so compensated solely because one of the
exclusions in paragraph (b) of Clause 15.3 (Tax indemnity)
applied);
(iii) compensated for by the payment of the Mandatory Cost; or
(iv) attributable to the wilful breach by the relevant Finance
Party or its Affiliates of any law or regulation or to its
negligence or wilful default.
(b) In this Clause 16.3, a reference to a "Tax Deduction" has the
same meaning given to the term in Clause 15.1 (Definitions).
17. OTHER INDEMNITIES
17.1 Currency indemnity
(a) If any sum due from an Obligor under the Finance Documents (a
"Sum"), or any order, judgment or award given or made in relation
to a Sum, has to be converted from the currency (the "First
Currency") in which that Sum is payable into another currency
(the "Second Currency") for the purpose of:
(i) making or filing a claim or proof against that Obligor;
(ii) obtaining or enforcing an order, judgment or award in
relation to any litigation or arbitration proceedings,
that Obligor shall as an independent obligation, within three Business
Days of demand, indemnify each Finance Party to whom that Sum is due
against any cost, loss or liability arising out of or as a result of the
conversion including any discrepancy between (A) the rate of exchange
used to convert that Sum from the First Currency into the Second
Currency and (B) the rate or rates of exchange available to that person
at the time of its receipt of that Sum.
(b) Each Obligor waives any right it may have in any jurisdiction to
pay any amount under the Finance Documents in a currency or
currency unit other than that in which it is expressed to be
payable.
17.2 Other indemnities The Company shall (or shall procure that an Obligor
will), within three Business Days of demand (which demand shall
include reasonable detail of the basis of calculation of the amount
demanded), indemnify each Lender against any cost, loss or liability
incurred by that Lender as a result of:
(a) the occurrence of any Event of Default;
(b) a failure by an Obligor to pay any amount due under a Finance
Document on its due date, including without limitation, any cost,
loss or liability arising as a result of Clause 30 (Sharing among
the Lenders);
(c) funding, or making arrangements to fund, its participation in a
Utilisation requested by a Borrower (or SMS Bidco in the
circumstances and on the terms set out in Clause 4.1(e)
(Initial conditions precedent)) in a Utilisation Request but
not made by reason of the operation of any one or more of the
provisions of this Agreement (other than by reason of default
or negligence by that Lender alone); or
(d) a Utilisation (or part of a Utilisation) not being prepaid in
accordance with a notice of prepayment given by a Borrower or the
Company.
17.3 Indemnity to the Agent The Company shall promptly indemnify the Agent
against any cost, loss or liability incurred by the Agent (acting
reasonably) as a result of:
(a) investigating any event which it reasonably believes is a
Default; or
(b) entering into or performing any foreign exchange contract for the
purposes of Clause 6 (Optional Currencies); or
(c) acting or relying on any notice, request or instruction which it
reasonably believes to be genuine, correct and appropriately
authorised.
17.4 Acquisition Financing Indemnity The Company shall indemnify each
Finance Party in accordance with Schedule 10 (Acquisition Financing
Indemnity).
18. MITIGATION BY THE LENDERS
18.1 Mitigation
(a) Each Finance Party shall, in consultation with the Company, take
all reasonable steps to mitigate any circumstances which arise
and which would result in any amount becoming payable under, or
cancelled pursuant to, any of Clause 10.1 (Illegality), Clause 15
(Tax gross-up and indemnities) or Clause 16 (Increased costs)
including (but not limited to) transferring its rights and
obligations under the Finance Documents to another Affiliate or
Facility Office.
(b) Paragraph (a) above does not in any way limit the obligations of
any Obligor under the Finance Documents.
18.2 Limitation of liability
(a) The Company shall indemnify each Finance Party for all costs and
expenses reasonably incurred by that Finance Party as a result of
steps taken by it under Clause 18.1 (Mitigation).
(b) A Finance Party is not obliged to take any steps under Clause
18.1 (Mitigation) if, in the opinion of that Finance Party
(acting reasonably), to do so might be prejudicial to it.
19. COSTS AND EXPENSES
19.1 Transaction expenses The Company shall promptly on demand (and subject
to the Fee Letter relating, inter alia, to the same) pay the Agent and
the Arranger the amount of all costs and expenses and related taxes
(including legal fees) reasonably incurred by any of them in
connection with the negotiation, preparation, printing, execution and
syndication of:
(a) this Agreement and any other documents referred to in this
Agreement; and
(b) any other Finance Documents executed after the date of this
Agreement.
19.2 Amendment costs If:
(a) an Obligor requests an amendment, waiver or consent; or
(b) an amendment is required pursuant to Clause 31.9 (Change of
currency); or
(c) an amendment is required to Clause 20 (Guarantee and Indemnity)
as a result of the accession of an Additional Guarantor who has a
legal restriction on the ability to give a guarantee in the
specified form,
the Company shall, within three Business Days of demand, reimburse the
Agent for the amount of all third party costs and expenses (including
legal fees) reasonably incurred by the Agent in responding to,
evaluating, negotiating or complying with that request or requirement,
it being understood that such costs and expenses shall (so far as
practically possible) be subject to a pre-agreed budget mutually
satisfactory to the Company and the Agent.
19.3 Enforcement costs The Company shall, within three Business Days of
demand, pay to each Finance Party the amount of all reasonable costs
and expenses (including legal fees) incurred by that Finance Party in
connection with the enforcement of, or the preservation of any rights
under, any Finance Document.
19.4 Notification The relevant person who has incurred any costs for which
the Company is responsible to pay pursuant to this Clause 19, shall
provide the Company with copies of invoices showing the relevant
matters in reasonable detail.
SECTION 7
GUARANTEE
20. GUARANTEE AND INDEMNITY
20.1 Guarantee and indemnity
(a) Each Guarantor irrevocably and unconditionally jointly and
severally:
(i) guarantees to each Finance Party punctual performance by
each Borrower of all that Borrower's obligations under the
Finance Documents;
(ii) undertakes with each Finance Party that whenever a Borrower
does not pay any amount when due under or in connection with
any Finance Document, that Guarantor shall immediately on
demand pay that amount as if it was the principal obligor;
and
(iii)indemnifies each Finance Party immediately on demand against
any cost, loss or liability suffered by that Finance Party
if any obligation guaranteed by it is or becomes
unenforceable, invalid or illegal. The amount of the cost,
loss or liability shall be equal to the amount which that
Finance Party would otherwise have been entitled to recover,
provided that, in the case of each Guarantor incorporated in
France (other than the Company) its liability under this Clause
20 shall limited in amount to the outstanding Utilisations of
that Guarantor at the relevant time and the amount of any
outstanding intra-group loans granted to it by any other Obligor
using the proceeds of any Loanpursuant to this Agreement.
(b) As regards the guarantee given by the Company under this Clause
20, if:
(i) Security is created or permitted to subsist by the Company
or any other member of the Group over any of the Acquired
Shares; or
(ii) the holder of the Acquired Shares disposes of all or part of
them,
each Finance Party shall, independently of paragraph (a) above,
be entitled to:
(A) make demand on the Company for all Utilisations,
accrued interest and other amounts accrued under the
Finance Documents to be immediately due and payable
whereon they shall become immediately due and payable
and the Total Commitments shall be immediately
cancelled; or
(B) request that cash cover be provided to it in respect of
all principal amounts actually or contingently due to
that Finance Party under the Finance Documents.
20.2 Continuing guarantee This guarantee is a continuing guarantee and will
extend to the ultimate balance of sums payable by any Obligor under
the Finance Documents, regardless of any intermediate payment or
discharge in whole or in part.
20.3 Reinstatement If any payment by an Obligor or any discharge given by a
Finance Party (whether in respect of the obligations of any Obligor or
any security for those obligations or otherwise) is avoided or reduced
as a result of insolvency or any similar event:
(a) the liability of each Obligor shall continue as if the payment,
discharge, avoidance or reduction had not occurred; and
(b) each Finance Party shall be entitled to recover the value or
amount of that security or payment from each Obligor, as if the
payment, discharge, avoidance or reduction had not occurred.
20.4 Waiver of defences The obligations of each Guarantor under this Clause
20 will not be affected by an act, omission, matter or thing which,
but for this Clause, would reduce, release or prejudice any of its
obligations under this Clause 20 (without limitation and whether or
not known to it or any Finance Party) including:
(a) any time, waiver or consent granted to, or composition with, any
Obligor or other person;
(b) the release of any other Obligor or any other person under the
terms of any composition or arrangement with any creditor of any
member of the Group;
(c) the taking, variation, compromise, exchange, renewal or release
of, or refusal or neglect to perfect, take up or enforce, any
rights against, or security over assets of, any Obligor or other
person or any non-presentation or non-observance of any formality
or other requirement in respect of any instrument or any failure
to realise the full value of any security;
(d) any incapacity or lack of power, authority or legal personality
of or dissolution or change in the members or status of an
Obligor or any other person;
(e) any amendment (however fundamental) or replacement of a Finance
Document or any other document or security;
(f) any unenforceability, illegality or invalidity of any obligation
of any person under any Finance Document or any other document or
security; or
(g) any insolvency or similar proceedings.
20.5 Immediate recourse Each Guarantor waives any right it may have of
first requiring any Finance Party (or any trustee or agent on its
behalf) to proceed against or enforce any other rights or security or
claim payment from any person before claiming from that Guarantor
under this Clause 20. This waiver applies irrespective of any law or
any provision of a Finance Document to the contrary.
20.6 Appropriations Until all amounts which may be or become payable by the
Obligors under or in connection with the Finance Documents have been
irrevocably paid in full, each Finance Party (or any trustee or agent
on its behalf) may:
(a) refrain from applying or enforcing any other moneys, security or
rights held or received by that Finance Party (or any trustee or
agent on its behalf) in respect of those amounts, or apply and
enforce the same in such manner and order as it sees fit (whether
against those amounts or otherwise) and no Guarantor shall be
entitled to the benefit of the same; and
(b) hold in an interest-bearing suspense account any moneys received
from any Guarantor or on account of any Guarantor's liability
under this Clause 20.
20.7 Deferral of Guarantors' rights Until all amounts which may be or
become payable by the Obligors under or in connection with the Finance
Documents have been irrevocably paid in full and unless the Agent
otherwise directs, no Guarantor will exercise any rights which it may
have by reason of performance by it of its obligations under the
Finance Documents:
(a) to be indemnified by an Obligor;
(b) to claim any contribution from any other guarantor of any
Obligor's obligations under the Finance Documents; and/or
(c) to take the benefit (in whole or in part and whether by way of
subrogation or otherwise) of any rights of the Finance Parties
under the Finance Documents or of any other guarantee or security
taken pursuant to, or in connection with, the Finance Documents
by any Finance Party.
20.8 Additional security This guarantee is in addition to and is not in any
way prejudiced by any other guarantee or security now or subsequently
held by any Finance Party.
20.9 Limitation on guarantee of US Guarantors
(a) For the purposes of this Clause 20.9, "US Guarantor" means any
Guarantor incorporated or organised under the laws of the United
States or any state of the United States (including the District
of Columbia).
(b) Each US Guarantor acknowledges that:
(i) it will receive valuable direct or indirect benefits as a
result of the transactions financed by the Finance
Documents;
(ii) each Finance Party has acted in good faith in connection
with the guarantee given by that US Guarantor and the
transactions contemplated by the Finance Documents; and
(iii)it has not incurred and does not intend to incur debts
beyond
its ability to pay as they mature.
(c) Each US Guarantor must ensure that at all times:
(i) its capital must not be unreasonably small to carry on its
business as it is being conducted; and
(ii) it has not made a transfer or incurred any obligation under
any Finance Documents with the intent to hinder, delay or
defraud any of its present or future creditors.
SECTION 8
REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
21.REPRESENTATIONS
Each Obligor (in respect of itself and, where applicable, its
Subsidiaries) makes the representations and warranties set out in this
Clause 21 to each Finance Party on the date of this Agreement.
21.1 Status
(a) The Company is a societe anonyme, duly established and existing
under the laws of the Republic of France.
(b) Each other Obligor is a corporation, duly incorporated and
validly existing under the law of its jurisdiction of
incorporation.
(c) Each Obligor has the power to own its assets and carry on its
business as it is being conducted.
21.2 Binding obligations Subject to the Reservations, the obligations
expressed to be assumed by it in each Finance Document are, legal,
valid, binding and enforceable obligations.
21.3 Non-conflict with other obligations The entry into and performance by
it of, and the transactions contemplated by, the Finance Documents do
not and will not conflict with:
(a) any law or regulation applicable to it;
(b) the constitutional documents of it or any Material Subsidiary;
(c) any agreement or instrument binding upon it or any Material
Subsidiary in a manner or to an extent which has or might have a
Material Adverse Effect.
21.4 Power and authority It has the power to enter into, perform and
deliver, and has taken all necessary action to authorise its entry
into, performance and delivery of, the Finance Documents to which it
is a party and the transactions contemplated by the Finance Documents.
21.5 Validity and admissibility in evidence All Authorisations required:
(a) to enable it lawfully to enter into, exercise its rights and
comply with its obligations in the Finance Documents to which it
is a party; and
(b) to make the Finance Documents admissible in evidence in its
jurisdiction of incorporation,
have been obtained or effected and are in full force and effect.
21.6 No default
(a) No Event of Default is continuing or might reasonably be expected
to result from the making of any Utilisation.
(b) No event or circumstance is outstanding which constitutes a
default under any other agreement or instrument which is binding
on it or any of its Subsidiaries which would have a Material
Adverse Effect.
21.7 Information Memorandum This representation and warranty is made by the
Company only upon issue of an Information Memorandum approved by the
Company in writing, on the date of any update thereof and on the date
of each or any Syndication Agreement (on the Information Memorandum as
the same may have been updated).
(a) The factual information provided by or on behalf of the Company
in the Information Memorandum was true and accurate in all
material respects as at the date (if any) at which it is stated
or at the date of the Company's approval of the Information
Memorandum.
(b) The financial projections contained in the Information Memorandum
have been prepared (in good faith) on the basis of recent
historical information and on the basis of reasonable assumptions
current at the date of the Information Memorandum or any update
thereof, and were arrived at after due and careful consideration.
(c) Nothing has occurred or been omitted from the Information
Memorandum and no information has been given or withheld that
results in the information, projections or assumptions contained
in the Information Memorandum being untrue or misleading in any
material respect in so far as the Information Memorandum relates
to the financing contemplated in the Financing Documents.
21.8 Financial statements
(a) In the case of the Company, its Original Financial Statements
were prepared in accordance with French GAAP consistently
applied.
(b) In the case of the Company, its Original Financial Statements
fairly represent the consolidated financial position of the Group
as at the end of the relevant financial year.
(c) There has been no material adverse change in the financial
condition or business of the Group taken as a whole since 31
August 2000 (the Company only makes this representation and
warranty).
21.9 Pari passu ranking Its payment obligations under the Finance Documents
rank at least pari passu with the claims of all its other unsecured
and unsubordinated creditors, except for obligations mandatorily
preferred by law applying to companies generally.
21.10 No proceedings pending or threatened No litigation, arbitration or
administrative proceedings (other than disclosed in writing to the
Arranger prior to the date of this Agreement and which the Company or
other relevant Obligor believes on reasonable grounds will be decided
in its favour) of or before any court, arbitral body or agency have
been started or (to the best of its knowledge and belief) threatened
against it or any of its Subsidiaries which, if adversely determined,
would be reasonably likely to have a Material Adverse Effect.
21.11Existing Security No Security exists on or over its assets or those
of any of its Subsidiaries except as permitted by Clause 24.3
(Negative pledge).
21.12Environmental laws
(a) It and each of its Subsidiaries is and has been in compliance
with all applicable Environmental Laws and there are no
circumstances known to it or any of its Subsidiaries that may
prevent or interfere with such full compliance in the future and
there are no circumstances known to it or any of its Subsidiaries
that could give rise to any liability under Environmental Laws;
(b) It and each of its Subsidiaries has been and is in compliance
with the terms of all Environmental Approvals necessary for the
ownership and operation of its and their facilities and
businesses as presently owned and operated and as presently
proposed to be owned and operated and it and each of its
Subsidiaries will have all such Environmental Approvals prior to
the commencement of any new activities or the commencement of
work at any new sites to be owned or operated by it or them;
(c) To the best of the knowledge and belief of the Company (having
made due and careful enquiry) there is no Environmental Claim
pending or threatened against it or any of its Subsidiaries, and
there are no past or present acts, omissions, events or
circumstances which could form the basis of any Environmental
Claim against it or any of its Subsidiaries,
in each of (a), (b) and (c) above, to the extent that no existing claim
or non-compliance would be likely to have a Material Adverse Effect.
21.13Material Subsidiaries Each member of the Group which, as at the date
of this Agreement, is a Material Subsidiary is listed in Schedule 12
(Material Subsidiaries).
21.14Solvency No Obligor has taken any action nor have any steps been
taken or legal proceedings started or threatened against it for
winding up, examination, dissolution or re-organisation, the
enforcement of any Security over its assets or for the appointment of
a receiver, examiner, administrative receiver or administrator,
trustee or similar officer of it or any of its assets.
21.15Tax liabilities
All necessary returns have been delivered by each member of the
Group (subject to the provisions of Clause 21.4 (SMS and SMO as
Subsidiaries)) or on their behalf to the relevant taxation
authorities and neither it nor any of its Subsidiaries is in default
in the payment of any taxes, and no material claim is being asserted
with respect to taxes which (if adversely decided) would have a
Material Adverse Effect which has not been contested and appropriately
reserved against in its most recent financial statements.
21.16Employee Plans
(a) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan that has resulted in or is reasonably
expected to result in a liability of a US Material Subsidiary or
any ERISA Affiliate that would reasonably be expected to have a
Material Adverse Effect.
(b) As of the last annual actuarial valuation date, except as would
not reasonably be expected to have a Material Adverse Effect, the
funded current liability percentage, as defined in Section
302(d)(8) of ERISA, of each Plan exceeds 90 per cent and there
has been no adverse change in the funding status of any such Plan
since such date.
(c) No US Material Subsidiary nor any ERISA Affiliate has incurred or
is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan that would reasonably be expected to have a
Material Adverse Effect.
(d) No US Material Subsidiary nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganisation or has been terminated,
within the meaning of Title IV of ERISA, and no such
Multiemployer Plan is reasonably expected to be in reorganisation
or to be terminated, within the meaning of Title IV of ERISA, in
any such case, in a manner or to an extent that would reasonably
be expected to have a Material Adverse Effect.
(e) Each US Material Subsidiary and its respective Subsidiaries have
no material liability with respect to "expected post retirement
benefit obligations" within the meaning of Statement of Financial
Accounting Standards No. 106 that would reasonably be expected to
have a Material Adverse Effect.
21.17US Federal Reserve Regulations Neither the making of any Loan nor the
use of the proceeds or the benefits thereof will violate or be
inconsistent with Regulations T, U or X of the Board.
21.18Investment Company Act and Public Utility Holding Company Act No
Obligor is an "investment company", as such term is defined in the US
Investment Company Act of 1940 as amended, or subject to the Public
Utility Holding Company Act 1935, as amended.
21.19 The Offer and AA Acquisitions
(a) The Tender Offer Statement contains all the material terms and
conditions of the Offer.
(b) The AA Acquisition Agreements provided to the Agent contain all
the material terms and conditions of the AA Acquisitions.
21.20Repetition
The Repeating Representations are deemed to be made by each
Obligor by reference to the facts and circumstances then
existing on:
(a) the date of each drawdown date and each interest payment
date; and
(b) in the case of an Additional Obligor, the day on which the
relevant company becomes (or it is proposed the company
becomes) an Additional Obligor.
22. INFORMATION UNDERTAKINGS
The undertakings in this Clause 22 remain in force from the date of this
Agreement for so long as any amount is outstanding under the Finance
Documents or any Commitment is in force.
22.1 Financial statements The Company shall supply to the Agent in
sufficient copies for all the Lenders:
(a) as soon as the same become available, but in any event within 120
days after the end of each of its financial years:
(i) its audited consolidated financial statements for that
financial year; and
(ii) the financial statements of each Obligor (unaudited unless
audited accounts are prepared and presented on an
unconsolidated and, if prepared, consolidated basis) for
that financial year; and
(b) as soon as the same become available, but in any event within 120
days after the end of each half of each of its financial years
the consolidated financial statements of the Company for that
financial half year (unaudited unless audited accounts are
prepared).
22.2 Compliance Certificate
(a) The Company shall supply to the Agent, with each set of financial
statements delivered pursuant to paragraph (a)(i) or (b) of
Clause 22.1 (Financial statements), a Compliance Certificate
setting out:
(i) (in reasonable detail) computations as to compliance with
Clause 23 (Financial Covenants) as at the date as at which
those financial statements were drawn up; and
(ii) a statement that no Default is continuing or, to the extent
such statement cannot be made, identifying any Default that
is continuing and the steps, if any, being taken to remedy
it.
