-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JXx62ZOJUvd8zMBlwRPn0tErZrwWp71Hh10P+dxDYokTXFgL552yd0LIKkcqDcV8 h1CyfmyT4mA74kqcdhLl9g== 0000891836-01-500347.txt : 20020410 0000891836-01-500347.hdr.sgml : 20020410 ACCESSION NUMBER: 0000891836-01-500347 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20011113 GROUP MEMBERS: SELVIAC NEDERLAND B.V. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MILLS INC CENTRAL INDEX KEY: 0000040704 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 410274440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0525 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-34820 FILM NUMBER: 1784554 BUSINESS ADDRESS: STREET 1: NUMBER ONE GENERAL MILLS BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55426 BUSINESS PHONE: 7637642311 MAIL ADDRESS: STREET 1: P O BOX 1113 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DIAGEO PLC CENTRAL INDEX KEY: 0000835403 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 000000000 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 8 HENRIETTA PL STREET 2: LONDON W1G ONB CITY: UNTIED KINGDOM STATE: X0 ZIP: 00000 BUSINESS PHONE: 011442079275200 MAIL ADDRESS: STREET 1: 8 HENRIETTA PLACE STREET 2: LONDON W1G ONB CITY: UNITED KINGDOM STATE: X0 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: GRAND METROPOLITAN PUBLIC LIMITED CO DATE OF NAME CHANGE: 19971218 SC 13D 1 sc0173.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 General Mills, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $0.10 Par Value - -------------------------------------------------------------------------------- (Title of Class of Securities) 370334104 - -------------------------------------------------------------------------------- (CUSIP Number) Timothy D. Proctor Diageo plc Group General Counsel 8 Henrietta Place London W1G 0NB 011-44-20-7927-5200 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copy to: Francis J. Aquila Sullivan & Cromwell 125 Broad Street New York, New York 10004 (212) 558-4000 October 31, 2001 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO. 370334104 (Page 2 of 20 pages) - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON DIAGEO PLC I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS OO - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION ENGLAND AND WALES - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER NUMBER OF 0 SHARES ----------------------------------------------------- BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 79,000,000 EACH ----------------------------------------------------- REPORTING 9. SOLE DISPOSITIVE POWER PERSON 0 WITH ----------------------------------------------------- 10. SHARED DISPOSITIVE POWER 79,000,000 - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 79,000,000 CUSIP NO. 370334104 (Page 3 of 20 pages) - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.7% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- CUSIP NO. 370334104 (Page 4 of 20 pages) - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON SELVIAC NEDERLAND B.V. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS AF, OO - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION NETHERLANDS - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER NUMBER OF 0 SHARES ----------------------------------------------------- BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 79,000,000 EACH ----------------------------------------------------- REPORTING 9. SOLE DISPOSITIVE POWER PERSON 0 WITH ----------------------------------------------------- 10. SHARED DISPOSITIVE POWER 79,000,000 - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 79,000,000 CUSIP NO. 370334104 (Page 5 of 20 pages) - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.7% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- CUSIP NO. 370334104 (Page 6 of 20 pages) ITEM 1. SECURITY AND ISSUER This statement on Schedule 13D (this "Schedule 13D") relates to the shares of common stock, par value $0.10 per share ("Common Stock"), of General Mills, Inc., a Delaware corporation (the "Company"). The Company's principal executive offices are located at Number One General Mills Boulevard, Minneapolis, Minnesota 55426. ITEM 2. IDENTITY AND BACKGROUND This Schedule 13D is filed by Diageo plc, a public limited company incorporated under the laws of England and Wales ("Diageo"), and Selviac Nederland B.V., a company organized under the laws of the Netherlands ("SNBV"). Diageo and SNBV are sometimes referred to herein as the "Reporting Persons." SNBV is an indirect wholly owned subsidiary of Diageo. Diageo was formed in December 1997 through the merger of Grand Metropolitan PLC and Guinness plc. Diageo is an international branded food and drinks company engaged in two major sectors: premium spirits and wines and quick service restaurants. The principal executive offices of Diageo are located at 8 Henrietta Place, London W1G 0NB. The principal business activities of SNBV relate to the holding and the financing of certain subsidiaries of Diageo. The principal executive offices of SNBV are located at Molenwerf 10-12, 1014 BG Amsterdam, Netherlands. The name, business address, present principal occupation or employment and citizenship of each of the executive officers and directors of each of the Reporting Persons are set forth in Schedule I hereto and are incorporated by reference herein. During the last five years, none of the Reporting Persons and, to the knowledge of each of the Reporting Persons, none of the persons listed on Schedule I hereto: (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors); or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Diageo entered into an Agreement and Plan of Merger, dated as of July 16, 2000, as amended April 12, 2001 and October 31, 2001 (as amended, the "Merger Agreement," a copy of which, with such amendments, is attached hereto as Exhibits (a), (b) and (c) and is incorporated herein by reference), with the Company, General Mills North American Businesses, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("GMNA"), and The Pillsbury Company, a Delaware corporation and indirect wholly owned subsidiary of Diageo ("Pillsbury"), pursuant to which the Company acquired on October CUSIP NO. 370334104 (Page 7 of 20 pages) 31, 2001 (the "Closing Date") the food business (other than the quick service restaurant business) of Diageo through the (i) merger of GMNA with and into Pillsbury with Pillsbury as the surviving corporation and becoming a wholly owned subsidiary of the Company (the "Merger") and (ii) purchase by certain subsidiaries of the Company of the capital stock or other equity interests of entities (other than Pillsbury) which carried on the food business (other than the quick service restaurant business) (the "Purchased Entities") of Diageo (the "Subsidiary Purchases"). Pursuant to the Merger Agreement, the Company paid as consideration for the Merger and the Subsidiary Purchases (i) 134,000,000 shares of Common Stock to Gramet Holdings Corp., which was the sole stockholder of Pillsbury and is an indirect wholly owned subsidiary of Diageo ("Gramet"), constituting approximately 32% of the outstanding Common Stock of the Company and (ii) $3,830,000,000 of combined cash and the assumption of debt of Pillsbury and the Purchased Entities. In addition, Gramet has a contingent value right to receive up to $670,000,000 of cash from the Company on March 31, 2003, the 18-month anniversary of the Closing Date, depending on the average of the daily high and low sales prices per share of the Common Stock during the 20 regular trading sessions on the New York Stock Exchange for the 20 full trading days immediately preceding March 31, 2003 (the "Market Value") and the number of shares of the Common Stock still held by Diageo and its subsidiaries on March 31, 2003. Gramet is entitled to receive an amount equal to the product of (a) the number of shares of Common Stock held by Diageo and its subsidiaries on March 31, 2003 multiplied by (b) the lesser of (I) $5.00 and (II) the amount by which $49.00 exceeds the Market Value as of March 31, 2003. Pursuant to the Merger Agreement, Diageo, Gramet and the Company entered into a stockholders agreement on October 31, 2001 (the "Stockholders Agreement," a copy of which is attached hereto as Exhibit (d) and is incorporated herein by reference). Under the Stockholders Agreement, Gramet had the right (the "Put Right") to sell back to the Company 55,000,000 shares of Common Stock (the "Put Shares") for a purchase price of $42.14 per share. The Put Right was exercisable by Gramet prior to the close of business, London time, on November 6, 2001. On November 1, 2001, Gramet exercised the Put Right with respect to the Put Shares. The sale of the Put Shares to the Company was completed on November 5, 2001. On November 1, 2001, pursuant to the terms of the Stockholders Agreement, Gramet transferred 79,000,000 shares of Common Stock to SNBV. As of the date hereof, SNBV is the current record owner of the 79,000,000 shares of Common Stock (the "Shares"). ITEM 4. PURPOSE OF THE TRANSACTION The Reporting Persons acquired the Shares for investment purposes only. Consistent with their focus on their premium drinks business, from time to time, the Reporting Persons will consider reductions in their holdings of the Common Stock as and when market conditions permit. As a result, the Reporting Persons expect to evaluate on an ongoing basis the Company's financial condition, business, operations and prospects, the market price of the Common Stock, conditions in the securities markets generally, general economic and industry conditions and other factors. In particular, the Reporting Persons (and their respective affiliates) may purchase up to 1% of the Common Stock or sell or transfer the shares CUSIP NO. 370334104 (Page 8 of 20 pages) of Common Stock owned by them from time to time in public or private transactions and/or may enter into privately negotiated derivative transactions with institutional counterparties to hedge the market risk of some or all of their positions in the Common Stock. Any such transactions may be effected at any time or from time to time subject to any applicable limitations imposed on the purchase or sale of the Common Stock owned by the Reporting Persons by the Stockholders Agreement, the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder or other applicable law. The Reporting Persons reserve the right to change their plans and intentions at any time. Except as set forth in this Item 4 of this Schedule 13D, none of the Reporting Persons has any current plans or proposals that relate to or would result in any transaction, event or action enumerated in paragraphs (a) through (j) of Item 4 of Schedule 13D promulgated under the Exchange Act of 1934, as amended (the "Exchange Act"). The Reporting Person's investment in the Company is subject to the provisions of the Stockholders Agreement which is attached as Exhibit (d) to this Schedule 13D and is incorporated herein by reference. Certain provisions of the Stockholders Agreement are summarized below. General. Pursuant to the Merger Agreement, Diageo, Gramet and the Company entered into the Stockholders Agreement on October 31, 2001. On November 1, 2001, in connection with the transfer of the Shares to SNBV, SNBV agreed to hold the Shares subject to the provisions of the Stockholder Agreement. The Stockholders Agreement contains provisions restricting the actions of the Reporting Persons and any affiliate of Diageo to which Shares are transferred under the Stockholders Agreement (collectively, the "Shareholder Group") with respect to their right to acquire Common Stock or vote or transfer the Shares. In addition, under the Stockholders Agreement, Diageo is entitled to representation on the Company's Board of Directors and registration rights. Standstill Provisions. The Stockholders Agreement provides that for the period commencing on October 31, 2001 and ending on the earlier of (i) the twentieth anniversary of the closing date (i.e., October 31, 2021) or (ii) three years following such time as the shares of Common Stock owned by the Shareholder Group represent less than 5% of the then outstanding shares of Common Stock, the members of the Shareholder Group shall not, and shall cause each of their respective affiliates not to, directly or indirectly: (a) acquire, offer to acquire or agree to acquire beneficial ownership of any voting securities of the Company, except pursuant to stock splits, reverse stock splits, stock dividends or distributions, or combinations or any similar recapitalization; (b) acquire, offer to acquire or agree to acquire any business or material assets of the Company or any of its subsidiaries; (c) initiate or propose any offer by any third party to acquire beneficial ownership of voting securities of the Company, other than an acquisition of shares of the Common Stock owned by the Shareholder Group permitted under the Stockholders Agreement; CUSIP NO. 370334104 (Page 9 of 20 pages) (d) initiate or propose any merger, tender offer, business combination or other extraordinary transaction involving the Company or any of its subsidiaries; (e) act, alone or in concert with others, to seek to affect or influence the control of the Board of Directors or the management of the Company, or the business, operations, affairs or policies of the Company; provided that this subsection (e) shall not be deemed to restrict the directors designated by the Shareholder Group from participating as members of the Board of Directors in their capacity as such; (f) deposit any voting securities of the Company in a voting trust or subject any voting securities of the Company to any proxy, arrangement or agreement with respect to the voting of such securities or other agreement having a similar effect, except as permitted by the "Voting Restrictions" provisions of the Stockholders Agreement discussed below; (g) initiate or propose any stockholder proposal or make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" to vote, or seek to influence any person with respect to the voting of, any voting securities of the Company, or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act) with respect to voting securities of the Company; (h) form, join or in any way participate in a group (other than a group comprised exclusively of the members of the Shareholder Group) of persons acquiring, holding, voting or disposing of any voting securities of the Company which would be required under Section 13(d) of the Exchange Act and the rules and regulations thereunder to file a statement on Schedule 13D with the Securities and Exchange Commission (the "Commission"); (i) propose, or agree to, or enter into any discussions, negotiations or arrangements with, or provide any confidential information to, any third party with respect to any of the foregoing; (j) make any statement or disclosure inconsistent with the foregoing; or (k) propose or seek an amendment or waiver of any of the above provisions of the Stockholders Agreement. Notwithstanding the restrictions set forth above, in the event that the Company proposes to issue shares of Common Stock such that upon issuance thereof the Shareholder Group's ownership of Common Stock would be diluted below 20% of the outstanding shares of Common Stock, the Shareholder Group will be permitted to purchase from third parties, in private transactions or transactions effected on the NYSE, up to an aggregate, for all such purchases, of 1% of the number of outstanding shares of Common Stock if such purchases would permit the Shareholder Group to maintain its ownership above 20% of the outstanding shares of Common Stock; provided that the shares so purchased will be subject to the provisions of the Stockholders Agreement. Transfer Restrictions. The Stockholders Agreement provides that except for the transfer to the Company of the Put Shares pursuant to the Put Right, the Shareholder Group shall not transfer any Company Common Stock owned by the Shareholder Group CUSIP NO. 370334104 (Page 10 of 20 pages) prior to October 31, 2002. On November 1, 2001, this restriction was waived by the Company. In addition, without the prior consent of the Company, the Shareholder Group shall not transfer any Common Stock owned by the Shareholder Group except for: (a) transfers before the fourteen-month anniversary of the Closing Date or after the twenty-month anniversary of the Closing Date, in connection with (i) an underwritten public offering registered under the Securities Act in a manner designed to result in a wide distribution or (ii) a private transaction to a person or group that would, after giving effect to the transfer, beneficially own voting securities of the Company representing in the aggregate less than 5% of the total voting power of the outstanding voting securities of the Company, or to a person or group that is permitted to file a Schedule 13G under the Exchange Act and that, after giving effect to the transfer, would beneficially own voting securities of the Company representing in the aggregate less than 10% of the total voting power of the outstanding voting securities of the Company; (b) transfers following the first anniversary of the Closing Date but prior to the fourteen-month anniversary of the Closing Date, and transfers made following the twenty-month anniversary of the Closing Date, in each case pursuant to Rule 144 under the Securities Act; (c) transfers in connection with a business combination, tender or exchange offer or other extraordinary transaction recommended by the Board of Directors of the Company, or in connection with any other tender or exchange offer after other Company stockholders have tendered more than 50% of the outstanding Common Stock and all material conditions to the offer have been satisfied or irrevocably waived by the offeror; (d) transfers to the Company or its subsidiaries; (e) transfers to a financial institution acting in the capacity of trustee with respect to an exchangeable or convertible security of Diageo, but only if the terms of the security and the powers of the trustee are consistent with the rights, restrictions and limitations in the Stockholders Agreement and the distribution of the security and the underlying shares of Common Stock otherwise comply with the transfer restrictions described above, and (f) transfers to Diageo or to any controlled affiliate of Diageo or to any new Diageo holding company so long as the transferee agrees to be bound by the provisions of the Stockholders Agreement as if such transferee were an original member of the Shareholder Group. Disposal of Shares. The Shareholder Group has agreed to dispose of at least 75% of the 134,000,000 shares of Common Stock received by it pursuant to the Merger Agreement (the "Original Issued Shares") by the tenth anniversary of the Closing Date. Repurchase of Shares. Under the Stockholders Agreement, the Shareholder Group will have a right to participate in the Company's share repurchase programs. Until the twentieth anniversary of the Closing Date or, if earlier, the date on which the Shareholder Group owns less than 5% of the then outstanding shares of Common Stock, the Company shall, within 30 days after the end of its fiscal year (other than the first fiscal year end occurring after the Closing Date), deliver to Diageo, on behalf of the Shareholder Group, a written offer to purchase shares of Common Stock owned by the Shareholder Group on the terms set forth below (a "Repurchase Offer"). Each Repurchase Offer shall offer to purchase a percentage of the shares of Common Stock owned by the Shareholder Group as of the end of such fiscal year equal to the percentage that the shares of Common Stock repurchased from the beneficial owners of shares of Common Stock other than the Shareholder Group (the "Public Shares") during such fiscal year (or, in the case of the Repurchase Offer made in respect of the first full fiscal year of the Company occurring after the Closing Date, during the period beginning on the day following the Closing Date and ending on the fiscal year end of CUSIP NO. 370334104 (Page 11 of 20 pages) the first full fiscal year occurring after the Closing Date) represents of the total average outstanding Public Shares during such fiscal year or period, at a price per share equal to the weighted average per share purchase price paid for repurchases during such fiscal year or period. Diageo shall provide notice to the Company within 15 days of receipt of a Repurchase Offer of whether the Shareholder Group accepts such Repurchase Offer. Board Representation. Pursuant to the Stockholders Agreement, the Company agreed that it would cause two Diageo designees to be elected to the Board of Directors of the Company as of the closing of the transactions contemplated by the Merger Agreement. Diageo's initial designees, Paul S. Walsh and John M. J. Keenan, became directors of the Company as of such time. Mr. Walsh, 46, is currently Group Chief Executive and a director of Diageo. Mr. Keenan, 65, is currently Chief Executive Officer of Grand Cru Consulting, Ltd. For so long as the Shareholder Group owns 50% or more of the Original Issued Shares, Mr. Walsh and Mr. Keenan or any replacements therefor (one of whom shall be the Chief Executive Officer of Diageo and one of whom shall be an individual mutually agreed upon by Diageo and the Company from amongst a pool of members of the Diageo Board of Directors (a "Diageo Director"), provided that Diageo and the Company shall be entitled, should they agree, to select a nominee not from amongst such pool in lieu of such Diageo Director) shall be included in the slate of nominees recommended by the Board of Directors of the Company to stockholders for election as directors at each annual meeting of stockholders commencing with the first annual meeting of stockholders following the Closing Date. For so long as the Shareholder Group owns 5% or more of the then outstanding shares of Common Stock but less than 50% of the Original Issued Shares, the Chief Executive Officer of Diageo shall be included in the slate of nominees recommended by the Board of Directors of the Company to stockholders for election as a director at each annual meeting of stockholders commencing with the first annual meeting of stockholders following the Closing Date. If the Shareholder Group owns less than 5% of the then outstanding shares of Common Stock, Diageo shall no longer be entitled to participate in the selection of any nominees for election to the Board of Directors of the Company. If the Company increases the size of its Board of Directors to 16 or more individuals, Diageo will be permitted to designate three individuals to the slate of nominees recommended by the Board of Directors of the Company to stockholders and if the Company increases the size of its Board of Directors to 20 or more individuals, Diageo will be permitted to designate four individuals to the slate of nominees recommended by the Board of Directors of the Company to stockholders, in each case subject to reduction as the Original Issued Shares are sold. Voting Restrictions. Pursuant to the Stockholders Agreement, during the twenty-year period after the Closing Date or, if earlier, until the date on which the Shareholder Group owns less than 5% of the then outstanding shares of Common Stock, each member of the Shareholder Group will (i) vote their Common Stock in favor of the director nominees recommended by the Company Board of Directors (which will include any nominees that Diageo has the right to designate) and (ii) on votes relating to other matters, vote all of their shares of Common Stock in proportion to the votes cast by the holders of shares of Common Stock not owned by the Shareholder Group. Notwithstanding the above restrictions, at such time as Diageo and the Shareholder Group hold less than 10% of the shares of Common Stock outstanding, they may vote their Common Stock at their discretion on: (a) CUSIP NO. 370334104 (Page 12 of 20 pages) any amendments to the Company's Restated Certificate of Incorporation; (b) any merger, consolidation or other business combination which results in the stockholders of Company prior to the transaction owning less than 80% of the voting securities of the surviving entity or its ultimate parent entity; (c) any acquisition by a third party of 20% or more of the outstanding voting securities of the Company; (d) any sale or other disposition of 20% or more of the assets of Company and its subsidiaries as a whole; and (e) any transaction resulting in directors on the Company Board of Directors immediately prior to the transaction ceasing to represent two-thirds of the board of directors of the surviving entity or its ultimate parent entity. Registration Rights. Pursuant to the Stockholders Agreement, at any time prior to the first anniversary of the Closing Date or following the twenty-month anniversary of the Closing Date, Diageo, on behalf of the Shareholder Group, will be entitled to demand that the Company register the sale of their shares of Common Stock a total of twelve times, with no more than one such demand registration in any nine-month period. A demand registration must cover at least $300 million worth of Common Stock, measured on the date of demand, unless the Shareholder Group holds less than $300 million worth of shares, in which case a demand registration must cover all remaining shares held by the Shareholder Group. Upon a demand registration request by Diageo, the Company will have the right to elect to purchase some or all of the shares of Common Stock requested to be registered, at a per share price equal to the average high and low per share trading price of Common Stock over the twenty trading days ending on the date of the demand registration. The Company shall be entitled to postpone and delay, for reasonable periods of time, but in no event more than an aggregate of 60 days during any 12-month period (a "Blackout Period"), the filing or effectiveness of any demand registration if the Company shall determine that any such filing or the offering of any shares of Common Stock would (i) in the good faith judgment of the Board of Directors of the Company, impede, delay or otherwise interfere with any pending or contemplated material acquisition, corporate reorganization or other similar material transaction involving the Company, (ii) based upon advice from the Company's investment banker or financial advisor, adversely affect any pending or contemplated financing, offering or sale of any class of securities by the Company or (iii) in the good faith judgment of the Board of Directors of the Company, require disclosure of material non-public information (other than information relating to an event described in clauses (i) or (ii) above) which, if disclosed at such time, would be harmful to the best interests of the Company and its stockholders. In addition, the Shareholder Group is also entitled to participate in registered offerings initiated by the Company or a third party. All expenses incurred in connection with each registration, excluding underwriters' discounts and commissions, agents' fees and commissions and fees of counsel and accountants for the Shareholder Group, will be paid by the Company. Put Right. Gramet had an option to sell the Put Shares back to the Company for a purchase price of $42.14 per share. The Put Right was exercisable by Gramet prior to the close of business, London time, on November 6, 2001. On November 1, 2001, Gramet exercised such option. The sale of the Put Shares to the Company was completed on November 5, 2001. CUSIP NO. 370334104 (Page 13 of 20 pages) ITEM 5. INTEREST IN SECURITIES OF THE ISSUER In accordance with the Merger Agreement, the Reporting Persons acquired the Original Issued Shares. Following completion of the sale to the Company of the Put Shares, as discussed below, the Reporting Persons own the Shares which represent approximately 21.7% of the Common Stock outstanding, based on 363,946,271 shares of Common Stock outstanding (this is the number of shares of Common Stock outstanding on October 29, 2001 plus the Shares, which were newly issued on October 31, 2001). Each of the Reporting Persons is deemed to beneficially own the Common Stock and the percentage of outstanding Common Stock listed in the responses to Items 11 and 13, respectively, of the cover page filed with this Schedule 13D relating to such Reporting Person. In addition, the shares of Common Stock deemed beneficially owned by each Reporting Person with respect to which such Reporting person (i) has sole voting power, (ii) shares voting power, (iii) has sole dispositive power and (iv) shares dispositive power are listed in the responses to Items 7, 8, 9 and 10, respectively, of the cover pages filed with this Schedule 13D relating to such Reporting Person. Except as set forth in this Schedule 13D, none of the Reporting Persons, and to the knowledge of the Reporting Persons, none of the persons listed on Schedule I, beneficially owns any Common Stock. In addition to the acquisition of the Original Issued Shares, as discussed in Item 3 and Item 4 of this Schedule 13D, pursuant to the terms of the Stockholders Agreement, Gramet had a Put Right to sell back to the Company the Put Shares for a purchase price of $42.14 per share. The Put Right was exercisable by Gramet prior to the close of business, London time, on November 6, 2001. On November 1, 2001, Gramet exercised the Put Right with respect to the Put Shares. The sale of the Put Shares to the Company was completed on November 5, 2001. Except as set forth in this Schedule 13D, to the knowledge of the Reporting Persons, no person other than the Reporting Persons has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, securities covered by this Schedule 13D. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. As more fully described in Items 3 and 4 of this Schedule 13D above, Diageo and the Company are parties to the Merger Agreement and the Stockholders Agreement. A copy of the Merger Agreement is attached hereto as Exhibits (a), (b) and (c) and a copy of the Stockholders Agreement is attached hereto as Exhibit (d), each of which is incorporated herein by reference. CUSIP NO. 370334104 (Page 14 of 20 pages) ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Description Exhibit ----------- ------- Agreement and Plan of Merger, dated as of July 16, 2000, by (a) and among the Company, GMNA, Diageo and Pillsbury. First Amendment to Agreement and Plan of Merger, dated as (b) of April 12, 2001, by and among the Company, GMNA, Diageo and Pillsbury. Second Amendment to Agreement and Plan of Merger, dated (c) as of October 31, 2001, by and among the Company, GMNA, Diageo and Pillsbury. Stockholders Agreement, dated as of October 31, 2001, by (d) and among the Company, Diageo and Gramet. Joint Filing Agreement, dated as of November 13, 2001, by (e) and between Diageo and SNBV. CUSIP NO. 370334104 (Page 15 of 20 pages) SIGNATURE --------- After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: November 13, 2001 DIAGEO PLC By: /s/ Roger Myddelton -------------------------------- Name: Roger Myddelton Title: Company Secretary CUSIP NO. 370334104 (Page 16 of 20 pages) SIGNATURE --------- After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: November 13, 2001 SELVIAC NEDERLAND B.V. By: /s/ M.C.T.M. Gerichhausen -------------------------------- Name: M.C.T.M. Gerichhausen Title: Director SELVIAC NEDERLAND B.V. By: /s/ C.M. Day -------------------------------- Name: C.M. Day Title: Director CUSIP NO. 370334104 (Page 17 of 20 pages) SCHEDULE I DIAGEO PLC DIRECTORS AND EXECUTIVE OFFICERS
Name Present Business Address Present Principal Occupation Citizenship - ---- ------------------------ ---------------------------- ----------- Directors - --------- Lord Blyth of Rowington 8 Henrietta Place, London W1G Chairman and non-executive United 0NB, United Kingdom Director of Diageo Kingdom Paul S. Walsh 8 Henrietta Place, London W1G Group Chief Executive of United 0NB, United Kingdom Diageo and Chief Executive, Kingdom Guinness United Distillers & Vintners Nicholas C. Rose Kingsley House, 1A Group Finance Director of United Wimpole Street, London W1G Diageo Kingdom 0DA, United Kingdom Rodney F. Chase 1 Finsbury Circus, Deputy Group Chief Executive, BP United London EC2M 7BA, United plc Kingdom Kingdom Maria Lilja Engelbrektsgatan 23, 114 32 Non-executive Director of Diageo Sweden Stockholm, Sweden John K. Oates 9 Kensington Gate, London W8 Non-executive Director of Diageo United 5NA, United Kingdom Kingdom William S. Shanahan 300 Park Avenue, New York, NY President, Colgate-Palmolive United States 10022, USA Company Sir Robert Wilson 6 St James's Square, London Chairman, Rio Tinto plc United SW1Y 4LD, United Kingdom Kingdom Executive Officers - ------------------ Paul S. Walsh 8 Henrietta Place, London W1G Group Chief Executive of United 0NB, United Kingdom Diageo and Chief Executive, Kingdom Guinness United Distillers & Vintners Nicholas C. Rose Kingsley House, 1A Group Finance Director of United Wimpole Street, London W1G Diageo Kingdom 0DA, United Kingdom Paul A. Clinton 6 Landmark Square, President and Chief Executive Canada Stamford, Connecticut, Officer, Guinness UDV North 06901-2704, USA America, Inc.
CUSIP NO. 370334104 (Page 18 of 20 pages) Stuart R. Fletcher Kingsley House, 1A President, Key Markets, United Wimpole Street, London W1G Guinness United Distillers & Kingdom 0DA, United Kingdom Vintners James N.D. Grover 8 Henrietta Place, London W1G Group Strategy Director of United 0NB, United Kingdom Diageo Kingdom Robert M. Malcolm Kingsley House, 1A President, Global Marketing, United States Wimpole Street, London W1G Sales and Innovation, Guinness 0DA, United Kingdom United Distillers & Vintners Ian K. Meakins 8 Henrietta Place, London W1G President, European Major United 0NB, United Kingdom Markets and Global Supply, Kingdom Guinness United Distillers & Vintners Ivan M. Menezes Kingsley House, 1A President, Venture Markets, United States Wimpole Street, London W1G Guinness United Distillers & 0DA, United Kingdom Vintners Andrew Morgan 8 Henrietta Place, London W1G Group Chief Information United 0NB, United Kingdom Officer, President, New Business Kingdom Ventures, Guinness United Distillers & Vintners and Head of Seagram Transition Team Timothy D. Proctor 8 Henrietta Place, London W1G Group General Counsel of United States 0NB, United Kingdom Diageo Gareth Williams 8 Henrietta Place, London W1G Group Human Resources United 0NB, United Kingdom Director of Diageo Kingdom Roger H. Myddelton 8 Henrietta Place, London W1G Company Secretary of Diageo United 0NB, United Kingdom Kingdom
CUSIP NO. 370334104 (Page 19 of 20 pages) SELVIAC NEDERLAND B.V. DIRECTORS AND EXECUTIVE OFFICERS
Name Present Business Address Present Principal Occupation Citizenship - ---- ------------------------ ---------------------------- ----------- Directors - --------- Margaretha C.T.M. Molenwerf 10-12, 1014 BG Director of Business & Legal Netherlands Gerichhausen Amsterdam, The Netherlands Director of Diageo Nederland Christopher M. Day Molenwerf 10-12, 1014 BG Finance Director of Guinness UDV United Kingdom Amsterdam, The Netherlands Amsterdam Peter W.B. Kreutzner Molenwerf 10-12, 1014 BG Global Brand Director Gin & Canada Amsterdam, The Netherlands Portfolio Brands of Guinness UDV Charles D. Coase St James's Gate, Dublin 8, Finance Director of Guinness UDV United Kingdom Ireland Ireland Paviter S. Binning Kingsley House, 1A Wimpole Group Controller of Diageo United Kingdom Street, London W1G 0DA, United Kingdom James D. Marshall 6 Landmark Square, Stamford, Vice President Tax Diageo/ United Kingdom Connecticut 06901-2704, USA Guinness UDV North America Timothy D. Proctor 8 Henrietta Place, London W1G Group General Counsel of Diageo United States 0NB, United Kingdom Robert J. Moore 8 Henrietta Place, London W1G Group Treasurer of Diageo United States 0NB, United Kingdom Joel W. Walters 8 Henrietta Place, London W1G Group Tax Director of Diageo United States 0NB, United Kingdom Executive Officers - ------------------ There are no Executive Officers of Selviac Nederland B.V.
CUSIP NO. 370334104 (Page 20 of 20 pages) EXHIBIT INDEX (a) Agreement and Plan of Merger, dated as of July 16, 2000, by and among the Company, GMNA, Diageo and Pillsbury (b) First Amendment to Agreement and Plan of Merger, dated as of April 12, 2001, by and among the Company, GMNA, Diageo and Pillsbury (c) Second Amendment to Agreement and Plan of Merger, dated as of October 31, 2001, by and among the Company, GMNA, Diageo and Pillsbury (d) Stockholders Agreement, dated as of October 31, 2001, by and among the Company, Diageo and Gramet (e) Joint Filing Agreement, dated as of November 13, 2001, by and between Diageo and SNBV EX-99.(A) 3 exh-a.txt MERGER AGREEMENT EXHIBIT (a) AGREEMENT AND PLAN OF MERGER Dated as of July 16, 2000 BY AND AMONG GENERAL MILLS, INC., GENERAL MILLS NORTH AMERICAN BUSINESSES, INC., DIAGEO PLC and THE PILLSBURY COMPANY TABLE OF CONTENTS Page ARTICLE I Certain Definitions............................................................2 ARTICLE II The Merger; Closing...........................................................10 Section 2.1. Time and Place of Closing......................................10 Section 2.2. The Merger.....................................................10 Section 2.3. Effective Time.................................................10 Section 2.4. Effects of the Merger..........................................11 Section 2.5. Certificate of Incorporation...................................11 Section 2.6. By-Laws........................................................11 Section 2.7. Officers and Directors of Surviving Corporation................11 Section 2.8. Effect on Capital Stock........................................11 Section 2.9. Subsidiary Purchases...........................................11 Section 2.10. Aggregate Consideration........................................11 Section 2.11. Deliveries by Diageo and the Selling Affiliates................12 Section 2.12. Deliveries by General Mills and the Buying Affiliates..........12 Section 2.13. Contingent Purchase Price Adjustment...........................13 Section 2.14. Operating Working Capital Purchase Price Adjustment............14 ARTICLE III Representations and Warranties of Diageo and Pillsbury........................16 Section 3.1. Incorporation; Authorization; etc..............................16 Section 3.2. Capitalization; Structure......................................18 Section 3.3. Financial Statements...........................................18 Section 3.4. No Undisclosed Liabilities.....................................19 Section 3.5. Properties; Sufficiency........................................19 Section 3.6. Absence of Certain Changes.....................................20 Section 3.7. Litigation; Orders.............................................20 Section 3.8. Intellectual Property..........................................20 Section 3.9. Licenses, Approvals, Other Authorizations, Consents, Reports, etc...................................................21 Section 3.10. Labor Matters..................................................21 Section 3.11. Compliance with Laws...........................................21 Section 3.12. Insurance......................................................22 Section 3.13. Material Contracts.............................................22 Section 3.14. Brokers, Finders, etc..........................................22 -i- Section 3.15. Opinion of Diageo Financial Advisor............................22 Section 3.16. Board Approval.................................................22 Section 3.17. Required Vote..................................................23 Section 3.18. Environmental Compliance.......................................23 Section 3.19. Employee Benefit Plans.........................................24 Section 3.20. Acquisition of Shares for Investment...........................26 Section 3.21. Products.......................................................27 ARTICLE IV Representations and Warranties of General Mills and Merger Sub................27 Section 4.1. Incorporation; Authorization; etc..............................27 Section 4.2. Capitalization; Structure......................................29 Section 4.3. Financial Statements...........................................30 Section 4.4. No Undisclosed Liabilities.....................................30 Section 4.5. Properties.....................................................30 Section 4.6. Absence of Certain Changes.....................................30 Section 4.7. Litigation; Orders.............................................31 Section 4.8. Intellectual Property..........................................31 Section 4.9. Licenses, Approvals, Other Authorizations, Consents, Reports, etc...................................................31 Section 4.10. Labor Matters..................................................32 Section 4.11. Compliance with Laws...........................................32 Section 4.12. Insurance......................................................32 Section 4.13. Material Contracts.............................................32 Section 4.14. Brokers, Finders, etc..........................................32 Section 4.15. Opinions of General Mills Financial Advisors...................33 Section 4.16. Board Approval; Rights Plan....................................33 Section 4.17. Required Vote..................................................33 Section 4.18. Antitakeover Statute...........................................33 ARTICLE V Covenants of the Parties......................................................33 Section 5.1. Investigation of Business; Access to Properties and Records....33 Section 5.2. Filings; Other Actions; Notification...........................34 Section 5.3. Further Assurances.............................................36 Section 5.4. Conduct of Business............................................37 Section 5.5. Public Announcements...........................................42 Section 5.6. Intercompany Accounts; Guaranties..............................42 Section 5.7. Subsidiary Purchase Agreements.................................42 Section 5.8. Allocation; Structure of Subsidiary Purchases..................42 Section 5.9. No Solicitation................................................43 Section 5.10. Proxy Statement; Diageo Circular...............................44 -ii- Section 5.11. Stockholder Meetings; Board Recommendations....................45 Section 5.12. General Mills Board of Directors...............................45 Section 5.13. Stock Exchange Listing.........................................45 Section 5.14. Delivery of Financial Statements and Other Information.........45 Section 5.15. Closing Date Indebtedness......................................46 Section 5.16. Insurance......................................................46 ARTICLE VI Post-Closing Employee Benefits Matters........................................47 Section 6.1 Employee Benefits Matters......................................47 ARTICLE VII Tax Matters...................................................................50 Section 7.1. Tax Representations of Diageo..................................50 Section 7.2. General Mills Reorganization-Related Representations...........51 Section 7.3. Tax