(b) Each Compliance Certificate shall be signed by the Chief
Financial Officer, or such other appropriate and responsible
officer, of the Company and, when delivered with the financial
statements delivered pursuant to paragraph (a)(i) of Clause 22.1
(Financial statements), shall be confirmed by the Company's
auditors subject to agreeing their terms of engagement with the
Company as approved by the Agent (acting reasonably).
22.3 Requirements as to financial statements
(a) Each set of financial statements delivered by the Company
pursuant to paragraph (b) of Clause 22.1 (Financial statements)
shall be certified by a director of the relevant company as
fairly representing its consolidated financial condition as at
the end of and for the period in relation to which those
financial statements were drawn up.
(b) The Company shall procure that each set of financial statements
delivered pursuant to Clause 22.1 (Financial statements) is
prepared using French GAAP or, in the case of US Obligors, US
GAAP. In relation to its own financial statements delivered
pursuant to Clause 22.1 (Financial statements), the Company shall
ensure it uses accounting practices and financial reference
periods consistent with those applied in the preparation of its
Original Financial Statements unless, in relation to any set of
financial statements, it notifies the Agent that there has been a
change in French GAAP, the accounting practices or reference
periods which has an effect on the calculation of the covenants
as set out in Clause 23 (Financial Covenants) and its auditors
deliver to the Agent (as reasonably required):
(i) a description of any change necessary for those financial
statements to reflect the French GAAP, accounting practices
and reference periods upon which the Company's Original
Financial Statements were prepared; and
(ii) sufficient information, in form and substance as may be
reasonably required by the Agent, to enable the Lenders to
determine whether Clause 23 (Financial Covenants) has been
complied with and make an accurate comparison between the
financial position indicated in those financial statements and
the Company's Original Financial Statements.
Any reference in this Agreement to those financial statements
shall be construed as a reference to those financial statements
as adjusted to reflect the basis upon which the Company's
Original Financial Statements were prepared.
22.4 Information: miscellaneous The Company shall supply to the Agent (in
sufficient copies for all the Lenders, if the Agent so requests):
(a) all financial press releases and circulars dispatched by the
Company:
(i) to its shareholders (or any class of them); or
(ii) to its creditors generally at the same time as they are
dispatched;
(b) promptly upon becoming aware of them, the details of any
litigation, arbitration or administrative proceedings which are
current, threatened or pending against any member of the Group
(subject to Clause 22.4 (SMS and SMO as Subsidiaries)), and which
could, if adversely determined, have a Material Adverse Effect;
(c) promptly, such further information regarding the financial
condition, business and operations of any member of the Group
(subject to Clause 22.4 (SMS and SMO as Subsidiaries)) as any
Finance Party (through the Agent) may reasonably request;
(d) written confirmation of when it has gained control of SMS (within
the meaning set out in the definition of "Subsidiary" in Clause
22.1 (Definitions)) promptly following control being obtained;
and
(e) promptly on request, a certificate confirming how much the
Company and any other member of the Group has spent on acquiring
Shares.
22.5 Notification of default
Each Obligor shall notify the Agent of any Default (and the steps,
if any, being taken to remedy it) promptly upon becoming aware of
its occurrence (unless that Obligor is aware that a notification has
already been provided by another Obligor).
22.6 Offer and AA Acquisition related documents
(a) The Company will promptly deliver to the Agent:
(i) enough copies for the Lenders of each Tender Offer
Statement, proxy statements and any merger agreement and any
other document containing material terms and conditions of
any Offer which the Company (acting reasonably) thinks it
should disclose;
(ii) a copy of each AA Acquisition Agreement and any amendments
thereto and, if applicable, any other document containing
material terms and conditions of the AA Acquisition which
the Company (acting reasonably) thinks it should disclose;
(iii)details of any publicly announced determination of the
Special Committee relating to the Offer; and
(iv) details of any litigation, arbitration or other proceeding
or, to the extent known to the Company, any pending or
threatened litigation or proceedings relating to the Offer
or the acquisition of any SMS shares which would have a
Material Adverse Effect.
(b) The Company will promptly deliver to the Agent for distribution
to the Lenders such other information (in reasonable detail)
relating to the status and progress of the Offer or the AA
Acquisition as the Agent (or any Lender acting through the Agent)
may from time to time reasonably request including, without
limitation, details as to the current level of acceptances to the
Offer.
22.7 ERISA Events and ERISA reports
A US Material Subsidiary shall (and the Company shall ensure that it
shall) deliver to the Agent:
(a) promptly and in any event within 10 days after it or any ERISA
Affiliate knows or has reason to know that any ERISA Event has
occurred that would reasonably be expected to have a Material
Adverse Effect, a statement of the chief financial officer of
that US Material Subsidiary describing such ERISA Event and the
action, if any, that that US Material Subsidiary or such ERISA
Affiliate has taken and proposes to take with respect thereto;
and
(b) on the date any records, documents or other information must be
furnished to the PBGC with respect to any Plan pursuant to
Section 4010 of ERISA in connection with a related event or
condition that would reasonably be expected to have a Material
Adverse Effect, a copy of such records, documents and
information.
22.8 Plan terminations
A US Material Subsidiary shall (and the Company shall ensure that it
shall) deliver to the Agent promptly and in any event within two
Business Days after receipt thereof by that US Material Subsidiary or
any ERISA Affiliate, copies of each notice from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed to
administer any Plan that would reasonably be expected to have a Material
Adverse Effect.
22.9 Plan annual reports
A US Material Subsidiary shall (and the Company shall ensure that it
shall) deliver to the Agent promptly and in any event within 10 days
after request of the Agent, copies of each Schedule B (Actuarial
Information) to the most recently filed annual report (Form 5500 Series)
with respect to each Plan.
22.10 Multiemployer Plan notices
A US Material Subsidiary shall (and the Company shall ensure that it
shall) deliver to the Agent promptly and in any event within five
Business Days after receipt thereof by that US Obligor or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, copies of each
notice concerning:
(a) the imposition of Withdrawal Liability by any such Multiemployer
Plan that would reasonably be expected to have a Material Adverse
Effect;
(b) the reorganisation or termination, within the meaning of Title IV
of ERISA, of any such Multiemployer Plan that would reasonably be
expected to have a Material Adverse Effect; or
(c) the amount of liability incurred, or that may be incurred, by
that US Material Subsidiary or any ERISA Affiliate in connection
with any event described in paragraphs (a) or (b) above.
22.11 Environment
The Company shall, and shall procure that each other member of the Group
(subject to Clause 22.4 (SMS and SMO as Subsidiaries)) shall, promptly
upon receipt of the same, notify the Agent of any claim, notice or other
communication served on it in respect of any alleged breach of any
Environmental Law which may have a Material Adverse Effect.
23. FINANCIAL COVENANTS
23.1 Financial condition The Company shall ensure that:
(a) the ratio of Net Consolidated Financial Indebtedness on each date
listed below to EBITDA for the Relevant Period ended on such date
will be not more than the ratio set opposite that date:
Date Ratio
28 February 2002 24.00:1
31 August 2002 24.00:1
28 February 2003 24.00:1
31 August 2003 24.00:1
29 February 2004 24.00:1
31 August 2004 24.00:1
28 February 2005 24.00:1
31 August 2005 24.00:1
28 February 2006 24.00:1
(b) the ratio of EBIT to Net Consolidated Interest Expense for each
Relevant Period ending on each date listed below will not be less
than the ratio set opposite that date:
Date Ratio
28 February 2002 3.50:1
31 August 2002 3.50:1
28 February 2003 4.00:1
31 August 2003 4.00:1
29 February 2004 4.00:1
31 August 2004 4.00:1
28 February 2005 4.00:1
31 August 2005 4.00:1
28 February 2006 4.00:1
23.2 Definitions In this Clause 23:
"EBIT" means, in relation to any period, the "resultat d'exploitation
consolide" (as determined in accordance with French GAAP) as shown in
the consolidated accounts of the Group for that period excluding for the
avoidance of doubt any charge for amortisation of goodwill
(amortissement d'ecarts d'acquisition).
"EBITDA" has the meaning ascribed thereto in Clause 23.1 (Definitions).
"Net Consolidated Financial Indebtedness" means, at any time, the
Relevant Financial Indebtedness of the Group less the amount of cash at
hand and marketable securities ("disponibilities et valuers mobilieres
de placement") as shown in the Group's consolidated accounts excluding
for the avoidance of doubt reserved funds relating to the vouchers
activity ("fonds reserves") and Relevant Financial Indebtedness in
respect of Guaranteed Investments.
"Net Consolidated Interest Expense" means, for any period, the "resultat
financier consolide" (as determined in accordance with French GAAP) as
shown in the Group's consolidated accounts for that period after
excluding any foreign exchange gains or losses and any amortisation
provision ("dotations et reprises aux amortissements et provisions")
made, to the extent included within the "resultat financier consolide"
during that period.
"Relevant Financial Indebtedness" means, in relation to any person at
any time, any indebtedness of that person, whether actual or contingent,
present or future, in respect of:
(a) total financial debt ("dettes financieres") including moneys
borrowed, debit balances at banks and any debenture, bond, note,
loan stock or other debt security;
(b) receivables sold or discounted (otherwise than on a
non-recourse basis), acceptance credits and other arrangements
required to be given similar treatment under French GAAP;
(c) the obligations under capital leases ("credit-bail") or other
contracts required to be given similar treatment under French
GAAP;
(d) any guarantee of any person in respect of any of the above,
but no particular Relevant Financial Indebtedness shall be taken into
account more than once (so that, for example, a guarantee shall be
excluded to the extent the Relevant Financial Indebtedness guaranteed
thereby is already taken into account and, in the case of Relevant
Financial Indebtedness of any member of the Group, there shall also be
excluded (i) any Relevant Financial Indebtedness owing to any member of
the Group (ii) (for avoidance of doubt) any performance guarantee issued
in favour of Spirit Marine in respect of the contractual arrangements
entered into by Spirit Cruises and (iii) (for avoidance of doubt) the
Relevant Financial Indebtedness of any person (not being a member of the
Group) that is guaranteed by a member of the Group which guarantee
thereof is treated as Relevant Financial Indebtedness).
"Relevant Period" means each period of 12 months ending on each 28 or 29
February, as the case may be, and 31 August.
24.GENERAL UNDERTAKINGS
The undertakings in this Clause 24 remain in force from the date of this
Agreement for so long as any amount is outstanding under the Finance
Documents or any Commitment is in force.
24.1 Authorisations
Each Obligor shall promptly obtain, comply with and do all that is
necessary to maintain in full force and effect any Authorisation
required under any applicable law or regulation to enable it to perform
its obligations under the Finance Documents to which it is a party and
to ensure the legality, validity, (subject to the Reservations)
enforceability or admissibility in evidence in its jurisdiction of
incorporation of any Finance Document.
24.2 Compliance with laws
Each Obligor shall (and the Company shall ensure that each other member
of the Group (subject to Clause 23.4 (SMS and SMO as Subsidiaries))
shall) comply in all respects with all laws and regulations including,
without limitation, compliance with ERISA, to which it may be subject,
if failure to do so would be reasonably likely to have a Material
Adverse Effect.
24.3 Negative pledge
(a) The Company shall not (and the Company shall ensure that no other
member of the Group (subject to Clause 23.4 (SMS and SMO as
Subsidiaries)) will) create or permit to subsist any Security
over any of its assets (but excluding for this purpose Security
over the Acquired Shares).
(b) Paragraph (a) does not apply to:
(i) Security granted in favour of any person which is not a
member of the Group in effect on the date of this Agreement
and disclosed in writing to the Agent prior to the date of
this Agreement provided that in relation to SMS and SMO such
disclosure shall be limited to disclosure of the total
amount of indebtedness secured by SMS and SMO and a
breakdown between each such company;
(ii) liens arising by operation of law or in the ordinary course
of trading including in respect of any client money held in
trust by a Group member or rights of set-off arising by
operation of law or bankers' rights of set-off;
(iii)group account netting and pooling arrangements entered into
between members of the Group and any bankers to the Group;
(iv) any Security on any asset of a member of the Group arising
in respect of any escrow arrangements put into place for the
purpose of a disposal or acquisition by a member of the
Group;
(v) any Security on any asset acquired by a member of the Group
which exists at the time of, and is not created in
contemplation of, such acquisition, provided that the same
does not secure any obligation which is not secured thereby
at the time of such acquisition;
(vi) any Security on any asset which secured only Financial
Indebtedness incurred to refinance any other Financial
Indebtedness secured by the same asset by any such security
as is referred to in paragraph (v) above, provided that the
aggregate amount secured by such asset is not thereby
increased;
(vii)any Security created by any member of the Group to secure
any Guaranteed Investments made or to be made by it;
(viii) any Security pursuant to any order of attachment,
distraint or similar legal process arising in connection
with court proceedings provided that the execution or other
enforcement thereof is effectively stayed and the claims
served thereby are being contested at the time in good faith
by appropriate proceedings and proper provision has been
made for any adverse judgments;
(ix) any Security on any sum payable under any contract (or on
any security representing such sum or otherwise issued
pursuant to such contract) in respect of which the major
part of the price receivable by a member of the Group is
guaranteed or insured by, or is part of a scheme operated
by, a national export credit institution or other similar
institution;
(x) any Security created on the assets of any member of the
Group in the course of margin trading entered into by such
member as part of its normal treasury operations;
(xi) Security on assets the subject of operating leases up to an
aggregate amount not exceeding EUR 40,000,000;
(xii)Security created by any member of the Group to another
member of the Group in connection with dealings carried on
between such persons on arm's length terms; and
(xiii) other Security not contained in paragraphs (i) to (xii)
above securing indebtedness in an amount not to exceed the
higher of EUR 200,000,000 or 5 per cent of Adjusted Net
Worth.
(c) If the Company or any other member of the Group creates or
permits to subsist Security over any of the Acquired Shares to
any person, it will at the same time grant identical Security to
or on behalf of the Lenders ranking pari passu over the Acquired
Shares pursuant to documentation acceptable to the Agent.
24.4 Disposals
No member of the Group (subject to Clause 23.4 (SMS and SMO as
Subsidiaries)) shall (individually or together) dispose of all or a
substantial part of the Group (as defined below) except for:
(a) disposals where the net proceeds are applied to prepay the
Facilities; or
(b) (after the first anniversary of the Credit Agreement and provided
that the Company's Rating is higher than BBB-) disposals where
the net proceeds are invested within 6 months in the acquisition
of similar assets or businesses of comparable or better value and
revenue generation; or
(c) disposals to other wholly owned Subsidiaries of the Company,
and provided that any such disposals in (a), (b) or (c) above are made
on arm's-length terms. For the purposes of this Clause 24.4, a disposal
of "a substantial part of the Group" means the disposal of assets,
businesses (or lines of businesses) or shares or other investments in
Subsidiaries, where the disposed part or parts accounts for at least 10
per cent. of the Group's gross assets or revenues or form a part of the
business or businesses acquired under an AA Acquisition Agreement, but
in any event this definition does not apply to:
(i) disposal of stock in trade in the ordinary course of trading;
(ii) disposals of short-term investments as part of normal treasury
operations; and
(iii) disposals of Guaranteed Investments.
24.5 Restriction on Subsidiary borrowings/guarantees
The Company and each other Obligor shall ensure that no member of the
Group (other than the Company) will create, assume, incur or otherwise
be liable in respect of, or have outstanding, any Financial Indebtedness
other than:
(a) any Financial Indebtedness falling within paragraph (g) of the
definition of "Financial Indebtedness" and entered into to hedge
actual or projected exposure arising in the ordinary course of
business;
(b) Financial Indebtedness owing to a member of the Group;
(c) Financial Indebtedness incurred under the Facilities;
(d) Financial Indebtedness in respect of Guaranteed Investments; and
(e) (i) Financial Indebtedness incurred and outstanding under the SMS
Existing Facility and SMO Credit Agreement and, in addition,
other Financial Indebtedness not exceeding EUR 300,000,000 in
aggregate for all members of the Group (excluding the Company);
or
(ii)Financial Indebtedness not exceeding EUR 400,000,000 in
aggregate for all members of the Group (other than the
Company).
24.6 Merger
Except with the prior written consent of the Majority Lenders, the
Company will not (and will procure that no other Obligor or Material
Subsidiary shall) enter into any merger or consolidation other than:
(a) a merger of SMS with SMS Bidco following and in connection with
an Offer; and
(b) a solvent merger or consolidation with another member of the
Group (in the case of an Obligor which must be the surviving
entity) and where the Agent (acting reasonably) is satisfied that
such merger or consolidation will not have an adverse impact on
any obligation owed by that Obligor to the Finance Parties or
upon any rights that a Finance Party may have against that
Obligor.
24.7 Change of business
The Company shall procure that no substantial change is made (whether by
acquisition or otherwise) to the general nature of the business of the
Group from that carried on at the date of this Agreement provided that
the members of the Group shall be able to extend into new markets,
services and product areas in related businesses.
24.8 Insurance
Each Obligor shall, and the Company shall ensure that each other
Material Subsidiary (subject to Clause 23.4 (SMS and SMO as
Subsidiaries)) shall, maintain with financially sound and reputable
insurers such insurance as may be required by law and such other
insurance, to such extent and against such hazards and liabilities as is
customarily maintained by companies carrying on a business such as that
carried on by it or the relevant Obligor or Material Subsidiary (subject
to Clause 23.4 (SMS and SMO as Subsidiaries)) in the same location as it
or the relevant Obligor or Material Subsidiary (subject to Clause 23.4
(SMS and SMO as Subsidiaries)).
24.9 The Offer
Each Obligor shall (and the Company shall procure that each Material
Subsidiary (subject to Clause 23.4 (SMS and SMO as Subsidiaries)) will)
comply with the rules of the New York Stock Exchange, the Securities and
Exchange Commission and all other applicable laws in all respects
material in the context of the Offer.
24.10 Pari Passu ranking
Each Obligor shall ensure that its payment obligations under the Finance
Documents rank and will at all times rank at least pari passu with the
claims of all its other unsecured and subordinated creditors, except for
obligations mandatorily preferred by law applying to companies
generally.
24.11 Taxes
Each Obligor shall pay and discharge, and the Company shall cause each
Material Subsidiary (subject to Clause 23.4 (SMS and SMO as
Subsidiaries)) to pay and discharge, before the same shall become
delinquent, all taxes, assessments and governmental charges or levies
imposed upon it or upon its property provided, however, that no Obligor
nor any Material Subsidiary (subject to Clause 23.4 (SMS and SMO as
Subsidiaries)) shall be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being
maintained.
24.12 Transactions with Affiliates and shareholders
The Company shall, in addition to complying with applicable French law,
conduct, and cause each of its Subsidiaries (subject to Clause 23.4 (SMS
and SMO as Subsidiaries)) to conduct, all material transactions
otherwise permitted under the Finance Documents with any of their
Affiliates (including, for the avoidance of doubt for the purpose of
this Clause 24.12, material transactions with any shareholder of the
Company who owns 5 per cent. or more of the issued share capital of the
Company) on terms that are fair and reasonable and no less favourable to
the Company or such Subsidiary (subject to Clause 23.4 (SMS and SMO as
Subsidiaries)) than it would obtain in a comparable arm's-length
material transaction with a person not an Affiliate. For the purpose of
this Clause 24.12, "material transaction" shall mean any transaction or
series of related transactions having a cash or non-cash value of at
least EUR 2,000,000 (or its equivalent).
24.13 Regulations T, U and X
No US Obligor shall (and the Company shall ensure that they do not) use,
directly or indirectly, the proceeds of the Facilities in a way which
violates any of Regulations T, U or X or any other applicable US federal
or state laws and regulations. If requested by the Agent, the Company or
the relevant Borrower will furnish to the Agent a statement to the
foregoing effect in conformity with the requirements of Form U-1
referred to in Regulation U.
24.14 Market Purchases
For so long as any amount is outstanding under Facility A or any
Facility A Commitment is in force, no more than EUR 400,000,000 in
aggregate may be spent by the Company or any of its Subsidiaries on
Market Purchases.
24.15 AA Bidcos and SMS Bidco
In relation to the AA Bidcos and the SMS Bidco, the Company shall at all
times ensure that such companies are properly capitalised for the
purposes of applicable French and United States laws and regulations
where the consequences of such non-compliance could, by the Lenders
performing their obligations under this Agreement, cause the Lenders
(directly or indirectly) to incur additional obligations to those set
out in this Agreement or a liability which would not have been incurred
by the Lenders had the companies been properly capitalised.
25. EVENTS OF DEFAULT
Each of the events or circumstances set out in Clause 25 (other than
Clause 25.16 (Acceleration) and Clause 25.17 (Clean-up Period)) is an
Event of Default.
25.1 Non-payment An Obligor does not pay on the due date any amount payable
pursuant to a Finance Document at the place at and in the currency in
which it is expressed to be payable unless:
(a) its failure to pay is caused by administrative or technical error
and payment is made within 3 Business Days of its due date; or
(b) in the case of payment of fees pursuant to a Finance Document,
payment is made within 5 Business Days of its due date.
25.2 Financial and other covenants
Any requirement of any of Clauses 22.5 (Notification of default), 23
(Financial Covenants), 24.3 (Negative pledge), 24.5 (Restriction on
Subsidiary borrowings/guarantees), 24.6 (Merger) and 24.7 (Change in
business) is not satisfied.
25.3 Other obligations
(a) An Obligor does not comply with any provision of the Finance
Documents (other than those referred to in Clause 25.1
(Non-payment) and Clause 25.2 (Financial and other covenants)).
(b) No Event of Default under paragraph (a) above in relation to any
of Clauses 22.1 (Financial statements), 22.2 (Compliance
Certificate), 22.3 (Requirements as to financial statements),
22.4 (Information: miscellaneous), 22.7 (ERISA Events and ERISA
reports), 22.8 (Plan termination), 22.9 (Plan annual reports),
22.10 (Multiemployer Plan notices) and 22.11 (Environment) will
occur if the failure to comply is capable of remedy and is
remedied within 5 Business Days of the Agent giving notice to the
Company or the Company becoming aware of the failure to comply.
(c) No Event of Default under paragraph (a) above in relation to any
other undertaking, obligation or provision (excluding the Clauses
specified in paragraph (a) above) will occur if the failure to
comply is capable of remedy and is remedied within 30 days of the
Agent giving notice to the Company or the Company becoming aware
of the failure to comply.
25.4 Misrepresentation
Any representation or statement made, repeated, or deemed to be made by
an Obligor in the Finance Documents or any other document delivered by
or on behalf of any Obligor under or in connection with any Finance
Document (including the Information Memorandum) is or proves to have
been incorrect or misleading in any material respect when made or deemed
to be made.
25.5 Cross default
(a) Any Financial Indebtedness of any member of the Group is not paid
when due nor within any originally applicable grace period.
(b) Any Financial Indebtedness of any member of the Group is declared
to be or otherwise becomes due and payable prior to its specified
maturity as a result of an event of default (however described).
(c) Any commitment for any Financial Indebtedness of any member of
the Group is cancelled or suspended by a creditor of any member
of the Group as a result of an event of default (however
described).
(d) Any creditor of any member of the Group becomes entitled to
declare any Financial Indebtedness of any member of the Group due
and payable prior to its specified maturity as a result of an
event of default (however described).
(e) No Event of Default will occur under this Clause 25.5 if the
aggregate amount of Financial Indebtedness or commitment for
Financial Indebtedness falling within paragraphs (a) to (d) above
is less than EUR 30,000,000 (or its equivalent in any other
currency or currencies) at any time.
25.6 Insolvency
(a) Any Obligor or any Material Subsidiary is unable or admits
inability to pay its debts as they fall due, suspends making
payments on any of its debts or threatens to stop payments of its
debts generally or, by reason of actual or anticipated financial
difficulties, commences negotiations with one or more of its
creditors with a view to rescheduling any of its indebtedness.
(b) A moratorium is declared in respect of any indebtedness of any
Obligor or any Material Subsidiary including, without limitation,
a moratorium governed by French law no. 84-148 of 1 March 1984.
25.7 Insolvency proceedings
Any corporate action, legal proceedings or other procedure or step is
taken in relation to:
(a) the suspension of payments, a moratorium of any indebtedness,
winding-up, dissolution, bankruptcy, judicial liquidation
(liquidation judiciaire), concordat, administration or judicial
reorganisation (redressement judiciaire), amicable settlement
(reglement amiable) or other reorganisation (by way of voluntary
arrangement, scheme of arrangement or otherwise) of any Obligor
or Material Subsidiary other than a solvent liquidation or
reorganisation previously approved in writing by the Majority
Lenders;
(b) a composition, assignment or arrangement with any creditor of any
Obligor or Material Subsidiary;
(c) the appointment of a liquidator (liquidateur) (other than in
respect of a solvent liquidation previously approved in writing
by the Majority Lenders), receiver, administrator, administrative
receiver, custodian, compulsory manager, bankruptcy receiver
(curateur), conciliator (conciliateur), ad hoc official
(mandataire ad hoc), judicial administrator (administrateur
judiciaire), liquidation official (mandataire liquidateur) or any
other similar officer in respect of any Obligor or Material
Subsidiary or any of its assets; or
(d) enforcement of any Security over any assets of any Obligor or
Material Subsidiary unless the liability or potential liability
in respect of which such proceedings are brought is less than EUR
15,000,000 (or its equivalent in any other currency),
or any analogous procedure or step is taken in any jurisdiction.
25.8 Creditors' process Any expropriation, attachment, sequestration,
distress or execution affects any asset or assets of an Obligor or
Material Subsidiary and is not discharged within 20 days.
25.9 Cessation of business
Any Obligor or any Material Subsidiary ceases or threatens to cease, to
carry on all or a substantial part of its business (other than pursuant
to a solvent reorganisation previously approved in writing by the
Majority Lenders).
25.10Unlawfulness It is or becomes unlawful for an Obligor to perform any
of its obligations under the Finance Documents.
25.11 Repudiation
An Obligor repudiates a Finance Document or evidences an intention to
repudiate a Finance Document.
25.12 Company guarantee
The guarantee of the Company specified in Clause 20 (Guarantee and
Indemnity) is demanded by a Finance Party in accordance with, and in the
circumstances specified in, Clause 20.1(b) (Guarantees and Indemnity) or
cash-cover has not been provided as specified therein.
25.13 Judgments
(a) Any judgment or order for the payment of money shall be rendered
against the Company or any of its Subsidiaries that would
reasonably be expected to have a Material Adverse Effect and
either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be
any period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
(b) Any non-monetary judgment or order shall be rendered against the
Company or any of its Subsidiaries that would reasonably by
expected to have a Material Adverse Effect, and there shall be
any period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
25.14 ERISA
(a) Any ERISA Event shall have occurred with respect to a Plan and
the sum (determined as of the date of occurrence of such ERISA
Event) of the Insufficiency of such Plan and the Insufficiency of
any and all other Plans with respect to which an ERISA Event
shall have occurred and then exist (or the liability of any of
the US Material Subsidiary and the ERISA Affiliates related to
such ERISA Event) exceeds US$30,000,000; or
(b) Any US Material Subsidiary or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has
incurred Withdrawal Liability to such Multiemployer Plan in an
amount that, when aggregated with all other amounts required to
be paid to Multiemployer Plans by the relevant US Material
Subsidiary and the ERISA Affiliates as Withdrawal Liability
(determined as of the date of such notification), exceeds
US$30,000,000; or
(c) Any US Material Subsidiary or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganisation or is being terminated,
within the meaning of Title IV of ERISA, and as a result of such
reorganisation or termination the aggregate annual contributions
of the relevant US Material Subsidiary and the ERISA Affiliates
to all Multiemployer Plans that are then in reorganisation or
being terminated have been or will be increased over the amounts
contributed to such Multiemployer Plans for the plan years of
such Multiemployer Plans immediately preceding the plan year in
which such reorganisation or termination occurs by an amount
exceeding US$30,000,000.
25.15 Material Adverse Change
Any event or series of events whether related or not occurs which could
reasonably be expected materially and adversely to affect the:
(a) ability of any Obligor to perform any of its payment obligations
under the Financing Documents; or
(b) the business or financial condition of the Company and its
Subsidiaries taken as a whole.
25.16 Acceleration
(a) On and at any time after the occurrence of an Event of Default
the Agent may, and shall if so directed by the Majority Lenders,
by notice to the Company:
(i) cancel the Total Commitments whereupon they shall
immediately be cancelled;
(ii) declare that all or part of the Utilisations, together with
accrued interest, and all other amounts accrued under the
Finance Documents be immediately due and payable, whereupon
they shall become immediately due and payable; and/or
(iii)declare that all or part of the Utilisations be payable on
demand, whereupon they shall immediately become payable on
demand by the Agent on the instructions of the Majority
Lenders,
and, for the avoidance of doubt, Letters of Credit shall be
repaid, or repaid on demand (as the case may be), as specified in
Clause 6.1 (General).
(b) Notwithstanding the provisions of paragraph (a) above, in the
event of an actual or deemed entry of an order for relief with
respect to a US Material Subsidiary under the Federal Bankruptcy
Code, (A) the obligation of each Lender to make Utilisations
shall automatically be terminated and (B) the Utilisations, all
accrued interest and all such other amounts shall automatically
become and be due and payable, without notice, demand or
declaration of any kind all of which are hereby expressly waived
by the Company and each US Material Subsidiary
25.17 Clean-up Period
Until the date after the Clean-up Period ends, the Events of Default set
out in:
(a) Clause 25.3 (Other obligations) as it relates to Clauses 24.2
(Compliance with laws), 24.3 (Negative pledge), 24.8 (Insurance)
and 24.11 (Taxes); and
(b) Clause 25.4 (Misrepresentation) as it relates to Clauses 225.6(b)
(No default), 225.10 (No proceedings pending or threatened),
225.12 (Environmental laws) and 225.15 (Tax liabilities),
shall not apply to or in respect of any event or circumstance with
respect to (i) the AA businesses acquired under an AA Acquisition
Agreement which exists on the date of the relevant AA Acquisition or
(ii) SMS or any of its Subsidiaries which exists on the date SMS becomes
a Subsidiary of the Company (in accordance with the requirements set out
in the definition of Subsidiary) except that, in each case, this Clause
25.17 shall not apply to any event or circumstance which the Company
could, in all the circumstances, reasonably be expected to have
exercised control to prevent or overcome.
SECTION 9
CHANGES TO PARTIES
26. CHANGES TO THE LENDERS
26.1 Assignments and transfers by the Lenders
Subject to this Clause 26, a Lender (the "Existing Lender") may:
(a) assign any of its rights; or
(b) transfer by novation any of its rights and obligations,
to another bank, financial institution or other person (the "New
Lender").
26.2 Conditions of assignment or transfer
(a) A partial transfer or assignment by a Lender shall be in a
minimum Base Currency Amount of EUR 7,500,000 in relation to
Facility A and in a minimum Base Currency Amount of US$7,500,000
in relation to Facility B or Facility C unless, in each case:
(i) such transfer or assignment is to an Affiliate of a Lender
or to another existing Lender; or
(ii) an Event of Default is continuing.
For the avoidance of doubt (A) any transfer or assignment of a
Facility in excess of EUR 7,500,000 or US$7,500,000, as the case
may be, or (B) any transfer or assignment of the whole of a
Facility whether higher or lower than EUR 7,500,000 or US$
7,500,000, as the case may be, shall, in each case, be freely
transferable or assignable.
(b) The consent of the Issuing Bank shall be required to a transfer
or assignment of Facility C to the extent specified in Clause 7.2
(Assignments and transfers).
(c) An assignment will only be effective on receipt by the Agent of
written confirmation from the New Lender (in form and substance
satisfactory to the Agent) that the New Lender will assume the
same obligations to the other Finance Parties as it would have
been under if it was an Original Lender and the Agent has
recorded the transfer to the New Lender in the Register (as
defined in paragraph (g) below).
(d) A transfer will only be effective if the procedure set out in
Clause 26.5 (Procedure for transfer) is complied with.
(e) Any assignment or transfer by an Existing Lender to a New
Lender may be made in respect of one or more of the Facilities.
(f) If:
(i) a Lender assigns or transfers any of its rights or
obligations under the Finance Documents or changes its
Facility Office; and
(ii) as a result of circumstances existing at the date the
assignment, transfer or change occurs, an Obligor would be
obliged to make a payment to the New Lender or Lender acting
through its new Facility Office under Clause 15 (Tax
gross-up and indemnities) or Clause 16 (Increased Costs),
then the New Lender or Lender acting through its new Facility
Office is only entitled to receive payment under those Clauses to
the same extent as the Existing Lender or Lender acting previous
Facility Office would have been if the assignment, through its
transfer or change had not occurred.
(g) Paragraph (f) above and Clause 26.3 (Assignment or transfer fee)
shall not apply to any assignment or transfer made as part of the
syndication of the Facilities on or prior to the Syndication
Date.
(h) The Agent shall maintain a book-entry transfer register (for the
purposes of this Clause 26, the "Register") for the purposes of
all assignments or transfers made pursuant to this Clause 26 and
shall supply to any other Party (at that Party's expense) a copy
of this Register upon reasonable written request.
(i) The Agent shall notify the Company promptly and no later than 10
Business Days following:
(i) any assignment or transfer under this Clause 26; and
(ii) the end of each half of its financial years deliver to the
Company a list of the Lenders and their level of Commitments
in each Facility as at that date.
(j) If any Lender assigns its rights under this Agreement a written
instrument by which such rights are assigned must be notified to
any Borrower incorporated in France by bailiff ("huissier") in
accordance with the provisions of Article 1690 of the French
Civil Code at the cost of the Lender concerned.
26.3 Assignment or transfer fee
The New Lender shall, on the date upon which an assignment or transfer
takes effect pay to the Agent (for its own account) a fee of EUR 2000.
26.4 Limitation of responsibility of Existing Lenders
(a) Unless expressly agreed to the contrary, an Existing Lender makes
no representation or warranty and assumes no responsibility to a
New Lender for:
(i) the legality, validity, effectiveness, adequacy or
enforceability of the Finance Documents or any other
documents;
(ii) the financial condition of any Obligor;
(iii)the performance and observance by any Obligor of its
obligations under the Finance Documents or any other
documents; or
(iv) the accuracy of any statements (whether written or oral)
made in or in connection with any Finance Document or any
other document,
and any representations or warranties implied by law are excluded.
(b) Each New Lender confirms to the Existing Lender and the other
Finance Parties that it:
(i) has made (and shall continue to make) its own independent
investigation and assessment of the financial condition and
affairs of each Obligor and its related entities in
connection with its participation in this Agreement and has
not relied exclusively on any information provided to it by
the Existing Lender in connection with any Finance Document;
and
(ii) will continue to make its own independent appraisal of the
creditworthiness of each Obligor and its related entities
whilst any amount is or may be outstanding under the Finance
Documents or any Commitment is in force.
(c) Nothing in any Finance Document obliges an Existing Lender to:
(i) accept a re-transfer from a New Lender of any of the rights
and obligations assigned or transferred under this Clause
26; or
(ii) support any losses directly or indirectly incurred by the
New Lender by reason of the non-performance by any Obligor
of its obligations under the Finance Documents or otherwise.
26.5 Procedure for transfer
(a) Subject to the conditions set out in Clause 26.2 (Conditions of
assignment or transfer) a transfer is effected in accordance with
paragraph (b) below when the Agent executes an otherwise duly
completed Transfer Certificate delivered to it by the Existing
Lender and the New Lender and the Agent has recorded the transfer
to the New Lender in the Register. The Agent shall, as soon as
reasonably practicable after receipt by it of a duly completed
Transfer Certificate appearing on its face to comply with the
terms of this Agreement delivered in accordance with the terms of
this Agreement, execute that Transfer Certificate on behalf of
the other Finance Parties and the Obligors as well as itself.
Each Finance Party and each Obligor irrevocably authorises the
Agent to sign such a Transfer Certificate on its behalf.
(b) On the Transfer Date:
(i) to the extent that in the Transfer Certificate the Existing
Lender seeks to transfer by novation its rights and
obligations under the Finance Documents each of the Obligors
and the Existing Lender shall be released from further
obligations towards one another under the Finance Documents
and their respective rights against one another shall be
cancelled (being the "Discharged Rights and Obligations");
(ii) each of the Obligors and the New Lender shall assume
obligations towards one another and/or acquire rights
against one another which differ from the Discharged Rights
and Obligations only insofar as that Obligor and the New
Lender have assumed and/or acquired the same in place of
that Obligor and the Existing Lender;
(iii)the Agent, the Arranger, the New Lender and other Lenders
shall acquire the same rights and assume the same
obligations between themselves as they would have acquired
and assumed had the New Lender been an Original Lender with
the rights and/or obligations acquired or assumed by it as a
result of the transfer and to that extent the Agent, the
Arranger and the Existing Lender shall each be released from
further obligations to each other under this Agreement; and
(iv) the New Lender shall become a Party as a "Lender".
(c) For the avoidance of doubt, the Parties agree that any novation
effected in accordance with this Clause shall constitute a
novation (novation) within the meaning of Article 1271 et seq. of
the French Civil Code, provided that notwithstanding any such
novation, all the rights of the Finance Parties against any
Guarantor shall be maintained.
26.6 Syndication Agreements
A Lender may transfer any of its rights and obligations under this
Agreement pursuant to a Syndication Agreement and the Obligors agree
that they shall at the request of the Agent execute a Syndication
Agreement.
26.7 Disclosure of information and confidentiality
(a) Each Finance Party on it becoming a Party to this Agreement
confirms to the Company that it shall keep confidential and not
disclose any information (other than such information which is
already in the public domain) which it has received in connection
with the Facilities or transactions contemplated under this
Agreement ("Confidential Information") except with the prior
written consent of the Company and except that a Finance Party
may disclose the provisions of (or a copy of) this Agreement or
Confidential Information as follows:
(i) to such of its officers, directors, employees and
professional advisers (on a "need to know" and confidential
basis for the purposes of the Facilities but without
prejudicing its ordinary internal operations);
(ii) in the case of the Agent or Issuing Bank, to the extent it
is required or obliged to pass on information in accordance
with its obligations under the Finance Documents;
(iii)to anyone else to the extent required by law or regulation;
or
(iv) to the extent necessary, to any applicable governmental or
other regulatory authority,
provided that in the case of (iii) and (iv) above, the relevant
Lender shall, to the extent permitted by law, give the
Company reasonable prior notice of any intended disclosure to
the extent practicable to give prior notice (or, if not
practicable, promptly after the disclosure) and, if the Company
requests, take into account its comments. This Clause shall
continue to apply to a Finance Party for the period of 3 years
after it ceases to be a Finance Party under this Agreement.
(b) Notwithstanding the provisions of paragraph (a) above, a Lender
may disclose to any of its Affiliates and any other person:
(i) to (or through) whom that Lender assigns or transfers (or
may potentially assign or transfer) all or any of its rights
and obligations under this Agreement;
(ii) with (or through) whom that Lender enters into (or may
potentially enter into) any sub-participation in relation
to, or any other transaction under which payments are to be
made by reference to, this Agreement or any Obligor; or
(iii)to whom, and to the extent that, information is required to
be disclosed by any applicable law or regulation,
any information about any Obligor, the Group and the Finance
Documents as that Lender shall consider appropriate for the
purposes of the Facilities if, in relation to paragraphs (i) and
(ii) above, the person to whom the information is to be given has
entered into a Confidentiality Undertaking.
(c) The terms and conditions of the Finance Documents are not to be
disclosed by the Company to any person who is not a Finance
Party, except with the prior written consent of the Arranger and
except that the Company may disclose the terms and conditions or
a copy of any of them:
(i) to its advisers (on a "need to know" and confidential basis)
for the purpose of the AA Acquisitions or SMS Acquisition;
(ii) to the Special Committee and their advisers (on a "need to
know" and confidential basis);
(iii)to anyone else to the extent required by law, regulation or
any applicable stock exchange; or
(iv) to the extent necessary, to any applicable governmental or
other regulatory authority,
provided that (except for disclosure to those advisers referred
to above) the Company shall, to the extent permitted by law, give
the Arranger reasonable prior notice of any intended disclosure
to the extent practicable to give prior notice (or, if not
practicable, promptly after the disclosure) and, if the Arranger
requests, take into account its comments.
27. CHANGES TO THE OBLIGORS
27.1 Assignments and transfer by Obligors No Obligor may assign any of its
rights or transfer any of its rights or obligations under the Finance
Documents.
27.2 Additional Borrowers
(a) The Company may request that any of its wholly owned Subsidiaries
and/or, once the same have become a Subsidiary (in accordance
with the requirements set out in the definition thereof) of the
Company, SMS and SMO becomes an Additional Borrower. That
Subsidiary shall become an Additional Borrower if:
(i) (A) it is SMS or SMO; or(B) it is an AA Bidco or SMS Bidco
incorporated in France or the United States provided
that there are no more than two AA Bidco's and one SMS
Bidco, in aggregate, in existence; or
(C) all the Lenders otherwise approve the addition of that
Subsidiary as a Borrower and the Facilities in respect
of which it is to be a Borrower;
(ii) the Company delivers to the Agent a duly completed and
executed Accession Letter;
(iii)the Company confirms that no Default is continuing or would
occur as a result of that Subsidiary becoming an Additional
Borrower; and
(iv) the Agent has received all of the documents and other
evidence listed in Part II of Schedule 2 (Conditions
Precedent) in relation to that Additional Borrower, each in
form and substance satisfactory to the Agent.