Indemnification............................................53 Section 7.4. Section 338(g) Elections for Food Subsidiaries.................53 Section 7.5. Allocation of Certain Taxes....................................54 Section 7.6. Carryovers, Refunds and Related Matters........................54 Section 7.7. Preparation and Filing of Tax Returns..........................56 Section 7.8. Tax Contests...................................................56 Section 7.9. Cooperation....................................................58 Section 7.10. Termination of Tax Sharing Agreements..........................58 Section 7.11. General Mills Consolidated Returns.............................59 Section 7.12. Diageo Consolidated Returns....................................59 Section 7.13. Definitions....................................................59 Section 7.14. Survival.......................................................60 Section 7.15. Adjustments....................................................60 Section 7.16. Tax Transactions...............................................60 ARTICLE VIII Conditions Precedent..........................................................61 Section 8.1. Conditions to Each Party's Obligation..........................61 Section 8.2. Additional Conditions to General Mills's and Merger Sub's Obligations..............................................61 Section 8.3. Additional Conditions to Pillsbury's Obligation................62 ARTICLE IX Survival; Indemnification.....................................................63 Section 9.1. Survival.......................................................63 -iii- Section 9.2. Indemnification by Diageo......................................63 Section 9.3. Indemnification by General Mills...............................64 Section 9.4. Indemnification Procedures.....................................64 Section 9.5. Limitations on Indemnification.................................66 Section 9.6. Exclusive Tax Indemnification..................................67 ARTICLE X Termination...................................................................67 Section 10.1. Termination....................................................67 Section 10.2. Procedure and Effect of Termination............................68 Section 10.3. Termination Fees...............................................68 ARTICLE XI Miscellaneous.................................................................68 Section 11.1. Counterparts...................................................69 Section 11.2. Governing Law; Jurisdiction and Forum; Waiver of Jury Trial....69 Section 11.3. Entire Agreement...............................................69 Section 11.4. Expenses.......................................................70 Section 11.5. Notices........................................................70 Section 11.6. Successors and Assigns.........................................71 Section 11.7. Headings; Definitions..........................................71 Section 11.8. Amendments and Waivers.........................................71 Section 11.9. Specific Performance...........................................71 -iv- LIST OF EXHIBITS ---------------- Exhibit A1 Food Subsidiaries Exhibit A2 Non-Controlled Foreign Entities Exhibit B Model Form of Subsidiary Purchase Agreement Exhibit C Form of Stockholders Agreement Exhibit D Selling Affiliates Exhibit E Business Financial Statements LIST OF SCHEDULES ----------------- Schedule 2.14 Balance Sheet Report -v- AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of July 16, 2000, is by and among General Mills, Inc., a Delaware corporation ("General Mills"), General Mills North American Businesses, Inc., a Delaware corporation and wholly owned subsidiary of General Mills ("Merger Sub"), Diageo plc, a public limited company incorporated under the laws of England and Wales ("Diageo"), and The Pillsbury Company, a Delaware corporation and indirect wholly owned subsidiary of Diageo ("Pillsbury"). Unless otherwise specified, capitalized terms herein shall have the meaning ascribed to them in Article I. WHEREAS, Pillsbury, its Subsidiaries, certain other Subsidiaries of Diageo and other Persons in which Diageo or its Affiliates own equity interests listed in Exhibit A1 hereto (such Subsidiaries and Persons listed on Exhibit A1, the "Food Subsidiaries") and certain other Persons in which Diageo or its Affiliates own equity interests listed in Exhibit A2 hereto (the Persons listed on Exhibit A2 hereto, the "Non-Controlled Foreign Entities"), together with their respective Subsidiaries, conduct the entire food business (other than the fast food business) of Diageo. (The Food Subsidiaries and the Non-Controlled Foreign Entities collectively are referred to herein as the "Purchased Entities"); WHEREAS, General Mills and Diageo desire to combine the businesses of General Mills with the food business (other than the fast food business) of Diageo through (a) the merger (the "Merger") of Merger Sub with and into Pillsbury, with Pillsbury as the surviving corporation in the Merger as a wholly owned subsidiary of General Mills upon the terms and subject to the conditions set forth in this Agreement and (b) the purchase by certain indirect Subsidiaries of General Mills (the "Buying Affiliates") from the Selling Affiliates of all of the outstanding shares of capital stock or other equity interests of the Purchased Entities owned by the Selling Affiliates (the "Purchased Interests") and/or the assets and liabilities of the Purchased Entities, upon the terms and subject to the conditions set forth herein and in the agreements relating to such purchases (collectively, the "Subsidiary Purchases" and such agreements, collectively, the "Subsidiary Purchase Agreements"); WHEREAS, it is intended that, for U.S. federal income tax purposes, the Merger will qualify as a reorganization under Section 368 of the Code and the Subsidiary Purchases will not so qualify; WHEREAS, (a) the respective Boards of Directors of Pillsbury and Merger Sub have each determined that this Agreement is advisable, fair to and in the best interests of their respective stockholders and have approved and adopted this Agreement, (b) General Mills, as sole stockholder of Merger Sub, and Gramet Holdings Corporation (the "Pillsbury Stockholder"), as sole stockholder of Pillsbury, have each approved this Agreement and (c) the respective Boards of Directors of General Mills and Diageo have each approved this Agreement and the Subsidiary Purchases; and WHEREAS, in connection with the closing of the transactions contemplated by this Agreement, it is contemplated that General Mills, Diageo, the Pillsbury Stockholder and the Selling Affiliates will enter into a Stockholders Agreement (the "Stockholders Agreement" and collectively with the Subsidiary Purchase Agreements, the "Ancillary Agreements") in the form set forth as Exhibit C to this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I Certain Definitions ------------------- Section 1.1 As used in this Agreement the following terms shall have the following respective meanings: "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission. "Additional Shares" shall mean the shares of General Mills Common Stock, if any, issued pursuant to Section 2.14 hereof, and the shares of General Mills Common Stock, if any, issued pursuant to Section 9.4(d)(ii) hereof. "Affiliate" shall mean, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person, it being understood that Diageo and the Continuing Affiliates shall not be considered to be Affiliates of General Mills and its Subsidiaries after the Effective Time for purposes of Articles VII and IX. As used in this definition, "control" (including, with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). "Anniversary Date" means the first anniversary of the Effective Time (or if such date is not a Business Day, the next Business Day). "Benefit Arrangement" means any employment, severance or similar contract, plan, policy, fund or arrangement (whether or not written) providing for compensation, bonus, profit-sharing, stock option, or other stock-related rights or other forms of incentive or deferred compensation, perquisites, vacation benefits, insurance coverage (including any self-insured arrangements), health or medical benefits, disability benefits, worker's compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits) that (i) is not an Employee Plan, (ii) is entered into, participated in, maintained, administered or contributed to, as the case may be, by any Business Entity and (iii) covers any U.S. employee or former U.S. employee of any Business Entity employed in the United States. "Books and Records" shall mean all of the books and records primarily related to the operations of the Business Entities, including, without limitation, (i) corporate minute books, 2 (ii) books and records relating to employees, the purchase of materials, supplies and services, research and development, manufacture and sale of products and services, advertising, packaging, promotional materials and dealings with customers of the Business Entities, and (iii) historical and archival data. "Business Combination Proposal" shall mean, with respect to any Person, (i) any merger, consolidation or other business combination as a result of which the stockholders of such Person prior to such transaction would cease to hold at least 80% of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof), (ii) the acquisition by another Person at least 20% of the outstanding voting securities of such Person, (iii) the sale, lease, exchange or other disposition of at least 20% of the assets of such Person and its Subsidiaries taken as a whole, or (iv) any transaction as a result of which the directors of such Person immediately prior to such transaction would cease to represent at least two-thirds of the members of the board of directors of such Person or the entity surviving or resulting from such transaction (or the ultimate parent entity thereof). "Business Day" shall mean any day that is not a Saturday, Sunday or other day on which the commercial banks in New York City or London are authorized or required by Law to remain closed. "Business Entities" shall mean Pillsbury, the Food Subsidiaries and their respective Subsidiaries. "Business Intellectual Property Rights" means all material Intellectual Property Rights owned or licensed and used or held for use by any Business Entity. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "Contingent Share Value" means the lesser of (i) the amount by which the Target Price exceeds the Market Value as of the Anniversary Date and (ii) the Maximum Contingent Share Value. "Continuing Affiliate" shall mean any Affiliate of Diageo, other than a Business Entity. "Controlled Group Liability" means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code and (v) under corresponding or similar provisions of foreign laws or regulations, other than such liabilities that arise solely out of, or relate solely to, the Employee Arrangements. "Covered Losses" shall mean any and all losses, liabilities, claims, fines, deficiencies, damages, obligations, payments (including, without limitation, those arising out of any settlement, judgment or compromise relating to any Action), reasonable costs and expenses (including, without limitation, interest and penalties due and payable with respect thereto and reasonable attorneys' and accountants' fees and any other reasonable out-of-pocket expenses 3 incurred in investigating, preparing, defending, avoiding or settling any Action), including, without limitation, any of the foregoing arising under, out of or in connection with any Action, order or consent decree of any Governmental Authority or award of any arbitrator of any kind, or any law, rule, regulation, contract, commitment or undertaking. "DGCL" shall mean the Delaware General Corporation Law. "Diageo Director" shall mean a member of the Board of Directors of Diageo or of the Executive Committee of Diageo. "Diageo Financial Advisors" means UBS Warburg and Greenhill & Co. LLC. "Diageo Shareholders Approval" shall mean the approval of the Transactions by the shareholders of Diageo by the Required Diageo Vote. "Disposition" means a merger, consolidation or other business combination involving General Mills as a result of which no shares of General Mills Common Stock shall remain outstanding and the stockholders of General Mills immediately prior to the merger, consolidation or other business combination shall not own a majority of the voting power of the common equity securities received in such merger, consolidation or other business combination, or a sale, transfer or other disposition of all or substantially all of the assets of General Mills. "Disposition Value" means the lesser of (i) the Maximum Contingent Share Value and (ii) the amount, if any, by which the Target Price exceeds the lesser of (A) where the consideration to be received for each share of General Mills Common Stock by the holder thereof as a result of such Disposition is only cash, the amount of such cash per share (calculated as of the Stockholder Approval Date), or where any of the consideration to be received for each share of General Mills Common Stock by the holder thereof as a result of such Disposition (and assuming that such holder did not exercise any right of appraisal or right of election with respect to such Disposition) is other than cash, the fair market value of the consideration to be received for each such share (as determined in good faith by the Board of Directors of General Mills as of the Stockholder Approval Date) and (B) the Market Value as of the Stockholder Approval Date. "Employee Arrangement" means any Benefit Arrangement, Employee Plan or International Plan. "Employee Plan" means any "employee benefit plan", as defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is entered into, participated in, maintained, administered or contributed to by any Business Entity and (iii) covers any employee or former employee of any Business Entity. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code or Section 4001(b)(1) or 4001(a)(14) of ERISA. 