(b) The Agent shall notify the Company and the Lenders promptly upon
being satisfied that it has received (in form and substance
satisfactory to it) all the documents and other evidence listed
in Part II of Schedule 2 (Conditions Precedent).
27.3 Additional Guarantors
(a) Each Subsidiary (other than SMS and SMO) which becomes an
Additional Borrower shall at the same time become an Additional
Guarantor.
(b) If any amounts remain outstanding under the SMS Existing Facility
and/or the SMO Credit Agreement on 31 July 2001 and the same have
not been cancelled in full by such date, SMO shall by no later
than 60 days from the date of the first drawing under Facility A2
become an Additional Guarantor and the SMO Guarantee shall be
given by no later than 60 days from the date of the first drawing
under Facility A2 notwithstanding that SMO may not be an
Additional Borrower.
(c) The Company may request that any other of its wholly owned
Subsidiaries become an Additional Guarantor.
(d) Each Subsidiary (including, for the avoidance of doubt, SMO)
shall become an Additional Guarantor when:
(i) the Company delivers to the Agent a duly completed and
executed Accession Letter; and
(ii) the Agent has received all of the documents and other
evidence listed in Part II of Schedule 2 (Conditions
Precedent) in relation to that Additional Guarantor, each in
form and substance satisfactory to the Agent.
(e) The Agent shall notify the Company and the Lenders promptly upon
being satisfied that it has received (in form and substance
satisfactory to it) all the documents and other evidence listed
in Part II of Schedule 2 (Conditions Precedent).
27.4 Repetition of Representations
Delivery of an Accession Letter constitutes confirmation by the relevant
Subsidiary that the Repeating Representations are true and correct in
relation to it as at the date of delivery as if made by reference to the
facts and circumstances then existing.
SECTION 10
THE FINANCE PARTIES
28. ROLE OF THE AGENT AND THE ARRANGER
28.1 Appointment of the Agent
(a) Each of the Arranger and the Lenders appoints the Agent to act as
its agent under and in connection with the Finance Documents.
(b) Each of the Arranger and the Lenders authorises the Agent to
exercise the rights, powers, authorities and discretions
specifically given to the Agent under or in connection with the
Finance Documents together with any other incidental rights,
powers, authorities and discretions.
28.2 Duties of the Agent
(a) The Agent shall promptly forward to a Party the original or a
copy of any document which is delivered to the Agent for that
Party by any other Party.
(b) If the Agent receives notice from a Party referring to this
Agreement, describing a Default and stating that the circumstance
described is a Default, it shall promptly notify the Lenders.
(c) The Agent shall promptly notify the Lenders of any Default
arising under Clause 25.1 (Non-payment).
(d) The Agent's duties under the Finance Documents are solely
mechanical and administrative in nature.
28.3 Role of the Arranger
Except as specifically provided in the Finance Documents, the Arranger
has no obligations of any kind to any other Party under or in connection
with any Finance Document.
28.4 No fiduciary duties
(a) Nothing in this Agreement constitutes the Agent or the Arranger
as a trustee or fiduciary of any other person.
(b) Neither the Agent nor the Arranger shall be bound to account to
any Lender for any sum or the profit element of any sum received
by it for its own account.
28.5 Business with the Group
The Agent and the Arranger may accept deposits from, lend money to and
generally engage in any kind of banking or other business with any
member of the Group.
28.6 Rights and discretions of the Agent
(a) The Agent may rely on:
(i) any representation, notice or document believed by it to be
genuine, correct and appropriately authorised; and
(ii) any statement made by a director, authorised signatory or
employee of any person regarding any matters which may
reasonably be assumed to be within his knowledge or within
his power to verify.
(b) The Agent may assume (unless it has received notice to the
contrary in its capacity as agent for the Lenders) that:
(i) no Default has occurred (unless it has actual knowledge of a
Default arising under Clause 25.1 (Non-payment));
(ii) any right, power, authority or discretion vested in any
Party or the Majority Lenders has not been exercised; and
(iii)any notice or request made by the Company (other than a
Utilisation Request or Selection Notice) is made on behalf
of and with the consent and knowledge of all the Obligors.
(c) The Agent may engage, pay for and rely on the advice or services
of any lawyers, accountants, surveyors or other experts.
(d) The Agent may act in relation to the Finance Documents through
its personnel and agents.
28.7 Majority Lenders' instructions
(a) Unless a contrary indication appears in a Finance Document, the
Agent shall (a) act in accordance with any instructions given to
it by the Majority Lenders (or, if so instructed by the Majority
Lenders, refrain from acting or exercising any right, power,
authority or discretion vested in it as Agent) and (b) not be
liable for any act (or omission) if it acts (or refrains from
taking any action) in accordance with such an instruction of the
Majority Lenders.
(b) Unless a contrary indication appears in a Finance Document, any
instructions given by the Majority Lenders will be binding on all
the Lenders and the Arranger.
(c) The Agent may refrain from acting in accordance with the
instructions of the Majority Lenders (or, if appropriate, the
Lenders) until it has received such security as it may require
for any cost, loss or liability (together with any associated
VAT) which it may incur in complying with the instructions.
(d) In the absence of instructions from the Majority Lenders (or, if
appropriate, the Lenders), the Agent may act (or refrain from
taking action) as it considers to be in the best interest of the
Lenders.
(e) The Agent is not authorised to act on behalf of a Lender (without
first obtaining that Lender's consent) in any legal or
arbitration proceedings relating to any Finance Document.
28.8 Responsibility for documentation
Neither the Agent nor the Arranger:
(a) is responsible for the adequacy, accuracy and/or completeness of
any information (whether oral or written) supplied by the Agent,
the Arranger, an Obligor or any other person given in or in
connection with any Finance Document or the Information
Memorandum; or
(b) is responsible for the legality, validity, effectiveness,
adequacy or enforceability of any Finance Document or any other
agreement, arrangement or document entered into, made or executed
in anticipation of or in connection with any Finance Document.
28.9 Exclusion of liability
(a) Without limiting paragraph (b) below, the Agent will not be
liable for any action taken by it under or in connection with any
Finance Document, unless directly caused by its gross negligence
or wilful misconduct.
(b) No Party may take any proceedings against any officer, employee
or agent of the Agent in respect of any claim it might have
against the Agent or in respect of any act or omission of any
kind by that officer, employee or agent in relation to any
Finance Document and any officer, employee or agent of the Agent
may rely on this Clause.
(c) The Agent will not be liable for any delay (or any related
consequences) in crediting an account with an amount required
under the Finance Documents to be paid by the Agent if the Agent
has taken all necessary steps as soon as reasonably practicable
to comply with the regulations or operating procedures of any
recognised clearing or settlement system used by the Agent for
that purpose.
28.10 Lenders' indemnity to the Agent
(a) Each Lender shall (in proportion to its share of the Total
Commitments (subject to paragraph (b) below) or, if the Total
Commitments are then zero, to its share of the Total Commitments
immediately prior to their reduction to zero) indemnify the
Agent, within three Business Days of demand, against any cost,
loss or liability incurred by the Agent (otherwise than by reason
of the Agent's gross negligence or wilful misconduct) in acting
as Agent under the Finance Documents (unless the Agent has been
reimbursed by an Obligor pursuant to a Finance Document).
(b) For the purposes of calculating the Total Commitments for
paragraph (a) above, each Facility B Commitment and Facility C
Commitment of a Lender shall be taken into account in euro at the
Agent's Spot Rate of Exchange for the purchase of US Dollars with
euro on the date (as determined by the Agent) such determination
is required to be made.
28.11 Resignation of the Agent
(a) The Agent may resign and appoint one of its Affiliates acting
through an office in Paris or the United Kingdom as successor by
giving notice to the Lenders and the Company.
(b) Alternatively the Agent may resign by giving notice to the
Lenders and the Company, in which case the Majority Lenders
(after close consultation with the Company) may appoint a
successor Agent.
(c) If the Majority Lenders have not appointed a successor Agent in
accordance with paragraph (b) above within 30 days after notice
of resignation was given, the Agent (after close consultation
with the Company) may appoint a successor Agent (acting through
an office in Paris or the United Kingdom).
(d) The retiring Agent shall, at its own cost, make available to the
successor Agent such documents and records and provide such
assistance as the successor Agent may reasonably request for the
purposes of performing its functions as Agent under the Finance
Documents.
(e) The Agent's resignation notice shall only take effect upon the
appointment of a successor.
(f) Upon the appointment of a successor, the retiring Agent shall be
discharged from any further obligation in respect of the Finance
Documents but shall remain entitled to the benefit of this Clause
28. Its successor and each of the other Parties shall have the
same rights and obligations amongst themselves as they would have
had if such successor had been an original Party.
(g) After consultation with the Company, the Majority Lenders may, by
notice to the Agent, require it to resign in accordance with
paragraph (b) above. In this event, the Agent shall resign in
accordance with paragraph (b) above.
(h) The Company may request that the Agent should resign and put such
resignation to a vote of the Lenders. The Lenders shall consider
the grounds of the Company's request and any submissions of the
Agent and, within 10 Business Days of receiving notice of such
request from the Company through the Agent, the Lenders shall
(acting reasonably) vote on whether the Agent should resign or
not. If the Majority Lenders vote to remove the Agent, the Agent
shall resign in accordance with paragraph (b) above.
28.12 Confidentiality
(a) In acting as agent for the Finance Parties, the Agent shall be
regarded as acting through its agency division which shall be
treated as a separate entity from any other of its divisions or
departments.
(b) If information is received by another division or department of
the Agent, it may be treated as confidential to that division or
department and the Agent shall not be deemed to have notice of
it.
(c) Notwithstanding any other provision of any Finance Document to the
contrary, neither the Agent nor the Arranger are obliged to disclose
to any other person (i) any confidential information or (ii) any other
information if the disclosure would or might in its reasonable opinion
constitute a breach of any law or a breach of a fiduciary duty.
28.13 Relationship with the Lenders
(a) The Agent may treat each Lender as a Lender, entitled to payments
under this Agreement and acting through its Facility Office unless it
has received not less than five Business Days prior notice from that
Lender to the contrary in accordance with the terms of this Agreement.
(b) Each Lender shall supply the Agent with any information required by
the Agent in order to calculate the Mandatory Cost in accordance with
Schedule 4 (Mandatory Cost Formulae).
28.14 Credit appraisal by the Lenders
Without affecting the responsibility of any Obligor for information
supplied by it or on its behalf in connection with any Finance Document,
each Lender confirms to the Agent and the Arranger that it has been, and
will continue to be, solely responsible for making its own independent
appraisal and investigation of all risks arising under or in connection
with any Finance Document including but not limited to:
(a) the financial condition, status and nature of each member of the
Group;
(b) the legality, validity, effectiveness, adequacy or enforceability
of any Finance Document and any other agreement, arrangement or
document entered into, made or executed in anticipation of, under
or in connection with any Finance Document;
(c) whether that Lender has recourse, and the nature and extent of
that recourse, against any Party or any of its respective assets
under or in connection with any Finance Document, the
transactions contemplated by the Finance Documents or any other
agreement, arrangement or document entered into, made or executed
in anticipation of, under or in connection with any Finance
Document; and
(d) the adequacy, accuracy and/or completeness of the Information
Memorandum and any other information provided by the Agent, any
Party or by any other person under or in connection with any
Finance Document, the transactions contemplated by the Finance
Documents or any other agreement, arrangement or document entered
into, made or executed in anticipation of, under or in connection
with any Finance Document.
28.15 Reference Banks
If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender
of which it is an Affiliate) ceases to be a Lender, the Agent shall (in
consultation with the Company) appoint another Lender or an Affiliate of
a Lender to replace that Reference Bank.
29. CONDUCT OF BUSINESS BY THE FINANCE PARTIES
No provision of this Agreement will:
(a) interfere with the right of any Finance Party to arrange its affairs
(tax or otherwise) in whatever manner it thinks fit;
(b) oblige any Finance Party to investigate or claim any credit, relief,
remission or repayment available to it or the extent, order and manner
of any claim; or
(c) oblige any Finance Party to disclose any information relating to its
affairs (tax or otherwise) or any computations in respect of Tax.
30. SHARING AMONG THE LENDERS
30.1 Payments to Lenders
If a Lender (a "Recovering Lender") receives or recovers any amount from
an Obligor other than in accordance with Clause 31 (Payment Mechanics)
and applies that amount to a payment due under the Finance Documents
then:
(a) the Recovering Lender shall, within three Business Days, notify
details of the receipt or recovery to the Agent;
(b) the Agent shall determine whether the receipt or recovery is in
excess of the amount the Recovering Lender would have been paid
had the receipt or recovery been received or made by the Agent
and distributed in accordance with Clause 31 (Payment mechanics),
without taking account of any Tax which would be imposed on the
Agent in relation to the receipt, recovery or distribution; and
(c) the Recovering Lender shall, within three Business Days of demand
by the Agent, pay to the Agent an amount (the "Sharing Payment")
equal to such receipt or recovery less any amount which the Agent
determines may be retained by the Recovering Lender as its share
of any payment to be made, in accordance with Clause 328.5
(Partial payments).
30.2 Redistribution of payments
The Agent shall treat the Sharing Payment as if it had been paid by the
relevant Obligor and distribute it between the Finance Parties (other
than the Recovering Lender) in accordance with Clause 328.5 (Partial
payments).
30.3 Recovering Lender's rights
(a) On a distribution by the Agent under Clause 30.2 (Redistribution
of payments), the Recovering Lender will be subrogated to the
rights of the Finance Parties which have shared in the
redistribution.
(b) If and to the extent that the Recovering Lender is not able to
rely on its rights under paragraph (a) above, the relevant
Obligor shall be liable to the Recovering Lender for a debt equal
to the Sharing Payment which is immediately due and payable.
30.4 Reversal of redistribution
If any part of the Sharing Payment received or recovered by a Recovering
Lender becomes repayable and is repaid by that Recovering Lender, then:
(a) each Lender which has received a share of the relevant Sharing
Payment pursuant to Clause 30.2 (Redistribution of payments)
shall, upon request of the Agent, pay to the Agent for account of
that Recovering Lender an amount equal to its share of the
Sharing Payment (together with an amount as is necessary to
reimburse that Recovering Lender for its proportion of any
interest on the Sharing Payment which that Recovering Lender is
required to pay); and
(b) that Recovering Lender's rights of subrogation in respect of
any reimbursement shall be cancelled and the relevant Obligor
will be liable to the reimbursing Lender for the amount so
reimbursed.
30.5 Exceptions
(a) This Clause 30 shall not apply to the extent that the Recovering
Lender would not, after making any payment pursuant to this
Clause, have a valid and enforceable claim against the relevant
Obligor.
(b) A Recovering Lender is not obliged to share with any other Lender
any amount which the Recovering Lender has received or recovered
as a result of taking legal or arbitration proceedings, if:
(i) it notified the other Lenders of the legal or arbitration
proceedings; and
(ii) the other Lender had an opportunity to participate in those
legal or arbitration proceedings but did not do so as soon
as reasonably practicable having received notice or did not
take separate legal or arbitration proceedings.
SECTION 11
ADMINISTRATION
31. PAYMENT MECHANICS
31.1 Payments to the Agent
(a) On each date on which an Obligor or a Lender is required to make
a payment under a Finance Document, that Obligor or Lender shall
make the same available to the Agent (unless a contrary
indication appears in a Finance Document) for value on the due
date at the time and in such funds specified by the Agent as
being customary at the time for settlement of transactions in the
relevant currency in the place of payment.
(b) Payment shall be made to such account in the principal financial
centre of the country of that currency (or, in relation to euro,
in the principal financial centre in a Participating Member State
or London) with such bank as the Agent specifies.
31.2 Distributions by the Agent
Each payment received by the Agent under the Finance Documents for
another Party shall, subject to Clause 331.3 (Distributions to an
Obligor) and Clause 331.4 (Clawback), be made available by the Agent as
soon as practicable after receipt to the Party entitled to receive
payment in accordance with this Agreement (in the case of a Lender, for
the account of its Facility Office), to such account as that Party may
notify to the Agent by not less than five Business Days' notice with a
bank in the principal financial centre of the country of that currency
(or, in relation to euro, in the principal financial centre of a
Participating Member State or London).
31.3 Distributions to an Obligor
The Agent may (with the consent of the Obligor or in accordance with
Clause 32 (Set-off)) apply any amount received by it for that Obligor in
or towards payment (on the date and in the currency and funds of
receipt) of any amount due from that Obligor under the Finance Documents
or in or towards purchase of any amount of any currency to be so
applied.
31.4 Clawback
(a) Where a sum is to be paid to the Agent under the Finance
Documents for another Party, the Agent is not obliged to pay that
sum to that other Party (or to enter into or perform any related
exchange contract) until it has been able to establish to its
satisfaction that it has actually received that sum.
(b) If the Agent pays an amount to another Party and it proves to be
the case that the Agent had not actually received that amount,
then the Party to whom that amount (or the proceeds of any
related exchange contract) was paid by the Agent shall on demand
refund the same to the Agent together with interest on that
amount from the date of payment to the date of receipt by the
Agent, calculated by the Agent to reflect its cost of funds.
31.5 Partial payments
(a) If the Agent receives a payment that is insufficient to discharge
all the amounts then due and payable by an Obligor under the
Finance Documents, the Agent shall apply that payment towards the
obligations of that Obligor under the Finance Documents in the
following order:
(i) first, in or towards payment pro rata of any unpaid fees,
costs and expenses of the Agent or the Arranger under the
Finance Documents;
(ii) secondly, in or towards payment pro rata of any accrued
interest or commission due but unpaid under this Agreement;
(iii)thirdly, in or towards payment pro rata of any principal
due but unpaid under this Agreement; and
(iv) fourthly, in or towards payment pro rata of any other sum
due but unpaid under the Finance Documents.
(b) The Agent shall, if so directed by the Majority Lenders, vary the
order set out in paragraphs (a)(ii) to (iv) above.
(c) Paragraphs (a) and (b) above will override any appropriation made
by an Obligor.
31.6 No set-off by Obligors
All payments to be made by an Obligor under the Finance Documents shall
be calculated and be made without (and free and clear of any deduction
for) set-off or counterclaim.
31.7 Business Days
(a) Any payment which is due to be made on a day that is not a
Business Day shall be made on the next Business Day in the same
calendar month (if there is one) or the preceding Business Day
(if there is not).
(b) During any extension of the due date for payment of any principal
or an Unpaid Sum under this Agreement interest is payable on the
principal or Unpaid Sum at the rate payable on the original due
date.
31.8 Currency of account
(a) Subject to paragraphs (b) to (e) below, the Base Currency
relative to a Facility is the currency of account and payment for
any sum due from an Obligor under any Finance Document.
(b) A repayment of a Utilisation or Unpaid Sum or a part of a
Utilisation or Unpaid Sum shall be made in the currency in which
that Utilisation or Unpaid Sum is denominated on its due date.
(c) Each payment of interest shall be made in the currency in which
the sum in respect of which the interest is payable was
denominated when that interest accrued.
(d) Each payment in respect of costs, expenses or Taxes shall be made
in the currency in which the costs, expenses or Taxes are
incurred.
(e) Any amount expressed to be payable in a currency other than the
Base Currency of a Facility shall be paid in that other currency.
31.9 Change of currency
(a) Subject to Clause 34.3 (b) (Conditions relating to Optional
Currencies), unless otherwise prohibited by law, if more than one
currency or currency unit are at the same time recognised by the
central bank of any country as the lawful currency of that
country, then:
(i) any reference in the Finance Documents to, and any
obligations arising under the Finance Documents in, the
currency of that country shall be translated into, or paid
in, the currency or currency unit of that country designated
by the Agent (after consultation with the Company); and
(ii) any translation from one currency or currency unit to
another shall be at the official rate of exchange recognised
by the central bank for the conversion of that currency or
currency unit into the other, rounded up or down by the
Agent (acting reasonably).
(b) If a change in any currency of a country occurs, this Agreement
will, to the extent the Agent (acting reasonably and after
consultation with the Company) specifies to be necessary, be
amended to comply with any generally accepted conventions and
market practice in the Relevant Interbank Market and otherwise to
reflect the change in currency.
32. SET-OFF
A Finance Party may set off any matured obligation due from an Obligor
under the Finance Documents (to the extent beneficially owned by that
Finance Party) against any matured obligation owed by that Finance Party
to that Obligor, regardless of the place of payment, booking branch or
currency of either obligation. If the obligations are in different
currencies, the Finance Party may convert either obligation at a market
rate of exchange in its usual course of business for the purpose of the
set-off.
33. NOTICES
33.1 Communications in writing
Any communication to be made under or in connection with the Finance
Documents shall be made in writing and, unless otherwise stated, may be
made by fax or letter.