4 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "General Mills Common Stock" shall mean the Common Stock, par value $.10 per share, of General Mills, and the associated Rights issued pursuant to the General Mills Rights Agreement. "General Mills Financial Advisors" shall mean Evercore Partners Inc. and Merrill, Lynch & Co. Incorporated. "General Mills Intellectual Property Rights" means all material Intellectual Property Rights owned or licensed and used or held for use by General Mills or any of its Subsidiaries. "General Mills Rights Agreement" shall mean the Rights Agreement, dated as of December 11, 1995, between General Mills and Norwest Bank Minnesota, as Rights Agent. "General Mills Shares Held" means the number of shares of General Mills Common Stock issued to the Pillsbury Stockholder or the Selling Affiliates pursuant to this Agreement or the Subsidiary Purchase Agreements, as the case may be, and continued to be held by the Pillsbury Stockholder or the Selling Affiliates or their Permitted Transferees as of the Anniversary Date or the Disposition, as the case may be. "General Mills Stockholders Approval" shall mean the approval of the General Mills Share Issuance and the Charter Amendment by the stockholders of General Mills by the Required General Mills Votes. "Governmental Authority" shall mean any United States federal, state or local, or any foreign, government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Intellectual Property Right" means any trademark, service mark, trade name, mask work, invention, trade secret, copyright, know-how or proprietary information contained on any website, processes, formulae, products, technologies, discoveries, apparatus, Internet domain names, trade dress and general intangibles of like nature (together with goodwill), customer lists, confidential information, licenses, software, databases and compilations including any and all collections of data and all documentation thereof (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right. "International Plan" means any employment, severance or similar contract, plan, policy, fund or arrangement (whether or not written) providing for compensation, bonus, profit-sharing, stock option, or other stock-related rights or other forms of incentive or deferred compensation, perquisites, vacation benefits, insurance coverage (including any self-insured arrangements), health or medical benefits, disability benefits, worker's compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement 5 benefits (including compensation, pension, health, medical or life insurance or other benefits) that (i) is not an Employee Plan or a Benefit Arrangement, (ii) is entered into, participated in, maintained, administered or contributed to by any Business Entity and (iii) covers any employee or former employee of any Business Entity. "knowledge" of any Person shall mean the actual knowledge of such Person's executive officers, without the conduct by any such Person of any independent investigation with respect to the facts or matters specified. "Law" shall mean any United States federal, state or local, or any foreign, order, writ, injunction, judgment, award, decree, statute, law, rule or regulation. "Lien" shall mean any imperfection of title, easement, encroachment, security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance, proxy, voting trust or voting agreement. "Market Value" shall mean, as of any date, the average of the daily high and low sales prices per share of General Mills Common Stock during the regular trading sessions on the NYSE for each of the 20 full trading days immediately preceding (but not including) such date. "Maximum Contingent Share Value" means $4.55. "Multiemployer Plan" means a multiemployer plan, as defined in Section 3(37) of ERISA. "NYSE" shall mean the New York Stock Exchange, Inc. "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Liens" shall mean all Liens (i) which are reflected or reserved against in the Business Balance Sheet (up to the amounts so reflected or reserved against), (ii) which arise out of Taxes or general or special assessments not in default and payable without penalty or interest or the validity of which is being contested in good faith by appropriate proceedings, (iii) of carriers, warehousemen, mechanics, materialmen and other similar persons or otherwise imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, (iv) which relate to deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (v) which do not materially impair the use of the asset subject thereof for the purposes for which currently used, and (vi) in the case of the Business Real Property, (A) easements, quasi-easements, licenses, covenants, rights-of-way, rights of re-entry or other similar restrictions that would be shown by a current title report or other similar report or listing, (B) any conditions that may be shown by a current survey or physical inspection and (C) zoning, building, subdivision or other similar requirements or restrictions, in the case of each of the agreements, conditions, restrictions or other matters referenced in this clause (vi) which do not materially impair the use, utility or value of the applicable property affected or encumbered thereby for the purposes for which currently used. 6 "Permitted Transferee" shall mean Diageo or any direct or indirect wholly owned subsidiary of Diageo, in each case which becomes bound to the Stockholders Agreement. "Person" shall mean any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Pillsbury Common Stock" shall mean the shares of common stock, par value $1.00 per share, of Pillsbury. "Pillsbury Purchase Price Shares" shall mean the number of Purchase Price Shares allocated to the Merger as determined in accordance with Section 5.8(a). "Purchase Price Shares" shall mean 141 million shares of General Mills Common Stock. "SEC" shall mean the United States Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Affiliates" shall mean the entities listed on Exhibit D. "Stockholder Approval Date" means the date stockholders of General Mills approve a Disposition. "Subsidiary" shall mean, with respect to any Person, any other entity of which securities or other ownership interests having ordinary power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person. "Subsidiary Purchase Price Shares" shall mean the Purchase Price Shares other than the Pillsbury Purchase Price Shares. "Target Price" means $42.55. "Title IV Plan" means a plan subject to Title IV of ERISA other than any Multiemployer Plan. "U.K. GAAP" shall mean United Kingdom generally accepted accounting principles. "U.S. GAAP" shall mean United States generally accepted accounting principles. "Withdrawal Liability" means liability to or with respect to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of Title IV or ERISA. (a) (b) Each of the following terms is defined in the Section set forth opposite such term: 7 TERM SECTION - ---- ------- Acquisition Proposal.................................................5.9(a) Adjusted Closing Date Operating Working Capital Calculation..........2.14(c) Adjustment Payment Date..............................................2.14(d) ADSP.................................................................7.4 Agreement............................................................Preamble Ancillary Agreements.................................................Recitals Business.............................................................3.5(b) Business Balance Sheet...............................................3.3(a) Business Financial Statements........................................3.3(a) Business Material Contracts..........................................3.13 Business Real Property...............................................3.5 Buying Affiliates....................................................Recitals Certificate of Merger................................................2.3 Charter Amendment....................................................4.1(b) Closing..............................................................2.1 Closing Date.........................................................2.1 Closing Date Operating Working Capital Calculation...................2.14(a) COBRA coverage.......................................................6.1(g) Confidentiality Agreement............................................5.1(b) Controlling Party....................................................7.8(c) Determination........................................................7.4 Diageo...............................................................Preamble Diageo Circular......................................................5.10(c) Diageo Disclosure Schedule...........................................Article III Diageo Group.........................................................7.13 Diageo Indemnified Parties...........................................9.3(a) Diageo Indemnifying Parties..........................................9.2(a) Diageo Insurance Policies............................................5.16(b) Diageo Plan..........................................................6.1(l) Diageo Representatives...............................................5.9(a) Diageo Shareholders Meeting..........................................5.11 Diageo Tax Indemnitees...............................................7.13 Diageo Tax Indemnitors...............................................7.13 EC...................................................................8.1(c) Effective Time.......................................................2.3 Employees............................................................6.1(a) Environmental Laws...................................................3.18(a) Escrow Agent.........................................................2.13(a) Escrow Agreement.....................................................2.13(a) Escrow Fund..........................................................2.13(a) FD&C Act.............................................................3.21(a) Food Subsidiaries....................................................Recitals General Mills........................................................Preamble General Mills Balance Sheet..........................................4.4 General Mills Disclosure Schedule....................................Article IV 8 TERM SECTION - ---- ------- General Mills Financial Statements...................................4.3(b) General Mills Group..................................................7.13 General Mills Indemnified Parties....................................9.2(a) General Mills Indemnifying Parties...................................9.3(a) General Mills Material Adverse Effect................................4.1(a) General Mills Material Contracts.....................................4.13 General Mills Proxy Statement........................................5.10(a) General Mills Representatives........................................5.9(b) General Mills SEC Reports............................................4.3(a) General Mills Share Issuance.........................................4.1(a) General Mills Significant Subsidiaries...............................4.2(b) General Mills Stockholders Meeting...................................5.11 General Mills Tax Indemnitees........................................7.13 General Mills Tax Indemnitors........................................7.13 Governmental Antitrust Authority.....................................5.2(e) Insurance Claims.....................................................5.16(b) Joint Instruction....................................................2.13(a) Licenses.............................................................3.9(a) Merger...............................................................Recitals Merger Sub...........................................................Recitals Neutral Auditors.....................................................2.14(c) Non-Controlled Foreign Entities .....................................Recitals Non-controlling Party................................................7.8(c) Notice of Claim......................................................9.4 Operating Working Capital............................................2.14(a) Pillsbury............................................................Preamble Pillsbury Material Adverse Effect....................................3.1(a) Pillsbury Stockholder................................................Recitals Post-Closing Period..................................................7.13 Pre-Closing Period...................................................7.13 Products.............................................................3.21(a) Purchased Entities...................................................Recitals Purchased Interests..................................................Recitals Purchase Price.......................................................2.10 Required Diageo Vote.................................................3.17 Required General Mills Votes.........................................4.17 Resolution Period....................................................2.14(b) Returns..............................................................7.13 Rights...............................................................4.2(a) Stockholders Agreement...............................................Recitals Straddle Period......................................................7.7(c) Straddle Period Return...............................................7.7(c) Subsidiary Purchase Agreements.......................................Recitals Subsidiary Purchases.................................................Recitals Substantially All Action.............................................7.2(e) 9 TERM SECTION - ---- ------- Surviving Corporation................................................2.2 Tax..................................................................7.13 Tax Claim............................................................7.13 Tax Indemnitee.......................................................7.13 Tax Proceeding.......................................................7.8(b) Tax Returns..........................................................7.13 Taxing Authority.....................................................7.13 Termination Date.....................................................10.1(b) Transactions.........................................................3.1(b) U.S. Corporation.....................................................3.1(a) 2000 Financial Statements............................................5.14(a) 338 Election.........................................................7.4 338 Election Allocations.............................................7.4 338 Election Subsidiaries............................................7.4 ARTICLE II The Merger; Closing ------------------- Section 2.1 Time and Place of Closing. The closing of the Merger (the "Closing") shall take place (a) at 10:00 a.m., New York City time, at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, as promptly as practicable (but no later than the fifth Business Day) following the date on which the last to be satisfied or waived of the conditions set forth in Article VIII (other than those conditions that by their nature cannot be satisfied until the Closing Date, but subject to the satisfaction or, where permitted, waiver of those conditions) shall be satisfied or waived in accordance with this Agreement or (b) at such other place, time and/or date as General Mills and Diageo shall agree (the date of the Closing, the "Closing Date") . Section 2.2 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Section 251 of the DGCL, Merger Sub shall be merged with and into Pillsbury at the Effective Time. Following the Merger, the separate corporate existence of Merger Sub shall cease and Pillsbury shall continue as the surviving corporation (the "Surviving Corporation"). Section 2.3 Effective Time. Upon the Closing, Merger Sub and Pillsbury shall (a) file with the Secretary of State of the State of Delaware a certificate of merger (the "Certificate of Merger") in such form as is required by and executed in accordance with the relevant provisions of the DGCL and (b) make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State or at such subsequent time as General Mills and Diageo shall agree and as shall be specified in the Certificate of Merger (the date and time the Merger becomes effective being the "Effective Time"). 10 Section 2.4 Effects of the Merger. At and after the Effective Time, the Merger will have the effects set forth in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of Pillsbury and Merger Sub shall be vested in the Surviving Corporation, and all debts, liabilities and duties of Pillsbury and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. Section 2.5 Certificate of Incorporation. The certificate of incorporation of Pillsbury, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Corporation, until thereafter changed or amended as provided therein or by applicable law. Section 2.6 By-Laws. The by-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the by-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. Section 2.7 Officers and Directors of Surviving Corporation. The officers of Pillsbury as of the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or otherwise ceasing to be an officer or until their respective successors are duly elected and qualified, as the case may be. The directors of Merger Sub as of the Effective Time shall become the directors of the Surviving Corporation, which individuals will serve as directors of the Surviving Corporation until the earlier of their resignation or removal or otherwise ceasing to be a director or until their respective successors are duly elected and qualified. Section 2.8 Effect on Capital Stock. (a) At the Effective Time, by virtue of the Merger and without any action on the part of Diageo or the Pillsbury Stockholder, all of the shares of Pillsbury Common Stock issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall forthwith cease to exist and shall collectively be converted into the right to receive the Pillsbury Purchase Price Shares. (b) At the Effective Time, by virtue of the Merger and without any action on the part of General Mills, each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall forthwith cease to exist and be converted into one fully paid and nonassessable share of common stock of the Surviving Corporation, which shall constitute the only outstanding shares of capital stock of the Surviving Corporation. Section 2.9 Subsidiary Purchases. At the Closing, each of the Subsidiary Purchases will be consummated. Section 2.10 Aggregate Consideration. The aggregate consideration paid to the Pillsbury Stockholder pursuant to this Agreement in connection with the Merger and to the Selling Affiliates for the Subsidiary Purchases shall consist of (a) the Purchase Price Shares and (b) the Additional Shares, if any, issued pursuant to Section 2.14 or 9.4(d)(ii) (collectively, the "Purchase Price"), subject to any adjustment to the Purchase Price pursuant to Section 2.13, 2.14 or 9.4(d)(i). 11 Section 2.11 Deliveries by Diageo and the Selling Affiliates. At the Closing, Diageo shall, or shall cause the Pillsbury Stockholder or one or more of the Selling Affiliates to, as the case may be, deliver the following to General Mills or, in the case of paragraph (a) below, the applicable Buying Affiliate: (a) certificates or notarial assignment deed for, or such other instruments evidencing ownership under applicable law of, the Purchased Interests, which constitute and will constitute as of the Closing, 100% of the issued and outstanding shares of capital stock or other equity interests of the Purchased Entities owned by the Selling Affiliates, in each case with appropriate stock powers or other instruments of transfer and requisite tax stamps attached and properly signed (or in the event any of the Subsidiary Purchases is in the form of an acquisition of assets and liabilities, such documentation as may be necessary to reflect the transfer of such assets and liabilities to the applicable Buying Affiliate); (b) all Books and Records in the possession of Diageo or any Continuing Affiliate, except as otherwise provided by Law; (c) the certificate required to be delivered by Diageo and Pillsbury pursuant to Section 8.2(d); (d) counterparts of the Stockholders Agreement duly executed by Diageo, the Pillsbury Stockholder and each of the Selling Affiliates; (e) certificates of the Secretary or an Assistant Secretary of Diageo, Pillsbury, the Pillsbury Stockholder and the Selling Affiliates, dated the Closing Date, (i) as to the incumbency and signatures of the officers or representatives of Diageo and Pillsbury executing this Agreement and of Diageo, the Pillsbury Stockholder and the Selling Affiliates executing the Stockholders Agreement and of the Selling Affiliates executing the Subsidiary Purchase Agreements, together with evidence of incumbency of such Secretary or Assistant Secretary, and (ii) certifying attached resolutions of the respective Board of Directors of Diageo, Pillsbury, the Pillsbury Stockholder and the Selling Affiliates that authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements, as the case may be; (f) resignations, effective as of the Effective Time, of those directors of the Food Subsidiaries as General Mills may request; and (g) such other documents, instruments and certificates as General Mills may reasonably request in connection with the transactions contemplated by this Agreement. Section 2.12 Deliveries by General Mills and the Buying Affiliates. At the Closing, General Mills shall deliver to Diageo, and, in the case of paragraph (b) below, shall cause each Buying Affiliate to deliver to the applicable Selling Affiliate: (a) a certificate for the Pillsbury Purchase Price Shares (which shares, when delivered, will be duly authorized, validly issued, fully paid and non-assessable), in definitive form, registered in the name of the Pillsbury Stockholder, bearing a legend or legends referencing restrictions under the Securities Act on transfer of the Pillsbury Purchase Price Shares and any legends required by the Stockholders Agreement; 12 (b) certificates for the Subsidiary Purchase Price Shares (which shares, when delivered, will be duly authorized, validly issued, fully paid and non-assessable), in definitive form, registered in the names of the Selling Affiliates in each case for the number of Subsidiary Purchase Price Shares as determined in accordance with Section 5.8(a), bearing a legend or legends referencing restrictions under the Securities Act on transfer of the Subsidiary Purchase Price Shares and any legends required by the Stockholders Agreement; (c) the certificate required to be delivered by General Mills pursuant to Section 8.3(c); (d) a duly executed counterpart of the Stockholders Agreement executed by General Mills; (e) certificates of the Secretary or an Assistant Secretary of General Mills, Merger Sub and the Buying Affiliates, dated the Closing Date, (i) as to the incumbency and signatures of the officers or representatives of General Mills and Merger Sub executing this Agreement and of General Mills executing the Stockholders Agreement and of the officers or representatives of General Mills and the Buying Affiliates executing the Subsidiary Purchase Agreements, together with evidence of the incumbency of such Secretary or Assistant Secretary, and (ii) certifying attached resolutions of the respective Boards of Directors of General Mills, Merger Sub and the Buying Affiliates, which authorize and approve the execution, delivery and performance of this Agreement and the Ancillary Agreements, as the case may be; and (f) such other documents, instruments and certificates as Diageo may reasonably request in connection with the transactions contemplated by this Agreement. Section 2.13 Contingent Purchase Price Adjustment. (a) Immediately upon consummation of the Merger, Diageo shall cause Pillsbury Stockholder to deliver to a bank or financial institution in the United States mutually acceptable to General Mills and Diageo, as escrow agent (the "Escrow Agent"), $642 million in cash, by wire transfer of immediately available funds to be held by the Escrow Agent pursuant to a customary escrow agreement (the "Escrow Agreement"), in form and substance mutually acceptable to General Mills, Diageo and Pillsbury Stockholder. If mutually agreed by General Mills and Diageo, in lieu of delivery to the Escrow Agent of $642 million in cash, Diageo may cause Pillsbury Stockholder to deliver to the Escrow Agent $642 million of investments mutually selected by General Mills and Pillsbury Stockholder. In the event Pillsbury Stockholder delivers cash to the Escrow Agent, the Escrow Agent shall invest such funds as mutually directed by General Mills and Pillsbury Stockholder. The funds or investments delivered to the Escrow Agent, together with any interest or other proceeds with respect thereto, shall be the "Escrow Fund." The Escrow Fund shall be released upon the giving of a joint instruction (the "Joint Instruction") by General Mills and Pillsbury Stockholder pursuant to paragraph (b) or (c) below. All costs and expenses relating to the Escrow Agreement, including the fees and expenses of the Escrow Agent, shall be borne equally by General Mills and Pillsbury Stockholder. (b) Unless the stockholders of General Mills have approved a Disposition prior to the Anniversary Date, General Mills and Pillsbury Stockholder shall (and Diageo shall cause Pillsbury Stockholder to) give the Joint Instruction to the Escrow Agent on the Anniver- 13 sary Date, instructing the payout of the Escrow Fund as follows. The Joint Instruction pursuant to this paragraph (b) shall instruct the Escrow Agent to pay to General Mills from the Escrow Fund, on or as promptly as practicable following the Anniversary Date, an amount, if any, equal to the total amount of the Escrow Fund less an amount, if any, equal to the product of (i) the number of General Mills Shares Held multiplied by (ii) the Contingent Share Value. The Joint Instruction pursuant to this paragraph (b) shall further instruct the Escrow Agent to return to Pillsbury Stockholder the remainder of the Escrow Fund, if any, promptly following payment of the amount, if any, set forth above to General Mills. (c) In the event the stockholders of General Mills approve a Disposition prior to the Anniversary Date, General Mills and Pillsbury Stockholder shall (and Diageo shall cause Pillsbury Stockholder to) give the Joint Instruction to the Escrow Agent no later than the date of the Disposition, instructing the payout of the Escrow Fund as follows. The Joint Instruction pursuant to this paragraph (c) shall instruct the Escrow Agent to pay to General Mills from the Escrow Fund, on or as promptly as practicable following the date of the Disposition, an amount, if any, equal to the total amount of the Escrow Fund less an amount, if any, equal to the product of (i) the number of General Mills Shares Held multiplied by (ii) the Disposition Value. The Joint Instruction pursuant to this paragraph (c) shall further instruct the Escrow Agent to return to Pillsbury Stockholder the remainder of the Escrow Fund, if any, promptly following payment of the amount, if any, set forth above to General Mills. (d) The number of shares of General Mills Common Stock or type of property or securities issuable in connection with the transactions contemplated by this Agreement and the Subsidiary Purchase Agreements, the Contingent Share Value, the Maximum Contingent Share Value, the Disposition Value, the Target Price, the General Mills Shares Held and the calculation of Market Value shall be appropriately and equitably adjusted to reflect (i) the payment of any extraordinary distribution or dividend on shares of General Mills Common Stock (other than regular quarterly cash dividends), (ii) any stock split, stock dividend or combination of such shares or (iii) any consolidation, merger or other event which results in the conversion or exchange of such shares. (e) All calculations and determinations pursuant to this Section 2.13 shall be mutually agreed upon by Diageo and General Mills in good faith, and shall be final and binding upon all of the parties to this Agreement and on the Pillsbury Stockholder. General Mills and Diageo agree to treat Pillsbury Stockholder as the owner of the Escrow Fund for U.S. federal income Tax purposes until the Escrow Fund is disbursed pursuant to the terms hereof and the Escrow Agreement, except to the extent otherwise required pursuant to a Determination. Section 2.14 Operating Working Capital Purchase Price Adjustment. (a) As soon as practicable, but in no event later than 90 days following the Closing Date, General Mills shall prepare a calculation of the Operating Working Capital of the Business Entities as of the Closing Date (the "Closing Date Operating Working Capital Calculation"). For this purpose "Operating Working Capital" shall mean the Operating Working Capital of the Business Entities determined as reflected in the line entitled "CR15297 Operating Working Capital" on the balance sheet report (in management