33.2 Addresses
The address and fax number (and the department or officer, if any, for
whose attention the communication is to be made) of each Party for any
communication or document to be made or delivered under or in connection
with the Finance Documents is:
(a) in the case of the Company, that identified with its name below;
(b) in the case of each Lender, that notified in writing to the Agent
on or prior to the date on which it becomes a Party; and
(c) in the case of the Agent, that identified with its name below,
or any substitute address or fax number or department or officer as the
Party may notify to the Agent (or the Agent may notify to the other
Parties, if a change is made by the Agent) by not less than five
Business Days' notice.
33.3 Delivery
(a) Any communication or document made or delivered by one person to
another under or in connection with the Finance Documents will
only be effective:
(i) if by way of fax, when received in legible form; or
(ii) if by way of letter, when it has been left at the relevant
address or five Business Days after being deposited in the
post postage prepaid in an envelope addressed to it at that
address,
and, if a particular department or officer is specified as part
of its address details provided under Clause 333.2
(Addresses), if addressed to that department or officer.
(b) Any communication or document to be made or delivered to the
Agent will be effective only when actually received by the Agent
and then only if it is expressly marked for the attention of the
department or officer identified with the Agent's signature below
(or any substitute department or officer as the Agent shall
specify for this purpose).
(c) All notices from or to an Obligor shall be sent through the
Agent.
(d) Any communication or document made or delivered to the Company in
accordance with this Clause will be deemed to have been made or
delivered to each of the Obligors.
33.4 Notification of address and fax number
Promptly upon receipt of notification of an address and fax number or
change of address and fax number pursuant to Clause 333.2 (Addresses) or
changing its own address or fax number, the Agent shall notify the other
Parties.
33.5 Electronic communication
(a) Any communication to be made between the Parties under or in
connection with the Finance Documents (other than (aa) in the
case of the Company, delivery of any Utilisation Request,
Selection Notice, any request to extend the Termination Date
relating to Facility A1 or Facility A2 under Clause 35.5
(Extension of Facility A1 and Facility A2), a certificate in
accordance with Clause 232.2 (Compliance Certificate) or any
request for an amendment to or waiver of this Agreement, (bb) in
the case of any other Borrower, delivery of any Utilisation
Request or (cc) in the case of any other Obligor, delivery of any
request for an amendment to or waiver of this Agreement) may be
made by electronic mail or other electronic means and the Parties
shall notify each other (in particular, the Agent) in writing of
their electronic mail address and/or any other information
required to enable the sending and receipt of information by that
means.
(b) Each Party shall promptly notify each other Party (in particular,
the Agent) of any change to their electronic mail address or any
other such information supplied by them.
(c) Any electronic communication made:
(i) by the Agent or Issuing Bank, as the case may be, to another
Party will be effective only when actually received by the
relevant recipient; and
(ii) by a Lender or an Obligor to the Agent or Issuing Bank, as
the case may be, will be effective only when actually
received by the Agent or Issuing Bank, as the case may be,
and then only if it is addressed in such a manner as the
Agent or Issuing Bank, as the case may be, shall specify to
that Lender or, as the case may be, that Obligor for this
purpose.
(d) Each Party shall notify any affected parties promptly upon
becoming aware that its electronic mail system or other
electronic means of communication cannot be used due to technical
failure (and that failure is continuing for more than 7 hours).
Until that Party has notified the other affected parties that the
failure has been remedied, all notices between those parties
shall be sent by fax or letter in accordance with this Clause 33
(Notices).
(e) In the case of the notification of rates of interest by the Agent
pursuant to Clause 131.5 (Notification of rates of interest) and
in the case of the delivery of any document by the Agent pursuant
to paragraph (a) of Clause 28.2 (Duties of the Agent), the Agent
may refer a Lender or an Obligor (by fax, letter or e-mail) to a
web site and to the location of the relevant information on such
web site in discharge of such notification or delivery
obligation.
33.6 English language
(a) Any notice given under or in connection with any Finance Document
must be in English.
(b) All other documents provided under or in connection with any
Finance Document must be:
(i) in French or English; or
(ii) if not in French or English, and if so required by the Agent
(acting reasonably), accompanied by a certified English
translation and, in this case, the English translation will
prevail unless the document is a constitutional, statutory
or other official document.
34. CALCULATIONS AND CERTIFICATES
34.1 Accounts
In any litigation or arbitration proceedings arising out of or in
connection with a Finance Document, the entries made in the accounts
maintained by a Finance Party are prima facie evidence of the matters to
which they relate.
34.2 Certificates and Determinations
Any certification or determination by a Finance Party of a rate or
amount under any Finance Document is, in the absence of manifest error,
conclusive evidence of the matters to which it relates.
34.3 Day count convention
Any interest, commission or fee accruing under a Finance Document will
accrue from day to day and is calculated on the basis of the actual
number of days elapsed and a year of 360 days or, in any case where the
practice in the Relevant Interbank Market differs, in accordance with
that market practice.
35. PARTIAL INVALIDITY
If, at any time, any provision of the Finance Documents is or becomes
illegal, invalid or unenforceable in any respect under any law of any
jurisdiction, neither the legality, validity or enforceability of the
remaining provisions nor the legality, validity or enforceability of
such provision under the law of any other jurisdiction will in any way
be affected or impaired.
36. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of any
Finance Party, any right or remedy under the Finance Documents shall
operate as a waiver, nor shall any single or partial exercise of any
right or remedy prevent any further or other exercise or the exercise of
any other right or remedy. The rights and remedies provided in this
Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
37. AMENDMENTS AND WAIVERS
37.1 Required consents
(a) Subject to Clause 37.2 (Exceptions) any term of the Finance
Documents may be amended or waived only with the consent of the
Majority Lenders and the Obligors and any such amendment or
waiver will be binding on all Parties.
(b) The Agent may effect, on behalf of any Finance Party, any
amendment or waiver permitted by this Clause.
(c) The Company may effect, on behalf of any Obligor, any amendment
or waiver permitted by this Clause.
37.2 Exceptions
(a) An amendment or waiver that has the effect of changing or which
relates to:
(i) the definition of "Majority Lenders" in Clause 31.1
(Definitions);
(ii) except pursuant to Clause 35.5 (Extension of Facility A1 and
Facility A2), an extension to the date of payment of any
amount under the Finance Documents;
(iii)a reduction in the Margin or the amount of any payment of
principal, interest, fees or commission payable;
(iv) an increase in Commitment;
(v) a change to the Borrowers or Guarantors other than in
accordance with Clause 27 (Changes to the Obligors);
(vi) any provision which expressly requires the consent of all
the Lenders;
(vii)Clause 32.2 (Lenders' rights and obligations), Clause 26
(Changes to the Lenders), Clause 30 (Sharing among the
Lenders) or this Clause 37;
(viii) any extension of an Availability Period; or
(ix) the guarantee or indemnity of any Obligor,
shall not be made without the prior consent of all the Lenders.
(b) An amendment or waiver which relates to the rights or obligations
of the Agent, the Issuing Bank or the Arranger may not be
effected without the consent of the Agent, the Issuing Bank or
the Arranger respectively.
38. COUNTERPARTS
Each Finance Document may be executed in any number of counterparts, and
this has the same effect as if the signatures on the counterparts were
on a single copy of the Finance Document.
SECTION 12
GOVERNING LAW AND ENFORCEMENT
39. GOVERNING LAW
This Agreement is governed by English law.
40. ENFORCEMENT
40.1 Jurisdiction of English courts
(a) The courts of England have jurisdiction to settle any dispute
arising out of or in connection with this Agreement (including a
dispute regarding the existence, validity or termination of this
Agreement) (a "Dispute").
(b) The Parties agree that the courts of England are the most
appropriate and convenient courts to settle Disputes and
accordingly no Party will argue to the contrary.
(c) This Clause 40.1 is for the benefit of the Finance Parties only.
As a result, no Finance Party shall be prevented from taking
proceedings relating to a Dispute in any other courts with
jurisdiction. To the extent allowed by law, the Finance Parties
may take concurrent proceedings in any number of jurisdictions.
40.2 Service of process Without prejudice to any other mode of service
allowed under any relevant law, each Obligor (other than an Obligor
incorporated in England and Wales):
(a) irrevocably appoints Sodexho Holdings Limited as its agent for
service of process in relation to any proceedings before the
English courts in connection with any Finance Document; and
(b) agrees that failure by a process agent to notify the relevant
Obligor of the process will not invalidate the proceedings
concerned.
This Agreement has been entered into on the date stated at the beginning of
this Agreement.
SCHEDULE 1
THE ORIGINAL LENDERS
Name of
Original Facility A1 Facility A2 Facility B Facility C
Lender Commitment Commitment Commitment Commitment
Citibank
Inter-
national
plc
(for Utili-
sations
other than
to a US
Person) EUR 200,000,000 EUR 444,166,666.67 US$ 310,000,000 US$ 50,000,000
Citicorp USA,
Inc.(for
Utili-
sations
to a US
Person)
Goldman
Sachs
Interna-
tional
Bank EUR 200,000,000 EUR 444,166,666.67 US$ 310,000,000 US$ 50,000,000
Societe
Generale EUR 200,000,000 EUR 444,166,666.66 US$ 310,000,000 US$ 50,000,000
--------------- ------------------ --------------- --------------
EUR 600,000,000 EUR 1,332,500,000 US$ 930,000,000 US$ 150,000,000
SCHEDULE 2
CONDITIONS PRECEDENT
PART I A
CONDITIONS PRECEDENT TO INITIAL UTILISATION
1. The Company
(a) A copy of the constitutional documents of the Company.
(b) A copy of a resolution of the board of directors of the Company:
(i) approving the terms of, and the transactions contemplated by, the
Finance Documents to which it is a party and resolving that it execute
the Finance Documents to which it is a party demonstrating that the
provisions of Art. L225-35 et seq. of the French Commercial Code have
been respected;
(ii) authorising a specified person or persons to execute the Finance
Documents to which it is a party on its behalf; and
(iii)authorising a specified person or persons, on its behalf, to sign
and/or despatch all documents and notices (including, if relevant, any
Utilisation Request and Selection Notice) to be signed and/or
despatched by it under or in connection with the Finance Documents to
which it is a party.
(c) A specimen of the signature of each person authorised by the resolution
referred to in paragraph (b) above.
(d) A certificate of an authorised signatory of the Company dated no earlier
than the date of this Agreement certifying that each copy document relating
to it specified in this Part IA of Schedule 2 is correct, complete and in
full force and effect.
2. Legal opinions
(a) A legal opinion of Linklaters, London, legal advisers to the Arranger and
the Agent in England, substantially in the form distributed to the Original
Lenders prior to signing this Agreement.
(b) A legal opinion of Linklaters, Paris, legal advisers to the Arranger and
the Agent in France, substantially in the form distributed to the Original
Lenders prior to signing this Agreement.
(c) A legal opinion of Clifford Chance, legal advisers to the Company as to
French law, substantially in the form distributed to the Original Lenders
prior to signing this Agreement
3. Other documents and evidence
(a) Evidence that any process agent referred to in Clause 40.2 (Service of
process) has accepted its appointment.
(b) Evidence that the fees, costs and expenses then due from the Company
pursuant to Clause 14 (Fees) and Clause 19 (Costs and expenses) have been
paid or will be paid by the first Utilisation Date.
PART 1 B
CONDITIONS PRECEDENT TO UTILISATION OF FACILITY A1
(c) (i) A copy of each AA Acquisition Agreement relevant to the AA Acquisition
to be made with the proceeds of Utilisation under Facility A1; and
(ii) written confirmation from the Company that all conditions set out in
such AA Acquisition Agreement have been satisfied by the Company (or,
as the case may be, other relevant acquiror) and/or waived by the
relevant member of the AA Group in full.
(d) A certificate of the Company (signed by a director) confirming that the
relevant time limit for the European Commission to consider the proposed
acquisition under the appropriate AA Acquisition Agreement has expired
without a decision having been issued.
(e) Evidence that all applicable waiting periods (including extensions thereof)
under the United States Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the regulations made under the Act have expired, lapsed or been
terminated in respect of the relevant proposed acquisition under the AA
Acquisition Agreements.
PART I C
CONDITIONS PRECEDENT TO UTILISATION OF FACILITY A2
(f) A copy of any Tender Offer Statement, any other document filed with the
Securities and Exchange Commission in connection with the Offer and any
draft or definitive merger agreement related to the Offer (in the case of
the latter, to the extent available at the time of such Utilisation).
(g) Evidence that all applicable waiting periods (including extensions thereof)
under the United States Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the regulations made under the Act have expired, lapsed or been
terminated in respect of the SMS Acquisition.
(h) A copy of an opinion of Davis Polk & Wardwell relating to compliance with
United States securities laws addressed to the Company and substantially in
the form distributed to the Original Lenders prior to the date of this
Agreement.
(i) A legal opinion of Clifford Chance confirming that the use,
structuring and terms of the Finance Documents will not, amongst other
things, cause a breach of Regulation U.
(j) A legal opinion of Davis Polk & Wardwell substantially in the form
distributed to the Original Lenders prior to the date of this
Agreement.
PART I
CONDITIONS PRECEDENT REQUIRED TO BE DELIVERED BY AN ADDITIONAL OBLIGOR
1. An Accession Letter, duly executed by the Additional Obligor and the
Company.
2. A copy of the constitutional documents of the Additional Obligor.
3. A copy of a resolution of the board of directors of the Additional Obligor:
(a) approving the terms of, and the transactions contemplated by, the
Accession Letter and the Finance Documents and resolving that it
execute the Accession Letter and, in the case of a French Obligor,
demonstrating that the provisions of Art L225-35 at seq. of the French
Commercial Code have been respected;
(b) authorising a specified person or persons to execute the Accession
Letter on its behalf; and
(c) authorising a specified person or persons, on its behalf, to sign
and/or despatch all other documents and notices (including, in
relation to an Additional Borrower, any Utilisation Request or
Selection Notice) to be signed and/or despatched by it under or in
connection with the Finance Documents.
4. A specimen of the signature of each person authorised by the resolution
referred to in paragraph 3 above.
5. A certificate of an authorised signatory of the Additional Obligor
certifying that each copy document listed in this Part II of Schedule 2 is
correct, complete and in full force and effect as at a date no earlier than
the date of the Accession Letter.
6. A legal opinion of Linklaters, London, legal advisers to the Arranger and
the Agent in England.
7. A legal opinion of Linklaters, Paris, or as the case may be, Linklaters,
New York, legal advisers to the Arranger and the Agent in Paris and New
York and Delaware respectively.
8. A legal opinion of Clifford Chance, Paris, or as the case may be, Davis
Polk & Wardwell, legal advisers to the Company as to (i) French law and
(ii) United States and federal law and Delaware law respectively.
9. In relation to the accession of the AA Bidco which is a US company, a legal
opinion of Clifford Chance, legal advisers to the Company as to the AA
Acquisition, that such AA Bidco is not required to register as an
"investment company" as such term is defined in the US Investment Companies
Act of 1940, as amended.
10. If the Additional Obligor is incorporated in a jurisdiction other than
Paris or New York and/or Delaware, a legal opinion of the legal advisers to
(a) the Arranger and the Agent and/or (b) the Company (having regard to
market practice on such matters in the relevant jurisdiction) in the
jurisdiction in which the Additional Obligor is incorporated.
11. If the proposed Additional Obligor is incorporated in a jurisdiction other
than England and Wales, evidence that the process agent specified in Clause
40.2 (Service of process), if not an Obligor, has accepted its appointment
in relation to the proposed Additional Obligor.
SCHEDULE 3
REQUESTS
UTILISATION REQUEST
From: [Borrower] [SMS Bidco]
To: [Agent]
Dated:
Dear Sirs
Sodexho Alliance, S.A. - EUR 1,932,500,000 and
US$1,080,000,000 Facility Agreement
dated 6 April 2001, as amended (the "Facility Agreement")
1. [We, SMS, SMO] wish to borrow a Loan on the following terms:
Proposed Utilisation Date: [ ] (or, if that is not a
Business Day, the next
Business Day)
Facility to be utilised:
[Facility A1]/[Facility A2]/[Facility B]/[Facility C]*
Currency of Loan: [ ]
Amount: [ ] or, if less, the Available Facility
Interest Period: [ ]
2. We confirm that each condition specified in Clause 4.2 (Further
conditions precedent) is satisfied on the date of this Utilisation
Request.
3. The proceeds of this Loan should be credited to [account].
4. This Utilisation Request is irrevocable.
5. [This Utilisation Request is delivered by us on behalf of [SMS/SMO] in
accordance with the terms of the Facility Agreement.]**
Yours faithfully
................
authorised signatory for
[name of relevant Borrower]
[SMS Bidco on behalf of SMS/SMO]
--------------------------------------------------------------------------------
* Delete as appropriate.
** Delete if not from SMS Bidco in relation to Facility B or Facility C
PART II
SELECTION NOTICE
APPLICABLE TO A FACILITY A LOAN OR FACILITY B LOAN
From: [Borrower]
To: [Agent]
Dated:
Dear Sirs
Sodexho Alliance, S.A. - EUR 1,932,500,000 and
US$1,080,000,000 Facility Agreement
dated 6 April 2001, as amended (the "Facility Agreement")
1. We refer to the following [Facility A1 Loan[s]/Facility A2 Loan[s]/Facility
B Loan[s]] in [identify currency] with an Interest Period ending on [ ].*
2. [We request that the above [Facility A Loan[s]/Facility B Loan[s]] be
divided into [ ] [Facility A1 Loans/Facility A2 Loan[s]/Facility B Loan[s]]
with the following Interest Periods:]**
or
[We request that the next Interest Period for the above [Facility A
Loan[s]/Facility A2 Loan[s]/Facility B Loan[s]] is [ ]].***
3. This Selection Notice is irrevocable.
Yours faithfully
.......................................
authorised signatory for
[the Company on behalf of]
[name of relevant Borrower]
--------------------------------------------------------------------------------
* Insert details of all Facility A Loans in the same currency which have an
Interest Period ending on the same date.
** Use this option if division of Loans is requested.
*** Use this option if sub-division is not required.
PART III
LETTERS OF CREDIT
From: [Borrower] [SMS Bidco]
To: [Agent]
Dated:
Dear Sirs
Sodexho Alliance, S.A. - EUR 1,932,500,000 and
US$ 1,080,000,000 Facility Agreement
dated 6 April 2001, as amended (the "Facility Agreement")
1. We wish to arrange for a Letter of Credit to be issued by the Issuing Bank
on the following terms:
Proposed Utilisation Date: [ ] (or, if that is not a Business
Day, the next Business Day)
Facility to be utilised: Facility C
Currency of Letter of Credit: [ ]
Amount: [ ] or, if less, the Available Facility
Term: [ ] -------------------
2. We confirm that each condition specified in Clause 6.6(b) (Issue of Letters
of Credit) is satisfied on the date of this Utilisation Request.
3. We attach a copy of the proposed Letter of Credit.
4. This Utilisation Request is irrevocable.
5. [This Utilisation Request is delivered by us on behalf of SMO in accordance
with the terms of the Facility Agreement]*
Yours faithfully
......................................
authorised signatory for
[SMO]
[SMS Bidco on behalf of SMO]
--------
* Delete as appropriate
SCHEDULE 4
MANDATORY COST FORMULAE
1. The Mandatory Cost is an addition to the interest rate to compensate
Lenders for the cost of compliance with (a) the requirements of the Bank of
England and/or the Financial Services Authority (or, in either case, any
other authority which replaces all or any of its functions) or (b) the
requirements of the European Central Bank.
2. On the first day of each Interest Period (or as soon as possible
thereafter) the Agent shall calculate, as a percentage rate, a rate (the
"Additional Cost Rate") for each Lender, in accordance with the paragraphs
set out below. The Mandatory Cost will be calculated by the Agent as a
weighted average of the Lenders' Additional Cost Rates (weighted in
proportion to the percentage participation of each Lender in the relevant
Loan) and will be expressed as a percentage rate per annum.
3. The Additional Cost Rate for any Lender lending from a Facility Office in a
Participating Member State will be the percentage notified by that Lender
to the Agent as the cost of complying with the minimum reserve requirements
of the European Central Bank.
4. The Additional Cost Rate for any Lender lending from a Facility Office in
the United Kingdom will be calculated by the Agent as follows:
(a) in relation to a Sterling Loan:
[AB + C(C-D) + E * 0.01] / [100-(A+C)] per cent. per annum
(b) in relation to a Loan in any currency other than Sterling:
(E*0.01) / 300 per cent. per annum.
Where:
A is the percentage of Eligible Liabilities (assuming these to be
in excess of any stated minimum) which that Lender is from time
to time required to maintain as an interest free cash ratio
deposit with the Bank of England to comply with cash ratio
requirements.
B is the percentage rate of interest (excluding the Margin and the
Mandatory Cost) payable for the relevant Interest Period on the
Loan.
C is the percentage (if any) of Eligible Liabilities which that
Lender is required from time to time to maintain as interest
bearing Special Deposits with the Bank of England.