format) attached hereto as Schedule 2.14. The Closing Date Operating Working Capital Calculation shall be prepared in the same manner, consistent with past practice, and based on the same items, as the Operating Working Capital of the Business 14 Entities has historically been prepared. Between the date hereof and the Closing Date, the Business Entities shall, and Diageo shall cause the Business Entities to, manage Operating Working Capital in the ordinary course of business and consistent with past practice, and shall not take any action for the purpose of changing the calculation of Operating Working Capital. (b) General Mills shall deliver a copy of the Closing Date Operating Working Capital Calculation to Diageo promptly after it has been prepared. After receipt of the Closing Date Operating Working Capital Calculation, Diageo shall have 60 days to review the Closing Date Operating Working Capital Calculation, together with the workpapers used in the preparation thereof. Diageo and its authorized representatives shall have full access during normal business hours to all relevant books and records and employees of the Business Entities to the extent required to complete their review of the Closing Date Operating Working Capital Calculation; provided, however, that such access shall not unreasonably disrupt the personnel and operations of the Business Entities. Unless Diageo delivers written notice to General Mills on or prior to the 60th day after Diageo's receipt of the Closing Date Operating Working Capital Calculation specifying in reasonable detail all disputed items and the basis therefor, Diageo shall be deemed to have accepted and agreed to the Closing Date Operating Working Capital Calculation. If Diageo so notifies General Mills of its objection to the Closing Date Operating Working Capital Calculation, General Mills and Diageo shall, within 30 days following such notice (the "Resolution Period"), attempt to resolve their differences and any resolution by them as to any disputed amounts shall be final, binding and conclusive. (c) If at the conclusion of the Resolution Period amounts shall remain in dispute, then all amounts remaining in dispute shall be submitted to a firm of nationally recognized independent public accountants (the "Neutral Auditors") selected by Diageo and General Mills within 10 days after the expiration of the Resolution Period. If Diageo and General Mills are unable to agree on the Neutral Auditors, then Diageo and General Mills shall each have the right to request the American Arbitration Association to appoint the Neutral Auditors who shall not have had a material business relationship with Diageo, General Mills or any of their respective Affiliates within the past two years. The parties hereto agree to execute, if requested by the Neutral Auditors, a reasonable engagement letter. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditors shall be borne equally by Diageo and General Mills. The Neutral Auditors shall act as an arbitrator to determine only those issues still in dispute. The Neutral Auditors' determination shall be made within 30 days of their selection, shall be set forth in a written statement delivered to Diageo and General Mills and shall be final, binding and conclusive. The term "Adjusted Closing Date Operating Working Capital Calculation", as used herein, shall mean the definitive Closing Date Operating Working Capital Calculation agreed or deemed to have been agreed to by Diageo and General Mills in accordance with Section 2.14(b) or the definitive Closing Date Operating Working Capital Calculation resulting from the determinations made by the Neutral Auditors in accordance with this Section 2.14(c) (in addition to those items theretofore agreed to by Diageo and General Mills). (d) The Purchase Price shall be reduced dollar for dollar by the amount, if any, by which Operating Working Capital shown on the Adjusted Closing Date Operating Working Capital Calculation is less than $100 million or increased dollar for dollar by the amount, if any, by which Operating Working Capital shown on the Adjusted Closing Date Operating Working Capital Calculation is greater than $300 million, provided, however, that if the Closing Date 15 is between October 15 and November 15, inclusive, the $300 million threshold shall be increased to $400 million, and if the Closing Date is between March 15 and April 15, inclusive, the $100 million threshold shall be reduced to zero; provided, further, that if there is a sale, divestiture or disposition of any plants, assets or businesses consummated prior to the Closing pursuant to Section 5.2, Diageo and General Mills shall mutually agree on an appropriate adjustment of the aforementioned thresholds to reflect such sale, divestiture or disposition. For the avoidance of doubt, in the event that the Operating Working Capital shown on the Adjusted Closing Date Operating Working Capital Calculation is not greater or less than the applicable threshold, no adjustment to the Purchase Price shall be made pursuant to this Section 2.14. (e) Any reduction in the Purchase Price made pursuant to Section 2.14(d) shall be paid by Diageo, by wire transfer in immediately available funds, to an account or accounts specified by General Mills, within five Business Days after the Adjusted Closing Date Operating Working Capital Calculation is agreed upon or deemed to have been agreed upon by General Mills and Diageo or the written statement of the Neutral Auditors setting forth their determination regarding any remaining disputed items is delivered to General Mills and Diageo (such fifth Business Day, the "Adjustment Payment Date"), and shall bear interest from (and including) the Closing Date through (and including) the date of payment at the publicly announced prime interest rate of Citibank, N.A. in effect from time to time for unsecured short-term commercial loans. Any increase in the Purchase Price made pursuant to Section 2.14(d) shall be paid by General Mills by delivery to the Pillsbury Stockholder on the Adjustment Payment Date of a number of shares of General Mills Common Stock equal to (i) the amount of the increase (which shall bear interest from (and including) the Closing Date through (and including) the date of payment at the publicly announced prime interest rate of Citibank, N.A. in effect from time to time for unsecured short-term commercial loans) divided by (ii) the Market Value on the Adjustment Payment Date. ARTICLE III Representations and Warranties of Diageo and Pillsbury ------------------------------------------------------ Except as set forth in the corresponding sections or subsections of the disclosure schedule delivered to General Mills by Diageo on or prior to the date hereof (the "Diageo Disclosure Schedule"), each of Diageo and Pillsbury hereby represents and warrants to General Mills and Merger Sub as follows: Section 3.1 Incorporation; Authorization; etc. (a) Each Business Entity is duly organized and validly existing and, with respect to those corporations organized under the laws of one of the states of the United States of America (a "U.S. Corporation"), in good standing, under the laws of the jurisdiction of its organization. Each of the Business Entities (i) has the requisite corporate or similar power and authority to own its properties and assets and to carry on its business as it is now being conducted and (ii) with respect to each U.S. Corporation, is in good standing and is duly qualified to transact business in each jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be so qualified, except where the failure to be so organized or in good standing or to be duly qualified to transact business, or to have such power and authority, would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on the business, assets, liabilities, 16 condition (financial or otherwise) or results of operations of the Business Entities, taken as a whole (a "Pillsbury Material Adverse Effect"). Diageo is a public limited company duly incorporated and validly existing under the laws of England and Wales. (b) Each of Diageo and Pillsbury has the requisite corporate or similar power to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. Each of Diageo, the Pillsbury Stockholder and the Selling Affiliates has the requisite corporate or similar power and authority to execute the Stockholders Agreement and to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution and delivery by Diageo and Pillsbury of this Agreement, the performance by Diageo and Pillsbury of their obligations hereunder and the consummation by Diageo and Pillsbury of the transactions contemplated hereby have been duly and validly authorized by the respective Boards of Directors of Diageo and Pillsbury and, except for the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and except for obtaining the approval of the shareholders of Diageo of the disposition of the Business Entities contemplated hereby (the "Transactions") by the Required Diageo Vote, no other corporate proceedings on the part of Diageo or Pillsbury, their respective Boards of Directors or shareholders are necessary therefor. (c) The execution, delivery and performance of this Agreement and the Ancillary Agreements will not (i) violate any provision of Diageo's, the Pillsbury Stockholder's, any Selling Affiliate's or any Business Entity's respective certificate of incorporation or by-laws (or equivalent organizational documents), (ii) violate any provision of, or be an event that is (or with the passage of time will result in) a violation of, or result in the acceleration of or entitle any party to accelerate or exercise (whether after the giving of notice or lapse of time or both) any obligation or right under, or result in the imposition of any Lien upon or the creation of a security interest in any of the Purchased Interests, or any Business Entity's assets or properties pursuant to, any Lien, agreement, instrument, order, arbitration award, judgment or decree to which Diageo, any Continuing Affiliate or any Business Entity is a party or by which any of them is bound, or (iii) violate or conflict with any other restriction of any kind or character to which Diageo, any Continuing Affiliate or any Business Entity is subject, that, in the case of clauses (ii) or (iii) would, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect or prevent the Merger and the Subsidiary Purchases from occurring prior to the Termination Date. This Agreement has been duly executed and delivered by Diageo and Pillsbury, and, assuming the due execution hereof by General Mills and Merger Sub, this Agreement constitutes the legal, valid and binding obligations of Diageo and Pillsbury, enforceable against Diageo and Pillsbury in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, liquidation, dissolution, moratorium or other similar laws relating to or affecting the rights of creditors generally and to the effect of the application of general principles of equity (regardless of whether considered in proceedings at law or in equity). At the Closing, each of the Ancillary Agreements to which Diageo, the Pillsbury Stockholder or a Selling Affiliate is or will be a party will be duly executed and delivered by Diageo, the Pillsbury Stockholder and such Selling Affiliates, as applicable, and, assuming the due execution and delivery thereof by the other parties thereto, at the Closing will constitute the legal, valid and binding obligations of Diageo, the Pillsbury Stockholder and such Selling Affiliates, enforceable against Diageo, the Pillsbury Stockholder and such Selling Affiliates in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, liquidation, dissolution, 17 moratorium or other similar laws relating to or affecting the rights of creditors generally and to the effect of the application of general principles of equity (regardless of whether considered in proceedings at law or in equity). Diageo has delivered to General Mills a true and correct copy of the certificate of incorporation and by-laws, each as amended to date, of Pillsbury. Section 3.2 Capitalization; Structure. (a) The authorized capital stock of Pillsbury consists of 1,000 shares of Pillsbury Common Stock. As of the date hereof, one share of Pillsbury Common Stock is outstanding, which share is validly issued, fully paid and nonassessable, and free of preemptive rights and owned by the Pillsbury Stockholder free and clear of all Liens. Section 3.2(a) of the Diageo Disclosure Schedule sets forth the name of each Subsidiary of Pillsbury, its jurisdiction of incorporation or organization, the number of outstanding shares of its capital stock or other equity interests of each class and the name of and number of shares owned by each holder of any such shares of capital stock or other equity interests. Except as set forth in Section 3.2 of the Diageo Disclosure Schedule, all of the outstanding shares of capital stock or other equity interests of each of Pillsbury's Subsidiaries have been validly issued, and are fully paid and nonassessable and free of preemptive rights. (b) Section 3.2(b)(i) of the Diageo Disclosure Schedule sets forth the name of each Purchased Entity, its jurisdiction of incorporation or organization, the number of outstanding shares of its capital stock or other equity interests of each class and the name and number of shares owned by each holder of any such shares of capital stock or other equity interests. Except as set forth in Section 3.2 of the Diageo Disclosure Schedule, all of the outstanding shares of capital stock or other equity interests of the material Purchased Entities have been validly issued, and are fully paid and nonassessable, are free of preemptive rights, and are owned directly by the Selling Affiliate as set forth on Section 3.2(b)(ii) of the Diageo Disclosure Schedule, free and clear of all Liens. Section 3.2(b)(ii) of the Diageo Disclosure Schedule sets forth the name of each Subsidiary of any Purchased Entity, its jurisdiction of incorporation or organization, the number of outstanding shares of its capital stock or other equity interests of each class and the name and number of shares owned by each holder of any such shares of capital stock or other equity interests. Except as set forth in Section 3.2(b)(ii) of the Diageo Disclosure Schedule, all of the outstanding shares of capital stock of the material Subsidiaries of the Purchased Entities have been validly issued, and are fully paid and nonassessable and are owned directly or