D is the percentage rate per annum payable by the Bank of England
to the Agent on interest bearing Special Deposits.
E is the rate of charge payable by that Lender to the Financial
Services Authority pursuant to the Fees Regulations (but, for
this purpose, ignoring any minimum fee required pursuant to the
Fees Regulations) and expressed in pounds per (pound)1,000,000 of
the Fee Base of that Lender.
5. For the purposes of this Schedule:
(a) "Eligible Liabilities" and "Special Deposits" have the meanings given
to them from time to time under or pursuant to the Bank of England Act
1998 or (as may be appropriate) by the Bank of England;
(b) "Fees Regulations" means the Banking Supervision (Fees) Regulations
2001 or such other law or regulation as may be in force from time to
time in respect of the payment of fees for banking supervision; and
(c) "Fee Base" has the meaning given to it in, and will be calculated in
accordance with, the Fees Regulations.
6. In application of the above formulae, A, B, C and D will be included in the
formulae as percentages (i.e. 5 per cent. will be included in the formula
as 5 and not as 0.05). A negative result obtained by subtracting D from B
shall be taken as zero. The resulting figures shall be rounded to four
decimal places.
7. Each Lender shall supply any information required by the Agent for the
purpose of calculating its Additional Cost Rate. In particular, but without
limitation, each Lender shall supply the following information in writing
on or prior to the date on which it becomes a Lender:
(a) its jurisdiction of incorporation and the jurisdiction of its Facility
Office; and
(b) any other information that the Agent may reasonably require for such
purpose.
Each Lender shall promptly notify the Agent in writing of any change to the
information provided by it pursuant to this paragraph.
8. The percentages or rates of charge of each Lender for the purpose of A, C
and E above shall be determined by the Agent based upon the information
supplied to it pursuant to paragraph 7 above and on the assumption that,
unless a Lender notifies the Agent to the contrary, each Lender's
obligations in relation to cash ratio deposits, Special Deposits and the
Fees Regulations are the same as those of a typical bank from its
jurisdiction of incorporation with a Facility Office in the same
jurisdiction as its Facility Office.
9. The Agent shall have no liability to any person if such determination
results in an Additional Cost Rate which over or under compensates any
Lender and shall be entitled to assume that the information provided by any
Lender pursuant to paragraphs 3 and 7 above is true and correct in all
respects.
10. The Agent shall distribute the additional amounts received as a result of
the Mandatory Cost to the Lenders on the basis of the Additional Cost Rate
for each Lender based on the information provided by each Lender pursuant
to paragraphs 3 and 7 above.
11. Any determination by the Agent pursuant to this Schedule in relation to a
formula, the Mandatory Cost, an Additional Cost Rate or any amount payable
to a Lender shall, in the absence of manifest error, be conclusive and
binding on all Parties.
12. The Agent may from time to time, after consultation with the Company and
the Lenders, determine and notify to all Parties any amendments which are
required to be made to this Schedule in order to comply with any change in
law, regulation or any requirements from time to time imposed by the Bank
of England, the Financial Services Authority or the European Central Bank
(or, in any case, any other authority which replaces all or any of its
functions) and any such determination shall, in the absence of manifest
error, be conclusive and binding on all Parties.
SCHEDULE 5
FORM OF TRANSFER CERTIFICATE
To: [ ] as Agent
-------------------
From: [The Existing Lender] (the "Existing Lender") and
[The New Lender] (the "New Lender")
Dated:
Sodexho Alliance, S.A. - EUR 1,932,500,000 and
US$1,080,000,000 Facility Agreement
dated 6 April 2001, as amended (the "Facility Agreement")
1. We refer to Clause 26.5 (Procedure for transfer):
(a) The Existing Lender and the New Lender agree to the Existing Lender
and the New Lender transferring by novation all or part of the
Existing Lender's Commitment, rights and obligations referred to in
the Schedule in accordance with Clause 26.5 (Procedure for transfer).
(b) The proposed Transfer Date is [ ].
(c) The Facility Office and address, fax number and attention details for
notices of the New Lender for the purposes of Clause 33.2 (Addresses)
are set out in the Schedule.
2. The New Lender expressly acknowledges the limitations on the Existing
Lender's obligations set out in paragraph (c) of Clause 26.4 (Limitation of
responsibility of Existing Lenders).
3. This Transfer Certificate is governed by English law.
THE SCHEDULE
Commitment/rights and obligations to be transferred
[insert relevant details]
[Facility Office address, fax number and attention details for notices and
account details for payments.]
[Existing Lender] [New Lender]
By: By:
This Transfer Certificate is accepted by the Agent and the Transfer Date is
confirmed as [ ].
[Agent]
By:
SCHEDULE 6
FORM OF ACCESSION LETTER
To: [ ] as Agent
From: [Subsidiary] and Sodexho Alliance, S.A.
Dated:
Dear Sirs
Sodexho Alliance, S.A. - EUR 1,932,500,000 and
US$1,080,000,000 Facility Agreement
dated 6 April 2001, as amended (the "Facility Agreement")
1. [Subsidiary] agrees to become an Additional [Borrower]/[Guarantor] and to
be bound by the terms of the Facility Agreement as an Additional
[Borrower]/[Guarantor] pursuant to [Clause 27.2 (Additional
Borrowers)]/[Clause 27.4 (Additional Guarantors)] of the Facility
Agreement. [Subsidiary] is a company duly incorporated under the laws of
[name of relevant jurisdiction].
2. [Subsidiary's] administrative details are as follows:
Address:
Fax No:
Attention:
3. This letter is governed by English law.
Yours faithfully
Authorised signatory for Authorised signatory for
Sodexho Alliance, S.A. [Subsidiary]
SCHEDULE 7
FORM OF COMPLIANCE CERTIFICATE
To: [ ] as Agent
From: Sodexho Alliance, S.A.
Dated:
Dear Sirs
Sodexho Alliance, S.A. - EUR 1,932,500,000 and
US$1,080,000,000 Facility Agreement
dated 6 April 2001, as amended (the "Facility Agreement")
1. We refer to the Facility Agreement. This is a Compliance Certificate.
2. We confirm that:
(a) as at [ ], the Net Consolidated Financial Indebtedness for the
Relevant Period ended on [ ] was EUR [ ];
(b) the ratio of Net Consolidated Financial Indebtedness on [ ] to EBITDA
for the Relevant Period ending on such date was [ ]:1; and
(c) the ratio of EBIT to Net Consolidated Interest Expense for the
Relevant Period ending on [ ] was [ ]:1.
Computations of the above are attached.
3. [We confirm that no Default is continuing.]*
Signed: ...................
[Chief Financial Officer]
(other appropriate officer)
of
Sodexho Alliance, S.A.
SCHEDULE 8
LMA FORM OF CONFIDENTIALITY UNDERTAKING
LMA CONFIDENTIALITY LETTER (SELLER)
[Letterhead of Seller/Seller's agent/broker]
To:
================[insert name of Potential Purchaser/Purchaser's agent/broker
Re: The Agreement
Borrower:
Date:
Amount:
Agent:
========================================================================
Dear Sirs
We understand that you are considering [acquiring]1/[arranging the acquisition
of]2 an interest in the Agreement (the "Acquisition"). In consideration of us
agreeing to make available to you certain information, by your signature of a
copy of this letter you agree as follows:
1. Confidentiality Undertaking
You undertake(a) to keep the Confidential Information confidential and not
to disclose it to anyone except as provided for by paragraph 2 below and
to ensure that the Confidential Information is protected with security
measures and a degree of care that would apply to your own confidential
information, (b) to use the Confidential Information only for the Permitted
Purpose, (c) to use all reasonable endeavours to ensure that any person to
whom you pass any Confidential Information (unless disclosed under
paragraph 2[(c)/(d)]3 below) acknowledges and complies with the provisions
of this letter as if that person were also a party to it, and (d) not to
make enquiries of any member of the Group or any of their officers,
directors, employees or professional advisers relating directly or
indirectly to the Acquisition.
2. Permitted Disclosure
We agree that you may disclose Confidential Information:
(a) to members of the Purchaser Group and their officers, directors,
employees and professional advisers to the extent necessary for the
Permitted Purpose and to any auditors of members of the Purchaser
Group;
[(b) subject to the requirements of the Agreement, in accordance with the
Permitted Purpose so long as any prospective purchaser has delivered a
letter to you in equivalent form to this letter;]
[(b/c)]3 subject to the requirements of the Agreement, to any person to (or
through) whom you assign or transfer (or may potentially assign or
transfer) all or any of the rights, benefits and obligations which you
may acquire under the Agreement or with (or through) whom you enter
into (or may potentially enter into) any sub-participation in relation
to, or any other transaction under which payments are to be made by
reference to, the Agreement or the Borrower or any member of the Group
so long as that person has delivered a letter to you in equivalent
form to this letter; and
[(c/d)]3 (i) where requested or required by any court of competent
jurisdiction or any competent judicial, governmental, supervisory or
regulatory body, (ii) where required by the rules of any stock
exchange on which the shares or other securities of any member of the
Purchaser Group are listed or (iii) where required by the laws or
regulations of any country with jurisdiction over the affairs of any
member of the Purchaser Group.
3. Notification of Required or Unauthorised Disclosure
You agree (to the extent permitted by law) to inform us of the full
circumstances of any disclosure under paragraph 2[(c)/(d)]3 or upon
becoming aware that Confidential Information has been disclosed in
breach of this letter.
4. Return of Copies
If we so request in writing, you shall return all Confidential
Information supplied to you by us and destroy or permanently erase all
copies of Confidential Information made by you and use all reasonable
endeavours to ensure that anyone to whom you have supplied any
Confidential Information destroys or permanently erases such
Confidential Information and any copies made by them, in each case save
to the extent that you or the recipients are required to retain any such
Confidential Information by any applicable law, rule or regulation or by
any competent judicial, governmental, supervisory or regulatory body or
in accordance with internal policy, or where the Confidential
Information has been disclosed under paragraph 2[(c)/(d)]3 above.
5. Continuing Obligations
The obligations in this letter are continuing and, in particular, shall
survive the termination of any discussions or negotiations between you
and us. Notwithstanding the previous sentence, the obligations in this
letter shall cease (a) if you become a party to or otherwise acquire (by
assignment or sub-participation) an interest, direct or indirect, in the
Agreement or (b) twelve months after you have returned all Confidential
Information supplied to you by us and destroyed or permanently erased
all copies of Confidential Information made by you (other than any such
Confidential Information or copies which have been disclosed under
paragraph 2 above (other than sub-paragraph 2(a)) or which, pursuant to
paragraph 4 above, are not required to be returned or destroyed).
6. No Representation; Consequences of Breach, etc
You acknowledge and agree that:
(a) neither we, [nor our principal] nor any member of the Group nor any of
our or their respective officers, employees or advisers (each a
"Relevant Person") (i) make any representation or warranty, express or
implied, as to, or assume any responsibility for, the accuracy,
reliability or completeness of any of the Confidential Information or
any other information supplied by us or the assumptions on which it is
based or (ii) shall be under any obligation to update or correct any
inaccuracy in the Confidential Information or any other information
supplied by us or be otherwise liable to you or any other person in
respect to the Confidential Information or any such information; and
(b) we [or our principal]4 or members of the Group may be irreparably
harmed by the breach of the terms hereof and damages may not be an
adequate remedy; each Relevant Person may be granted an injunction or
specific performance for any threatened or actual breach of the
provisions of this letter by you.
7. No Waiver; Amendments, etc
This letter sets out the full extent of your obligations of
confidentiality owed to us in relation to the information the subject of
this letter. No failure or delay in exercising any right, power or
privilege hereunder will operate as a waiver thereof nor will any single
or partial exercise of any right, power or privilege preclude any
further exercise thereof or the exercise of any other right, power or
privileges hereunder. The terms of this letter and your obligations
hereunder may only be amended or modified by written agreement between
us.
8. Inside Information
You acknowledge that some or all of the Confidential Information is or
may be price-sensitive information and that the use of such information
may be regulated or prohibited by applicable legislation relating to
insider dealing and you undertake not to use any Confidential
Information for any unlawful purpose.
9. Nature of Undertakings
The undertakings given by you under this letter are given to us and
(without implying any fiduciary obligations on our part) are also given
for the benefit of [our principal,]4 the Borrower and each other member
of the Group.
10. Third Party Rights
(a) Subject to paragraph 6 and to paragraph 9 the terms of this letter may
be enforced and relied upon only by you and us and the operation of
the Contracts (Rights of Third Parties) Act 1999 is excluded.
(b) Notwithstanding any provisions of this letter, the parties to this
letter do not require the consent of any Relevant Person to rescind or
vary this letter at any time.
11. Governing Law and Jurisdiction
This letter (including the agreement constituted by your acknowledgement
of its terms) shall be governed by and construed in accordance with the
laws of England and the parties submit to the non-exclusive jurisdiction
of the English courts.
12. Definitions
In this letter (including the acknowledgement set out below) terms
defined in the Agreement shall, unless the context otherwise requires,
have the same meaning and:
"Confidential Information" means any information relating to the
Borrower, the Group, the Agreement and/or the Acquisition provided to
you by us or any of our affiliates or advisers, in whatever form, and
includes information given orally and any document, electronic file or
any other way of representing or recording information which contains or
is derived or copied from such information but excludes information that
(a) is or becomes public knowledge other than as a direct or indirect
result of any breach of this letter or (b) is known by you before the
date the information is disclosed to you by us or any of our affiliates
or advisers or is lawfully obtained by you thereafter, other than from a
source which is connected with the Group and which, in either case, as
far as you are aware, has not been obtained in violation of, and is not
otherwise subject to, any obligation of confidentiality;
"Group" means the Borrower and each of its holding companies and
subsidiaries and each subsidiary of each of its holding companies (as
each such term is defined in the Companies Act 1985);
"Permitted Purpose" means [subject to the terms of this letter, passing
on information to a prospective purchaser for the purpose of]2
considering and evaluating whether to enter into the Acquisition; and
"Purchaser Group" means you, each of your holding companies and
subsidiaries and each subsidiary of each of your holding companies (as
each such term is defined in the Companies Act 1985).
Please acknowledge your agreement to the above by signing and returning the
enclosed copy.
Yours faithfully
....................................
For and on behalf of
[Seller/Seller's agent/broker]
To: [Seller]
[Seller's agent/broker]
The Borrower and each other member of the Group
We acknowledge and agree to the above:
....................................
For and on behalf of
[Potential Purchaser/Purchaser's agent/broker]
* If this statement cannot be made, the certificate should identify any
Default that is continuing and the steps, if any, being taken to remedy it.
1 delete if addressee is acting as broker or agent.
2 delete if addressee is acting as principal.
3 delete as applicable.
4 delete if letter is sent out by the Seller rather than the Seller's broker
or agent.
SCHEDULE 9
TIMETABLES
PART I
LOANS
"D" refers to the number of Business Days before the relevant Utilisation
Date/the first day of the relevant Interest Period. For the avoidance of doubt,
the reference to a time below is to London time unless otherwise stated.
Loans in euro Loans in Sterling Loans in other
currencies
Delivery of a duly
completed Utilisation
Request (Clause 5.1
(Delivery of a
Utilisation Request))
or a Selection Notice
(Clause 12.1
(Selection of D-3 D-1 D-3
Interest Periods)) 11:00 a.m. 11:00 a.m. 11:00 a.m.
Agent determines
(in relation to a
Utilisation) the
Base Currency Amount
of the Loan, if
required under
Clause 5.4
(Lenders' D-3 D-1 D-3
participation) 12:00 p.m. 12:00 p.m. 12:00 p.m.
Agent notifies
the Lenders
of the Loan
in accordance
with Clause 5.4
(Lenders' D-3 D-1 D-3
participation) 2:00 p.m. 2:00 p.m. 2:00 p.m.
Agent receives
a notification
from a Lender under
Clause 8.2
(Unavailability D-2 D D-2
of a currency) 9:30 a.m. 9:30 a.m. 9:30 a.m.
Agent gives
notice in
accordance with
Clause 8.2
(Unavailability D-2 D D-2
of a currency) 10:30 a.m. 10:30 a.m. 10:30 a.m.
Agent determines
amount of the
Loan in Optional
Currency in
accordance with
Clause 8.3
(Exchange rate D-3 D-1 D-3
movements) 12:00 p.m. 12:00 p.m. 12:00 p.m.
LIBOR or EURIBOR Quotation Day Quotation Day Quotation Day
is fixed as of 11:00 a.m. as of 11:00 a.m. as of 11:00 a.m.
(Paris time) (London time) (London time)
PART II
LETTERS OF CREDIT
"D" refers to the number of Business Days before the relevant Utilisation
Date/the first day of the relevant Term. For the avoidance of doubt, the
reference to a time below is to London time.
L/Cs
in Canadian
in US Dollars Dollars
Delivery of a duly
completed Utilisation
Request (Clause 6.3
(Delivery of a Utilisation D-4 D-4
Request for Letters of Credit)) 11:00 a.m. 11:00 a.m.
Agent determines
(in relation to a
Utilisation) the Base
Currency Amount
of the Letter of
Credit, if required
under Clause 6.6
(Issue of Letters D-3 D-3
of Credit) 12:00 p.m. 12:00 p.m.
Agent notifies the
Issuing Bank and
the Lenders of the
Letter of Credit
in accordance with
Clause 6.6 (Issue of D-3 D-3
Letters of Credit) 2:00 p.m. 2:00 p.m.
SMO requests renewal
of a Letter of
Credit under Clause
6.8 (Renewal of a D-4 D-4
Letter of Credit) 11:00 a.m. 11:00 a.m.
SCHEDULE 2
ACQUISITION FINANCING INDEMNITY
In the event that any of the Finance Parties or any of their respective
affiliates or any of their respective partners, directors, agents, advisers or
employees (each a "Relevant Person") becomes involved in any capacity in any
action, proceeding, or investigation brought by or against any person, including
shareholders of SMS, AA or the Company arising out of, in connection with or as
a result of either the Finance Parties' commitment or any matter referred to in
the Finance Documents (including the acquisitions and any use of the proceeds of
the Facilities) (other than due to such Finance Party's illegal activity,
negligence, wilful misconduct or bad faith), the Company periodically on request
will reimburse the Relevant Person for its reasonable legal and other reasonable
expenses (including the cost of any investigation and preparation) arising out
of or incurred in connection therewith. The Company also agrees to co-operate
with each Relevant Person and to give, subject to Clause 26.7 (Disclosure of
Information and confidentiality) and so far as it is able to procure the giving
of, all such information and render all such assistance to as the Relevant
Persons may reasonably request in connection with any such action, proceeding or
investigation and not to take any action which might reasonably be expected to
prejudice the position of a Relevant Person in relation to any such action,
proceeding or investigation without the consent of the Relevant Person concerned
(such consent not to be unreasonably withheld).
The Company will also indemnify and hold harmless each of the Finance Parties
for themselves and as trustee for the other Relevant Persons, against any and
all losses, claims, damages or liabilities to any person in connection with or
as a result of either their respective commitments or any matter referred to in
the Finance Documents and in particular (without limitation to the generality of
the foregoing) arising out of, or in relation to, or in connection with, any
untrue statement (or alleged untrue statement) of a material fact contained in
any preliminary or final offering materials or information memorandum prepared
in connection with the Facilities and approved by the Company or any filings
with or submissions to, in each case made by or on behalf of the Company, any
governmental or self regulatory authority or agency or securities exchange or
caused by an omission (or alleged omission) to state therein a material fact
necessary to make the statements therein in the light of the circumstances under
which they are made, not misleading, except to the extent that any such loss,
claim, damage or liability results from the illegal activity, negligence, wilful
misconduct or bad faith of the Relevant Person in performing the services that
are the subject of the Finance Documents.
The Company also agrees that the Relevant Persons shall not have any liability
to the Company or any person asserting claims on behalf of or in right of the
Company arising out of, or in connection with, or as a result of, the commitment
or any matter referred to in the Finance Documents except to the extent that any
losses, claims, damages, liabilities or expenses incurred by the Company or such
person result from the illegal activity, negligence, wilful misconduct or bad
faith of the Relevant Person in performing the services that are the subject of
the Underwriting Documents.
If any person is potentially entitled to indemnification under this Schedule 10
with respect to any action or proceeding brought by a third party that is also
brought against the Company, the Company shall be entitled to assume the defence
of any such action or proceeding with counsel reasonably satisfactory to the
Relevant Person provided that the Company shall at all times during such action
or proceedings consider and take account of that person's business, good
standing and reputation in the market (as communicated to the Company) in
relation to such action and proceedings. Upon assumption by the Company of the
defence of any such action or proceeding, the Relevant Person shall have the
right to participate in such action or proceeding and to retain its own counsel
but the Company shall not be liable for any legal expenses of other counsel
incurred by such Relevant Person in connection with such defence unless (i) the
Company shall have failed to employ counsel reasonably satisfactory to the
Relevant Person in a timely manner, or (ii) the Relevant Person shall have been
advised by counsel that there are actual or potential or conflicting interests
between the Company and the Relevant Person, including situations in which there
are one or more legal defences available to the Relevant Person that are
different from or additional to those available to the Company. The Company
shall not consent to the terms of any compromise or settlement of any action
defended by the Company in accordance with the foregoing without the prior
consent of the Relevant Person, which consent shall not be unreasonably
withheld. Each of the Company and the Relevant Person (each acting reasonably)
shall, in the case of deciding not to settle or compromise on any action or
proceedings, take into account the cost (both financial or otherwise) to both
parties of continuing with such action or proceedings, the likely outcome of
such action or proceedings and the adverse effects (both actual or potential) on
the business interests of both parties by making such decision. No Relevant
Person shall admit liability in respect of, or consent to the terms of any
compromise or settlement of, any action with respect to which such Relevant
Person may be entitled to indemnification hereunder without the prior consent of
the Company, which consent shall not be unreasonably withheld.
The Company agrees with the Relevant Persons that the reimbursement, indemnity
and contribution obligations of the Company under this Schedule 10 will be in
addition to any liability which the Company may otherwise have, and shall be
binding on and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Relevant Person, any such affiliate
and any such person.
The provisions of this Schedule 10 shall survive any termination of the Finance
Documents.
In this Schedule 10:
"affiliate" of any person means any other person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such person;
"controlling person" means any person who controls any other person; and
"control" (including terms "controlling", "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to direct
or cause the direction of the management, policies or activities of a person,
whether through the ownership of securities, by contract or agency or otherwise.
SCHEDULE 1
FORM OF TEG LETTER
To: Sodexho Alliance, S.A.
From: [ ] as Agent
Dated: [ ] 2001
Dear Sirs
Sodexho Alliance, S.A. - EUR 1,932,500,000 and US$1,080,000,000 Facility
Agreement dated 6 April 2001, as amended (the "Facility Agreement")
We refer to the Facility Agreement.
Terms defined in the Facility Agreement shall bear the same meaning in this
letter unless otherwise defined in this letter. References to Clauses in this
letter are references to Clauses in the Agreement.
We confirm that:
1. this is the letter referred to in Clause 12.5 (Taux Effectif Global) of the
Facility Agreement;
2. you acknowledge that, due to the fact that interest payable under the
Facility Agreement is to be calculated on a floating rate basis by
references to LIBOR or EURIBOR for Interest Periods selected by a Borrower,
it is not possible to compute the effective global rate ("taux effectif
global") for the lifetime of the Facilities; and
3. in order to comply with the provisions of Articles L313-1 and L313-2 of the
French "Code de la Consommation", and only as an indication based on the
assumptions described below, an example of calculation of the effective
global rate would result in a rate for the Facilities (taux de periode) of
[ ]%.
The above rate is given on an indicative basis and on the basis (a) that
drawdown for the full amount of the Facilities in the relative Base
Currency has been made, (b) for the US Dollar denominated Facilities an
Interest Period of three months in US Dollars has been chosen and that
the US$ LIBOR rate of [ ]% per annum is applicable, (c) for the euro
denominated Facilities an Interest Period of three months in euro has
been chosen and that the EURIBOR rate of [ ]% per annum is applicable,
(d) that the LIBOR/EURIBOR rate, expressed as an annual rate, is as
fixed on [date], (e) repayments occur at contractual maturity and not
earlier, (f) no term out option has been exercised, (g) that the US$
/EUR exchange rate is 1 EUR = 0.[ ]US$, (h) that the Rating (as defined
in Clause 11.2(f) (Margin and adjustments)) of the Company is BBB+, (i)
of the various fees payable by you under the terms of the Facility
Agreement and (j) that a Margin reduction of 15bps is assumed 364 days
after the first Utilisation. Such rates shall not be binding on the
Finance Parties.
We should be grateful if you would confirm your acceptance of the terms of
this letter by signing and returning to us the enclosed copy.
This letter is designated a Finance Document.
Yours faithfully.
..................................................
[ ]
as Agent
We agree to the above.
..................................................
SODEXHO ALLIANCE, S.A.
SCHEDULE 1
MATERIAL SUBSIDIARIES
1. Sodexho Limited
2. Sodexho Marriott Services, Inc.
3. Sodexho Operations, LLC.
SCHEDULE 2
FORM OF LETTER OF CREDIT
To: [Beneficiary]
[Address]
[other relevant information]
(the "Beneficiary")
[Date]
Irrevocable Standby Letter of Credit no.[ ]
At the request of [ ], Societe Generale (the "Issuing Bank") issues this
irrevocable standby letter of credit ("Letter of Credit") in your favour on the
following terms and conditions:
1. Definitions
In this Letter of Credit:
"Business Day" means a day (other than a Saturday or a Sunday) on which
banks are open for general business in [London].1
"Demand" means a demand for a payment under this Letter of Credit in the
form of the schedule to this Letter of Credit.
"Expiry Date" means [ ].
"Relevant Place" means the office of Societe Generale at 1221 Avenue of the
Americas, New York, NY 10020, USA.
"Total L/C Amount" means [ ].
2. Issuing Bank's agreement
(a) The Beneficiary may request a drawing or drawings under this Letter of
Credit by giving to the Issuing Bank a duly completed Demand. A Demand
must be received by the Issuing Bank by 3p.m. (New York time) on the
Expiry Date at the Relevant Place.
(b) Subject to the terms of this Letter of Credit, the Issuing Bank
unconditionally and irrevocably undertakes to the Beneficiary that,
within ten Business Days of receipt by it of a Demand, it must pay to
the Beneficiary the amount demanded in that Demand.
(c) The Issuing Bank will not be obliged to make a payment under this
Letter of Credit to the Beneficiary if as a result the aggregate of
all payments made by it under this Letter of Credit would exceed the
Total L/C Amount.
3. Expiry
(a) The Issuing Bank will be released from its obligations under this
Letter of Credit on the date (if any) notified by the Beneficiary to
the Issuing Bank as the date upon which the obligations of the Issuing
Bank under this Letter of Credit are released.
(b) Unless previously released under paragraph (a) above, on 3p.m. (New
York time) on the Expiry Date the obligations of the Issuing Bank
under this Letter of Credit will cease with no further liability on
the part of the Issuing Bank except for any Demand validly presented
under the Letter of Credit that remains unpaid.
(c) When the Issuing Bank is no longer under any further obligations under
this Letter of Credit, the Beneficiary must return the original of
this Letter of Credit to the Issuing Bank.
4. Payments
All payments under this Letter of Credit shall be made in [ ] and for value
on the due date to the account of the Beneficiary specified in the Demand.
5. Delivery of Demand
Each Demand shall be in writing, and, unless otherwise stated, may be made
by letter, fax or telex and must be received in legible form by the Issuing
Bank at its address and by the particular department or officer as follows:
Societe Generale, 1221 Avenue of the Americas, New York, NY 10020, USA Loan
Servicing Group Attn: Loan Servicing Group
6. Assignment
The Beneficiary's rights under this Letter of Credit may not be assigned or
transferred.
7. UCP
Except to the extent it is inconsistent with the express terms of this
Letter of Credit, in which case it is subject to the laws of the State of
New York (including, without limitation, the Uniform Commercial Code of the
State of New York), this Letter of Credit is subject to the Uniform Customs
and Practice for Documentary Credits (1993 Revision), International Chamber
of Commerce Publication No. 500.
8. Governing Law
This Letter of Credit is governed by New York law.
9. Jurisdiction
The courts of New York have exclusive jurisdiction to settle any dispute
arising out of or in connection with this Letter of Credit.
Yours faithfully,
Societe Generale
By:
SCHEDULE
Form of Demand
To: Societe Generale
Loan Servicing Group
1221 Avenue of the Americas
New York
NY 10020
USA
Attn: Loan Servicing Group [Date]
Dear Sirs
Standby Letter of Credit no. [ ] issued in favour of [BENEFICIARY] (the
"Letter of Credit") We refer to the Letter of Credit. Terms defined in the
Letter of Credit have the same meaning when used in this Demand.
1. We certify that the sum of [ ] is due [and has remained unpaid for at least
[ ] Business Days] [under [set out underlying contract or agreement]]. We
therefore demand payment of the sum of [ ].
2. Payment should be made to the following account:
Name:
Account Number:
Bank:
3. The date of this Demand is not later than the Expiry Date.
Yours faithfully
(Authorised Signatory) (Authorised Signatory)
For
[BENEFICIARY]
The Company
SODEXHO ALLIANCE, S.A.
Address: 3, avenue Newton - 78180, Montigny-le-Bretonneux, France
Fax No: + 33 1 30 85 5185
Attention: The Corporate Secretary
By: Sian Herbert-Jones
The Arranger
CITIBANK INTERNATIONAL plc
By: John Stafford
GOLDMAN SACHS INTERNATIONAL
By: Jacquelyn Titus
SG INVESTMENT BANKING
By: Francois Dupin
The Original Lenders
CITIBANK INTERNATIONAL plc
By: John Stafford
CITICORP USA, INC.
By: Steven R. Victorin
GOLDMAN SACHS INTERNATIONAL BANK
By: Jacquelyn Titus
SOCIETE GENERALE
By: Francois Dupin
The Agent
SOCIETE GENERALE
Address: DEFI/ATM/LEV
Tour Societe Generale
17, cours Valmy
92972 Paris La Defense Cedex
France
Credit Matters:
Attention: Jean-Francois Michard
Tel : 33 1 42 13 68 37
Fax : 33 1 42 14 60 93
Operational Matters:
Attention: Laurence Gaertner / Maxime Seillier
Tel : 33 1 42 13 77 71 / 33 1 42 13 41 11
Fax : 33 1 42 13 69 67
For all requests regarding Facility C, a copy is to go to:
Societe Generale
Loan Servicing Group
1221 Avenue of the Americas
New York, NY 10020
USA
Attention : Loan Servicing Group
Tel : 1 212 278 5703
Fax : 1 212 278 6136
By: Francois Dupin
The Issuing Bank
SOCIETE GENERALE
Address: 8 avenue des Olympiades
94727 Fontenay-sous-Bois
France
Attention: Patrick Lenfant
Tel : 33 1 42 14 11 11
Fax : 33 1 42 14 10 14
--------
1 This may need to be amended depending on the currency of payment under the
Letter of Credit.
SOCIETE GENERALE
AMENDMENT LETTER
SODEXHO ALLIANCE S.A.
3 avenue Newton
78180 Montigny-le-Bretonnneux
FRANCE
For the attention of Sian Herbert-Jones
March 14, 2003
Dear Madam,
REF: SODEXHO ALLIANCE S.A. (the "Company") - EUR 1,932,500,000 and USD
1,080,000,000 Term and Revolving Facilities Agreement dated 6 April 2001, as
amended by a letter dated 27 April 2001, an Amendment and Restatement Agreement
dated 8 June 2001, a Syndication Agreement dated 22 June 2001 and an amendment
letter dated 15 May 2002 (the "Facilities Agreement").
We, SOCIETE GENERALE (the "Agent"), write to you in our capacity as Agent under
the Facilities Agreement. Terms defined in the Facilities Agreement shall have
the same meaning when used in this letter (the "Amendment Letter") unless
otherwise defined in this Amendment Letter or the context otherwise requires.
1. The Obligors and the Majority Lenders have agreed (at the Company's
request) that the Facilities Agreement shall be amended in the form set out
in the schedule to this Amendment Letter.
2. The Amendment Letter shall take effect on the date on which the Agent
notifies the Lenders and the Company that it has received a copy of this
Amendment Letter signed by the Company.
3. Save to the extent specifically referred to in this Amendment Letter,
nothing contained in this Amendment Letter shall be construed as a waiver,
novation or amendment of the provisions of the Facilities Agreement which
otherwise continues in full force and effect.
1. The Company shall reimburse the Agent on first demand the reasonable amount
of all costs and expenses (including legal fees, if any) incurred by the
Agent in connection with the negotiation and execution of this Amendment
Letter.
2. The Company shall, on the date set forth in clause 2 above, pay to the
Agent for each Lender having confirmed in writing their agreement to this
Amendment Letter on or before 13 March 2003, the fee(s) payable to that
Lenders in accordance with the letter dated 19 February 2003 from the
Company to the Agent relating to the Facilities Agreement and requesting
the amendments set out in this Amendments Letter.
3. The Company and the Agent designate this Amendment Letter as a Finance
Document.
4. The Amendment Letter shall be governed and construed in accordance with the
laws of England, and the provisions of clause 40 (Enforcement) of the
Facilities Agreement shall be incorporated into this Amendment Letter as if
set out in full.
Please acknowledge your agreement to the terms of this Amendment Letter by
dating, signing and returning each of the four enclosed copies of this Amendment
Letter.
Yours faithfully,
Made in four (4) originals
For and on behalf of
SOCIETE GENERALE
As Agent
Signed: -------------------------------------
Name: Jean-Marc GIRAUD------------------------
Position: Head of Corporate Acquisition Finance-------
We agree to the terms set out above.
For and on behalf of:
SODEXHO ALLIANCE S.A.
Signed: -----------------------------------------------------------
Name: -----------------------------------------------------------
Position: -----------------------------------------------------------
Date: -----------------------------------------------------------
For and on behalf of:
SODEXHO Inc.
Signed: -----------------------------------------------------------
Name: -----------------------------------------------------------
Position: -----------------------------------------------------------
Date: -----------------------------------------------------------
For and on behalf of:
SODEXHO OPERATIONS
Signed: -----------------------------------------------------------
Name: -----------------------------------------------------------
Position: -----------------------------------------------------------
Date: -----------------------------------------------------------
Schedule
In Clause 23.1 (a) (ratio Net Consolidated Financial Indebtedness to EBITDA) the
ratios opposite the three following items shall be amended as follows:
Date Ratio
o 28 February 2003 o 2.50:1
o 31 August 2003 o 2.25:1
o 28 February 2004 o 2.15:1
In Clause 23.1 (b) (ratio EBIT to Net Consolidated Interest Expense) the ratios
opposite the three following items shall be amended as follows:
Date Ratio
o 28 February 2003 o 3.30:1
o 31 August 2003 o 3.50:1
o 28 February 2004 o 3.75:1
All the other terms of this Clause remain unchanged.
SOCIETE GENERALE
AMENDMENT LETTER
SODEXHO ALLIANCE S.A.
3 avenue Newton
78180 Montigny-le-Bretonnneux
FRANCE
For the attention of Sian Herbert-Jones
May 15, 2003
Dear Madam,
REF: SODEXHO ALLIANCE S.A. (the "Company") - EUR 1,932,500,000 and USD
1,080,000,000 Term and Revolving Facilities Agreement dated 6 April 2001, as
amended by a letter dated 27 April 2001, an Amendment and Restatement Agreement
dated 8 June 2001, a Syndication Agreement dated 22 June 2001 (the "Facilities
Agreement").
We, SOCIETE GENERALE (the "Agent"), write to you in our capacity as Agent under
the Facilities Agreement. Terms defined in the Facilities Agreement shall have
the same meaning when used in this letter (the "Amendment Letter") unless
otherwise defined in this Amendment Letter or the context otherwise requires.
The Obligors and the Majority Lenders have agreed (at the Company's
request) that the Facilities Agreement shall be amended in the form set out
in the schedule to this letter.
2. The amendments shall take effect on the date on which the Agent notifies
the Lenders that it has received a copy of this letter signed by the
Company.
3. The amendments are limited to those expressly provided in this letter..
4. The Company shall pay the Agent the reasonable amount of all costs and
expenses (including legal fees, if any) incurred by the Agent in connection
with the amendment contemplated by this letter.
5. The Company and the Agent designate this letter as a Finance Document.
6. The letter shall be governed and construed in accordance with the laws of
England, and the provisions of clause 40 (Enforcement) of the Facilities
Agreement shall be incorporated into this letter as if set out in full.
Please acknowledge your agreement to the terms of this letter by dating, signing
and returning each of the four enclosed copies of this letter.
Yours faithfully,
Made in four (4) originals
For and on behalf of
SOCIETE GENERALE
As Agent
Signed: ----------------------------------------------
Name: Jean-Marc GIRAUD-------------------------------
Position: Head of Corporate Acquisition Finance-------
We agree to the terms set out above.
For and on behalf of:
SODEXHO ALLIANCE S.A.
Signed: -----------------------------------------------------------
Name: -----------------------------------------------------------
Position: -----------------------------------------------------------
Date: -----------------------------------------------------------
For and on behalf of:
SODEXHO Inc.
Signed: -----------------------------------------------------------
Name: -----------------------------------------------------------
Position: -----------------------------------------------------------
Date: -----------------------------------------------------------
For and on behalf of:
SODEXHO OPERATIONS
Signed: -----------------------------------------------------------
Name: -----------------------------------------------------------
Position: -----------------------------------------------------------
Date: -----------------------------------------------------------
Schedule
In Clause 23.1 (a) (ratio Net Consolidated Financial Indebtedness to EBITDA) the
ratios opposite the three following items shall be amended as follows:
Date Ratio
28 February 2002 2.35:1
31 August 2002 2.25:1
All the other terms of this Clause remain unchanged.
Exhibit 4.2 Services agreement between Bellon SA and Sodexho Alliance SA
SERVICES AGREEMENT
BY AND BETWEEN:
-- FELIX BELLON S.A.
A French stock corporation with a capital of 2,200,800 francs
having its registered office at 5, place de la Joliette - 13002 MARSEILLES
represented by Mr. Pierre BELLON
as President General Manager
hereinafter referred to as "FBSA"
OF THE FIRST PART,
AND:
-- SODEXHO S.A.
acting both on its own behalf as well as agent for all of the SODEXHO Group
companies
A French stock corporation with a capital of 502,610,700 francs
having its registered office at 3, avenue Newton - 78180 MONTIGNY LE BRETONNEUX
represented by Mr. Raphael DUBRULE
Secretary General, duly empowered for the purposed hereof,
hereinafter referred to as "SODEXHO"
OF THE SECOND PART.
WITNESSETH
FBSA's main activity is providing services in the areas of management,
leadership and control of its group's companies.
Due to the vast experience of
FBSA's leaders, it has exceptional know-how in the fields of general management,
financial, commercial and administrative management and organization and
management control as well as in the legal and stock exchange fields.
SODEXHO S.A., as well as the SODEXHO Group companies, are desirous of benefiting
from the FBSA's skill and know-how for performing their corporate purpose.
NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AS FOLLOWS:
ARTICLE 1 -- APPOINTMENT
SODEXHO hereby entrusts FBSA, pursuant to the terms and conditions of this
Agreement, to assist and advise it with the management, leadership, control and
development of its activities and, notably, general management, financial
management, general administration, commercial management and marketing, as well
as in the legal and stock exchange fields, by providing the services listed in
Article 3 hereinafter,
Consequently, upon signature of this Agreement, FBSA shall act as a services
company vis a vis SODEXHO, in the place and stead of the various service
provider companies whose services it uses, as well as in the place and stead, or
together with, the internal structures it has developed, which is accepted by
SODEXHO.
ARTICLE 2 -- PERFORMANCES
In order to perform the mission defined in Article 1 hereinabove and specified
in Article 3 hereinafter, FBSA agrees to:
2.1. make available to SODEXHO all of its personnel, more notably Messrs. Pierre
BELLON and Remi BAUDIN, officers of FBSA, and Messrs. Patrice DOUCE, Bernard
CARTON and Raphael DUBRULE, FBSA employees who, as a result of exercising these
duties in other companies, have vast general management skills and vast
experience in the commercial, administrative, financial, legal and stock
exchange fields, as well as in respect of organization and management control;
2.2 perform, either by itself or, subject to SODEXHO's prior consent, which
consent may not be unreasonably withheld, with the assistance of all highly
qualified third parties, all tasks, studies and reports that SODEXHO entrusts it
with from time to time.
ARTICLE 3 -- SERVICES
3.1. FBSA shall provide SODEXHO with the following services, within the
framework of the directives given it by SODEXHO, in a timely manner:
a) Assistance and advice in respect of the determination and implementation
of SODEXHO's strategy and coordination of general management.
b) Assistance and advice in respect of the development and leadership of
SODEXHO Group companies.
c) Assistance and advice in respect of financial management in order to
ensure the implementation of the Group's financial policy and the
management of SODEXHO S.A.'s investments. d) Assistance and advice in
legal, financial, financial and stock exchange matters.
e) Assistance and advice of the most qualified experts in order to assist
SODEXHO's officers during the negotiations which may take place in the
most varied fields, necessitating their services.
3.2. FBSA, upon SODEXHO's request, undertakes that the individuals mentioned
hereinabove (paragraph 2.1.) shall spend the time which is necessary in
order to ensure the tasks entrusted by SODEXHO to FBSA in a continuous
manner.
3.3. FBSA and SODEXHO expressly agree that:
- the services to be rendered in accordance with the terms of this
Agreement shall be based on the general principle of protecting SODEXHO's
interests,
- FBSA shall only be bound by an obligation to use best efforts and not to
achieve a certain result, - FBSA shall render the services listed above
with due diligence and care, being more aware of the importance of its
task than any other service company.
3.4. In order to enable FBSA's personnel to perform their tasks hereunder,
SODEXHO shall make available to them, at its expense, all necessary
material means, i.e., notably: offices, telephone, telex, fax, photocopy
machines, secretarial help -- excepting secretarial help for Mr. Pierre
BELLON, which shall be provided directly by FBSA.
3.5. The parties hereby agree that during performance of the Agreement, the task
which FBSA has agreed to fulfill pursuant to the Agreement, may be modified
by written notice so as to adapt the services provided to the needs
expressed by SODEXHO. 3.6. Any new company becoming a part of the SODEXHO
Group (by creation, acquisition, etc.) shall be entitled to benefit from
the provisions of this Agreement without it being necessary to amend the
Agreement.
ARTICLE 4 -- COMPENSATION
4.1. In consideration for the supply of services set out hereinabove, SODEXHO
shall pay FBSA, for 1992, compensation in the amount of FRF10,140,000, net
of tax (ten million one hundred forty thousand francs, net of tax). SODEXHO
S.A. shall be personally responsible for the passing on of such
compensation to the other SODEXHO Group companies.
4.2. For the subsequent years, the parties agree to meet before December 31st of
each year in order to set the compensation for the following year, and for
the first time before December 31, 1992. The new compensation shall be
covered by an addendum attached hereto.
4.3. This compensation shall be payable monthly, in arrears, upon presentation
by FBSA to SODEXHO of an invoice prepared for an amount corresponding to
one-twelfth of the annual compensation set forth in 4.1. hereinabove.
4.4. SODEXHO shall pay all amounts due FBSA by virtue of this Agreement within
eight (8) days from their invoicing. 4.5. The amount of the compensation
may be revised during the year in the event of substantial modification of
the contents of FBSA's task as set out in Article 3.5. of this Agreement.
4.6. The expenses and disbursements which have been reasonably incurred by FBSA
in performing the services hereunder shall be cross-charged to SODEXHO at
cost upon presentation of supporting documents.
ARTICLE 5 -- TERM
This Agreement shall become effective on January 1, 1992, for a term of
one-year, which shall be tacitly renewed annually unless terminated by either
one of the parties hereto by registered letter, bill of receipt requested three
months before expiration of the contractual period in progress.
ARTICLE 6 -- SANCTION -- TERMINATION
6.1. All the clauses and conditions of this Agreement are de rigeuer. Each of
them is a material condition of this Agreement, without which the parties
would not have entered into the Agreement.
6.2. If either one of the parties fails to perform any one of these conditions,
this Agreement may be terminated ipso jure and forthwith, at the election
of the other party, one month following a simple notice to pay or perform
which remains unanswered and containing the statement by the party sending
the notice of its intention to rely on this clause.
6.3 In addition, notwithstanding the preceding provisions, SODEXHO may terminate
this Agreement in advance, in the event that one of the leaders specified in
Article 2.1. hereinabove ceases taking part in FBSA's activities.
6.4 In spite of this termination, the party requesting termination may claim
payment of any damages to which it has right.
ARTICLE 7 -- NO ASSIGNMENT
This Agreement is personal in nature. It may not be assigned or transferred
without the prior special consent of the parties.
ARTICLE 8 -- NATURE OF THE
RELATIONS BETWEEN FBSA AND SODEXHO The purpose of this Agreement is that set out
in the preamble.
This Agreement does not create any company between the parties and, more
particularly, it does not constitute a joint venture. It also does not create
any dependency of one party on the other, both parties hereto being legally
independent. Consequently, neither party shall be liable for the acts of the
other vis a vis third parties, and it may not be impleaded or be liable for
indemnification of damages.
ARTICLE 9 -- NO AGENCY
In no case may FBSA hold itself out as SODEXHO's agent; FBSA is not authorized
and cannot claim to bind SODEXHO in any manner whatsoever.
ARTICLE 10 -- CONFIDENTIALITY
Throughout the term of this Agreement and for three years following its
termination, FBSA shall keep confidential all of the documents and information,
whether commercial, financial, accounting or otherwise, concerning SODEXHO's
activities of which it has or shall have knowledge of or is or shall be in its
possession during the performance of this Agreement, excepting however such
documents or information whose publication or disclosure to given persons
results from the application of regulations in force or which, independently of
FBSA, are or become public knowledge.
ARTICLE 11 -- STRICT PERFORMANCE
The fact that one of the parties does not require the strict performance of the
provisions of this Agreement shall not be deemed a waiver of requiring
compliance with such provisions in the future.
ARTICLE 12 -- GOOD FAITH
The parties hereby represent that this Agreement has been entered into by them
in good faith and that they shall seek to settle any problems which may arise in
a spirit of cooperation, so as to enable this operation to be properly
performed.
ARTICLE 13 -- NOTICES
All notices prescribed by this Agreement shall be validly given if sent by
letter, with bill of receipt requested, by one party to the registered office of
the other party first above written, or to any other address which the parties
may notify to each other from time to time.
ARTICLE 14 -- DISPUTES
Any disputes arising from this Agreement in respect of its interpretation,
validity, nonperformance or termination, shall be settled by the Commercial
Court of Versailles, on which jurisdiction is hereby conferred.
ARTICLE 15 -- ENTIRE AGREEMENT
This Agreement contains all of the commitments undertaken by the contracting
parties with respect to its purpose. It cancels and replaces all oral and
written agreements prior to its signature.
This Agreement may only be amended by
a written addendum, signed by the persons who are duly empowered for such
purpose.
Done in two original copies,
In Montigny le Bretonneux,
On December 30, 1991
(signature) (signature)
R. DUBRULE The President General Manager
Secretary General
(stamp of SODEXHO) (stamp of FELIX BELLON S.A.)
ADDENDUM NO. 10 TO THE SERVICES AGREEMENT
ENTERED INTO ON DECEMBER 30, 1991
BETWEEN BELLON S.A. AND SODEXHO ALLIANCE
The parties have met and determined the services to be supplied by BELLON S.A.
to SODEXHO ALLIANCE and its subsidiaries for the year 2000. In accordance with
Article 4, paragraph 4.2., they have set the annual compensation of BELLON S.A.
at a maximum amount of FRF19,098,800, net of tax (NINETEEN MILLION NINETY-EIGHT
THOUSAND EIGHT HUNDRED FRANCS, NET OF TAX) which shall be invoiced according to
the services actually performed.
Done in two original copies,
In Montigny le Bretonneux,
On January 7, 2000
(signature) (signature)
R. DUBRULE The President General Manager
Secretary General
(stamp of SODEXHO Alliance) (stamp of BELLON S.A.)
ADDENDUM NO. 11 TO THE SERVICES AGREEMENT
ENTERED INTO ON DECEMBER 30, 1991
BETWEEN BELLON S.A. AND SODEXHO ALLIANCE
The parties have met and determined the services to be supplied by BELLON S.A.
to SODEXHO ALLIANCE and its subsidiaries for the year 2001. In accordance with
Article 4, paragraph 4.2., they have set the annual compensation of BELLON S.A.
at a maximum amount of 3,042,000 euros net of tax (THREE MILLION FORTY-TWO
THOUSAND EUROS,NET OF TAX) which shall be invoiced according to the services
actually performed.
Done in two original copies,
In Montigny le Bretonneux,
On January 4, 2001
(signature) (signature)
R. DUBRULE The President General Manager
Secretary General
(stamp of SODEXHO Alliance) (stamp of BELLON S.A.)
ADDENDUM NO. 12 TO THE SERVICES AGREEMENT
ENTERED INTO ON DECEMBER 30, 1991
BY AND BETWEEN:
BELLON S.A., formerly known as FELIX BELLON S.A.
A French stock corporation with a capital of 411,360 euro having its registered
office at 5, place de la Joliette - 13002 MARSEILLES
Identified at the Registry of Commerce and Companies of Marseille under the No.
055 812 440, and the General Management at 3 Avenue Newton, 78180
Montigny-le-Bretonneux
represented by Sophie CLAMENS as President General
Manager, the signature of this addendum having been authorized by the
Supervisory Council on January 16, 2002,
Hereafter referred to as "the Service Provider"
OF THE FIRST PART,
AND:
SODEXHO ALLIANCE S.A., formerly known as SODEXHO S.A.
A French stock corporation with a capital of 635,841,416 euro,
having its registered office at 3, avenue Newton - 78180 MONTIGNY LE BRETONNEUX
Identified at the Registry of Commerce and Companies of Versailles under the No.
301 940 219, acting both on its own behalf as well as agent for all of the
SODEXHO Group companies
represented for purposes of this document by Mr. Pierre BELLON
as President of the Board of Directors, the signature of this addendum having
been authorized by the Board of Directors on January 11, 2002
hereinafter referred to as "SODEXHO"
OF THE SECOND PART.
THE FOLLOWING IS PRELIMINARILY STATED:
On December 30, 1991, the parties concluded among themselves a services contract
(referred to hereafter as the Contract) renewable from one year to the next. The
new environment of the SODEXHO Group has made an adaptation of this contract
necessary today.
THIS STATEMENT HAS BEEN AGREED AS FOLLOWS:
SECTION 1:
Article 1 of the contract is rendered null and void and replaced with the
following article:
ARTICLE 1-- APPOINTMENT
-----------------------
The Service Provider agrees and is obligated by the present document to provide
SODEXHO, either personally or with the assistance of qualified experts, its
assistance and its advice as identified below, in the following areas:
1.1 In the area of strategy:
1.1.1 Assistance and advice related to the determination and implementation of
SODEXHO's strategy and the coordination of the general management.
1.1.2 Assistance and advice related to the development and operation of SODEXHO
and its subsidiaries.
1.1.3 Assistance and advice in finance in order to ensure the implementation of
financial polices at SODEXHO and the management of its investments.
1.1.4 Assistance and advice in the implementation of strategic planning for
SODEXHO in order to better define performance indicators.
1.2 In the area of finance and accounting:
1.2.1 Assistance in all financial planning.
1.2.2 Assistance in the preparation of budgets and analysis of variances.
1.2.3 Assistance in the control and execution of budgets.
1.2.4 Assistance in the creation and implementation of cost control systems.
1.2.5 Assistance in tax studies.
1.2.6 Assistance and advice in the deployment of financial information systems.
1.3 In the commercial area:
1.3.1 Assistance in all strategic planning.
1.3.2 Assistance in the development and launching of all new products and
services and in particular on the internet network.
1.3.3 Assistance in the preparation of marketing strategies.
1.4 In technical areas:
1.4.1 Assistance and study of new technical developments
1.4.2 Assistance in the maintenance and evaluation of quality control.
1.5 In the human rescources area:
1.5.1 Assistance and recruitment of senior managers to SODEXHO.
1.5.2 Assistance in the research and selection of expert consultants.
1.5.3 Advice in the determination of Sodexho's personnel policies and
procedures.
1.5.4 Advice on the development of management competencies.
1.5.5 Advice on the implementation of Sodexho's procedures with respect to
ethics and social oversight.
1.6 In legal areas:
1.6.1Follow up on legal and regulatory changes concerning Sodexho's activities,
both in France and internationally.
1.6.2Assistance and advice for the treatment of any question or difficulty of a
legal nature, specially or generally.
1.6.3The management of industrial property rights (trademarks and patents),
literary and artistic.
1.6.4Assistance and advice for the management of all disputes, litigation
proceedings, and trials (review and preparation of files, relations with
attorneys and external advisors, accompaniment to judicial assessments,
efforts toward ultimately friendly or transactional solutions, etc.)
1.6.5Legal assistance for specific transactions as well as for the update,
negotiation and conclusion of all contracts of significant importance to
SODEXHO.
1.6.6Assistance with all government institutions and authorities, public or
private.
1.6.7Advice and assistance with legal services (convocations, minutes, and
reports of interest to the Board of Director meetings and the Ordinary or
Extraordinary Shareholders' Meetings, the maintenance of books and records,
formalities with the court clerks and the Register of Commerce and Trade,
publications in legal announcement documents, etc.)
1.7 In the administrative area:
1.7.1 The management of insurance policies and coverage, negotiations with the
companies and/or brokers, the follow-up on contracts and addenda, the
maintenance of files, the management and payment of claims.
1.7.2 The definition of operational and functional organizations, update and
review of procedures, assistance in the optimization of Sodexho's internal
communication.
1.7.3 The technical management of property, assistance in the negotiation and
follow up of rental agreements, management of relations with landlords and
lessors and assistance in all projects for the acquisition or construction
of property.
1.8 With respect to the financial markets:
1.8.1 Follow-up on changes in legislation and rules related to the financial
markets, both in France and abroad, concerning the activities and
operations of SODEXHO.
1.8.2 Assistance in structuring with respect to the financial markets of all
specific transactions as well as the refinement of all transactions of
ignificance to SODEXHO in this area, both in France and abroad.
1.8.3 Advice and assistance in the management of relations between SODEXHO and
governmental and other regulators, public or private, with respect to the
financial markets, both in France and abroad.
1.8.4 Assistance and advice in the refinement of all communications, releases,
information publications, prospectuses or press relations related to
SODEXHO's activities and operations in the financial markets area, both in
France and abroad.
SECTION 2:
Article 2 of the contract is deleted.
SECTION 3:
Article 3 of the contract is cancelled and replaced with the following article:
ARTICLE 3, TERMS OF PERFORMANCE:
3.1 Service Provider's obligations:
3.1.1 The Service Provider commits to put into place for the execution of all of
the services it is charged with in this contract, all of the required
diligence, to execute its services in conformity with the rules in
practice, with the objective of preserving the interests of SODEXHO.
3.1.2 However, the Service Provider is only committed by the present agreement
to provide the means but not the result.
3.1.3 The Service Provider must subscribe to all necessary insurance policies in
order to cover its responsibilities which might result from the execution
of this contract.
3.2 Personnel allocated to the execution of this contract
3.2.1 The Service Provider alone will decide on the choice of personnel to be
allocated to the services described in this agreement.
3.2.2 The personnel will not be able to receive any directive from SODEXHO and
will remain, under any assumption, under the hierarchical responsibility
of the Service Provider.
3.2.3 The Service Provider will also be able to call upon any external
consultants having a particular skill with respect to the required
assistance services.
3.3 SODEXHO's obligations:
3.3.1 SODEXHO commits to provide all of the information necessary for the timely
completion in optimal conditions of the assignments given to the Service
Provider through this agreement. In the same manner, SODEXHO will provide
in a timely manner all of the documents necessary to the satisfactory
completion of the contracted services.
3.3.2 In addition, SODEXHO commits to, each time the services requested through
this contract make it necessary or useful, allow the Service Provider's
personnel free access to its offices and facilities and to put at their
disposition all of the means available to facilitate their intervention,
these personnel being required to respect all arrangements enacted by
SODEXHO with respect to access and movement on the premises, hygiene and
security, confidentiality, etc.
3.4 Periodic meetings:
The parties commit to arrange for one meeting per half-year in order to
determine the status of the conditions of execution of the contractual
relationship, to possibly decide on new services, in addition or in
substitution.
SECTION 4:
Article 4 is cancelled and replaced with the following article:
ARTICLE 4: COMPENSATION
4.1 The nature, diversity and frequency of the services likely to be
performed in connection with this agreement do not allow for the
individual billing of the services provided by the Service Provider.
4.2 In return for rendering the services defined above, SODEXHO will pay the
Service Provider, for calendar year 2002, compensation of 2,910,000
euro, excluding tax (two million nine hundred ten thousand euro
excluding tax), VAT tax in addition. SODEXHO will make it its business
the recharging of this compensation to the companies in the SODEXHO
GROUP.
For future years, the parties agree to meet prior to December 31 of each
year in order to determine compensation. Newly determined compensation
will be addressed in an addendum.
This compensation is payable on a monthly basis, in arrears, upon
presentation by the Service Provider to SODEXHO of an invoice in an
amount corresponding to one-twelfth of the annual compensation foreseen
above.
SODEXHO will pay all amounts due to the Service Provider pursuant to
this agreement within fifteen (15) days of their invoicing.
The amount of compensation will be able to be revised during the year in
the case of a substantial modification to the services provided by the
Service Provider as foreseen in Article 1 of this contract.
Reasonable expenses and payments incurred by the Service Provider in the
execution of its services pursuant to this contract will be the
responsibility of SODEXHO for their cost upon presentation of supporting
documentation.
SECTION 5:
Article 6.3 is deleted.
Article 7 is completed by the following paragraphs:
This contract is granted to SODEXHO in consideration of the Service
Provider's holding of its share capital at a level of 33%.
Below this level of its share capital, for whatever reason, this
contract can be terminated by either party at any time and at its sole
discretion, by registered letter with return receipt, with a notice
period of six (6) months.
SECTION 6:
This addendum takes effect January 2, 2002.
All of the terms of the contract in effect at the signing date of this addendum
which are not in conflict with this contract remain unchanged.
This contract does not result in a substitution of the December 30, 1991
contract.
Executed in Montigny le Bretonneux
January 16, 2002
In two original copies
(signature) (signature)
Pierre Bellon Sophie Clamens
Chairman of the Board of Directors President of the Directorate
SODEXHO ALLIANCE BELLON S.A.
ADDENDUM NO. 13 TO THE SERVICES AGREEMENT
ENTERED INTO ON DECEMBER 30, 1991
BETWEEN BELLON S.A. AND SODEXHO ALLIANCE
In accordance with Article 4, paragraph 4.2 of the services agreement contract
of December 30, 1991 and its addendum No. 12 signed on January 16, 2002, the
parties have set the annual compensation of BELLON S.A. for the year 2003 at
2,910,000 euros net of tax (TWO MILLION NINE HUNDRED TEN THOUSAND EUROS,NET OF
TAX).
In two original copies,
Montigny le Bretonneux,
January 13, 2003
(signature) (signature)
Pierre Bellon Sophie Clamens
Chairman of the Board of Directors President of the Directorate
Chief Executive Officer BELLON S.A.
SODEXHO ALLIANCE
ADDENDUM NO. 14 TO THE SERVICES AGREEMENT
ENTERED INTO ON DECEMBER 30, 1991
BETWEEN BELLON S.A. AND SODEXHO ALLIANCE
In accordance with Article 3, "Terms of Performance," and Article 4,
"Compensation," of Addendum No. 12 to the services agreement of December 30,
1991, the parties, after having met to discuss the services performed on behalf
of the Sodexho Group since January 16, 2003 by BELLON S.A., have set the
compensation for these services at 1,458,000 euros, excluding taxes (ONE MILLION
FOUR HUNDRED FIFTY EIGHT THOUSAND EURO excluding taxes) for the period from
January 1, 2003 to August 31, 2003.
This addendum cancels and replaces Addendum No. 13 of January 13, 2003.
In two original copies,
Montigny le Bretonneux,
August 28, 2003
(signature) (signature)
Pierre Bellon Sophie Clamens
Chairman of the Board of Directors President of the Directorate
Chief Executive Officer BELLON S.A.
SODEXHO ALLIANCE
Exhibit 12.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
I, Pierre Bellon, the Chief Executive Officer of Sodexho Alliance, SA (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 20-F of the registrant;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date; and
d) Disclosed in this report any change in the company's internal control over
financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 18, 2003
By: /s/ Pierre Bellon
__________________________
Name: Pierre Bellon
Title: Chairman and Chief Executive
Officer
Exhibit 12.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
I, Sian Herbert-Jones, the Chief Financial Officer of Sodexho Alliance, SA
(the "registrant"), certify that:
1. I have reviewed this annual report on Form 20-F of the registrant;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date; and
d) Disclosed in this report any change in the company's internal control over
financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 18, 2003
By: /s/ Sian Herbert-Jones
__________________________
Name: Sian Herbert-Jones
Title: Chief Financial Officer
Exhibit 13 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of
2002 (subsections (1) and (b) of Section 1350, chapter 63 of title 18, United
States Code), each of the undersigned officers of Sodexho Alliance, SA (the
"registrant"), does hereby certify to the best of his and her knowledge that:
The Annual Report on Form 20-F for the year ended August 31, 2003 (the
"Form 20-F") of the registrant fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained
in the Form 20-F fairly presents, in all material respects, the financial
condition and results of operations of the registrant.
Date: December 18, 2003
By: /s/ Pierre Bellon
____________________________
Name: Pierre Bellon
Title: Chairman and Chief Executive
Officer
By: /s/ Sian Herbert-Jones
____________________________
Name: Sian Herbert-Jones
Title: Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Sodexho Alliance SA and will be retained by Sodexho Alliance SA and
furnished to the Securities and Exchange Commission or its staff upon request.