indirectly by the Selling Affiliate as set forth on Section 3.2(b)(ii) of the Diageo Disclosure Schedule, free and clear of all Liens. Upon consummation of the Subsidiary Purchases at the Closing as contemplated by this Agreement, the Selling Affiliates will deliver to the Buying Affiliates good and valid title to all of the Purchased Interests. (c) There are no outstanding options, warrants or other rights of any kind to acquire, or obligations to issue, shares of capital stock of any class of, or other equity interests in, any Business Entity. None of the Business Entities owns any equity interest, directly or indirectly, in any Person other than the Subsidiaries of Pillsbury or of the Purchased Entities. There are no outstanding obligations of any Business Entity (i) to repurchase, redeem or otherwise acquire any shares of capital stock or other equity interests in any Business Entity or (ii) to grant preemptive or antidilutive rights with respect to any such shares or interests. Section 3.3 Financial Statements. (a) Attached hereto as Exhibit E are true and complete copies of the unaudited consolidated state- 18 ments of income, balance sheets and statements of cash flows of the Business Entities as of and for the nine months ended June 30, 1998, as of and for the twelve months ended June 30, 1999, and as of and for the six months ended December 31, 1999 (collectively, the "Business Financial Statements"). The Business Financial Statements present fairly in all material respects the consolidated financial position and results of operations and cash flows of the Business Entities for the respective periods or as of the respective dates set forth therein, in each case in accordance with U.K. GAAP applied on a consistent basis throughout the periods involved (except as otherwise indicated therein and except for changes resulting from normal and recurring year-end adjustments). The Business Financial Statements have been prepared from and in all material respects in accordance with the books and records of the Business Entities. The balance sheet as of December 31, 1999 included in the Business Financial Statements is referred to herein as the "Business Balance Sheet." (b) The 2000 Financial Statements (including, in each case, any notes thereto), when delivered to General Mills pursuant to Section 5.14(a) and as of the Closing Date, (i) will present fairly in all material respects the combined financial position and results of operations and cash flows of the Business Entities for the respective periods or as of the respective dates set forth therein, in each case in accordance with U.S. GAAP applied on a consistent basis throughout the periods involved (except as otherwise indicated therein and except, in the case of interim periods, for changes resulting from normal and recurring year-end adjustments), and (ii) will have been prepared from and in all material respects in accordance with the books and records of the Business Entities. Section 3.4 No Undisclosed Liabilities. Except for liabilities which are reflected or reserved against in the Business Balance Sheet or as set forth in Section 3.4 of the Diageo Disclosure Schedule, none of the Business Entities has any liabilities or obligations that would be required to be reflected on a balance sheet prepared in accordance with U.K. GAAP or U.S. GAAP, except for (a) liabilities or obligations arising in the ordinary course of business consistent with past practice since December 31, 1999, which would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect and (b) with respect to liabilities or obligations that would be required to be reflected on a balance sheet prepared in accordance with U.S. GAAP, deferred income taxes, pension, and postretirement/employment liabilities. Section 3.5 Properties; Sufficiency. (a) With the exception of properties disposed of since December 31, 1999 in the ordinary course of business, a Business Entity has good title to, or holds by valid and existing lease or license, free and clear of all Liens other than Permitted Liens, each piece of real and personal property capitalized on or included in the Business Balance Sheet and each piece of real and personal property acquired by any Business Entity since the date of the Business Balance Sheet that would, had it been acquired prior to such date, be capitalized on or included in the Business Balance Sheet, except where the failure to have such title or hold such lease or license would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Section 3.5 of the Diageo Disclosure Schedule sets forth a list of all the material real property owned or leased by the Business Entities (the "Business Real Property"). Diageo has made available correct and complete copies of all material leases and subleases (including all material amendments, modifications and side letters thereto, and all notices of default and other material notices thereunder) relating to the Business Real Property to which any of the Business Entities is a party, of which all material 19 leases and subleases are identified in Section 3.5 of the Diageo Disclosure Schedule, it being understood that for purposes of this sentence, "material" shall mean any lease or sublease with total future payments in excess of $5,000,000. There are no pending or, to Diageo's and Pillsbury's knowledge, threatened condemnation proceedings relating to any of the material Business Real Property. Except as disclosed in Section 3.5 of the Diageo Disclosure Schedule, none of the material properties owned or leased by any Business Entity or by Diageo or any of the Continuing Affiliates is shared by any Business Entity, on the one hand, and the other businesses, divisions or Subsidiaries of Diageo or any Continuing Affiliate, on the other hand. (b) The assets of the Business Entities and Non-Controlled Foreign Entities constitute all of the assets necessary in all material respects to own and operate the existing food business (other than the fast food business) of Diageo (including Pillsbury North America, International, and Food Service) (collectively, the "Business"), as reflected in the Business Financial Statements, in the manner currently being conducted. The Business Entities collectively own or lease, or otherwise have good and valid rights to, all material assets, properties and other rights related to the Business, except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Section 3.6 Absence of Certain Changes. Since December 31, 1999, there has been no (a) change or development in or effect on the business or businesses of the Business Entities that has had, or would reasonably be expected to have, a Pillsbury Material Adverse Effect or (b) action taken by any Business Entity prior to the date hereof which, if taken from the date hereof through the Closing, would violate any of the provisions of subsections (i), (ii), (iii), (iv), (v), (xii)(A) and (xvii) of Section 5.4(a), provided that for the purposes of this clause (b), the reference in Section 5.4(a)(v)(A) to "a commitment period of one year or less" shall be deemed to be of no consequence for purposes of this Section 3.6 and the reference in Section 5.4(a)(v)(B) to "Pillsbury's 2001 Capital Expenditure Plan" shall be deemed to refer to "Pillsbury's 2000 Capital Expenditure Plan." Section 3.7 Litigation; Orders. There are no lawsuits, actions, administrative or arbitration or other proceedings or governmental investigations pending or, to Diageo's or Pillsbury's knowledge, threatened against any Business Entity that would, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect or prevent the Merger and the Subsidiary Purchases from occurring prior to the Termination Date. There are no judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency, or by arbitration) against any Business Entity or any of their respective properties or businesses that would, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect or prevent the Merger and the Subsidiary Purchases from occurring prior to the Termination Date. Section 3.8 Intellectual Property. The Business Entities own, or are validly licensed or otherwise have the right to use, all Business Intellectual Property Rights used in the conduct of their businesses, except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. No Business Intellectual Property Right is subject to any outstanding judgment, injunction, order, decree or agreement restricting the use thereof by the Business Entities or restricting the licensing thereof by the Business Entities to any Person, except for any judgment, injunction, order, decree or agreement 20 which would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. No Business Entity is infringing on any other Person's Intellectual Property Rights and to the knowledge of Diageo and Pillsbury no Person is infringing on any Business Intellectual Property Rights, except, in either case, as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Except for such matters as would not have or reasonably be expected to have a Pillsbury Material Adverse Effect: (i) no Business Entity is a defendant in any action, suit, investigation or proceeding relating to, or otherwise was notified of, any alleged claim of infringement of any Intellectual Property Right and (ii) the Business Entities have no outstanding claim or suit for any continuing infringement by any other Person of any Business Intellectual Property Rights. Section 3.8 of the Diageo Disclosure Schedule sets forth a list of all United States and foreign patents and patent applications, trademark registrations and applications therefor, registered copyrights and applications therefor and trade names of any of the Business Entities that are material to the Business. Section 3.9 Licenses, Approvals, Other Authorizations, Consents, Reports, etc. (a) All governmental licenses, permits, franchises and other authorizations of any Governmental Authority ("Licenses") possessed by or granted to any of the Business Entities are in full force and effect, except for those whose failure to be in full force and effect would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. No proceeding is pending or, to Diageo's or Pillsbury's knowledge, threatened seeking the revocation or limitation of any such License which revocation or limitation would, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. (b) Section 3.9(b) of the Diageo Disclosure Schedule contains a list of all registrations, filings, applications, notices, consents, approvals, orders, qualifications and waivers required to be made, filed, given or obtained by any of Diageo, the Pillsbury Stockholder, any Seller Affiliate or any Business Entity with, to or from any Persons or Governmental Authorities in connection with the consummation of the Merger or the Subsidiary Purchases, except for those with respect to which the failure to make, file, give or obtain would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Section 3.10 Labor Matters. Section 3.10 of the Diageo Disclosure Schedule sets forth a list of all agreements with labor unions or associations representing employees of any of the Business Entities that are material to the Business. Except as set forth in Section 3.10 of the Diageo Disclosure Schedule, none of the Business Entities is involved in or, to Diageo's or Pillsbury's knowledge, threatened with any work stoppage, labor dispute, arbitration, lawsuit or administrative proceeding relating to labor matters involving the employees of any Business Entity (excluding routine workers' compensation claims) that would, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Section 3.11 Compliance with Laws. The conduct of the business or businesses of each of the Business Entities complies with all Laws applicable thereto, except for those violations of Law which would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect; it being understood that nothing set forth in this Section 3.11 is intended to address any compliance issue that is the subject of any other representation or warranty set forth in Sections 3.9, 3.18, 3.19 or 3.21, or in Article VII. 21 Section 3.12 Insurance. Each of the Business Entities is covered by valid and currently effective insurance policies issued for the benefit of the Business Entities that are customary for companies of similar size in the industry and locale in which the Business Entities, as the case may be, operate. Section 3.13 Material Contracts. As of the date hereof, except as set forth in Section 3.13 of the Diageo Disclosure Schedule, none of the Business Entities is a party to or bound by any (a) employment or consulting agreement with an individual requiring payments of base compensation in excess of $250,000 per year; (b) distributor agreement which is not terminable on one year's (or less) notice; (c) material joint venture or similar contract or agreement; (d) contract which is terminable by the other party or parties thereto upon a change of control of any of the Business Entities, other than such contracts the termination of which would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect; (e) contract or agreement that materially limits or purports to materially limit the ability of any of the Business Entities or any Affiliates of a Business Entity to compete in any material line of business or in any material geographic area; (f) any material contract or agreement between or among one or more Business Entities on the one hand and Diageo or any Continuing Affiliate or any officer or director of any of the Business Entities on the other hand; or (g) other contract, agreement or arrangement, entered into other than in the ordinary course of business, involving an estimated total future payment or payments in excess of $1,000,000. The contracts required to be so listed are referred to herein as "Business Material Contracts." With respect to all Business Material Contracts, (i) none of the Business Entities, Diageo or any Continuing Affiliate, nor, to Diageo's or Pillsbury's knowledge, any other party to any such Business Material Contract is in breach thereof or default thereunder, and (ii) there does not exist under any provision thereof, any event that, with the giving of notice or the lapse of time or both, would constitute such a breach or default, except for such breaches, defaults and events which in the case of clauses (i) and (ii) would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Diageo and Pillsbury have made available to General Mills true and correct copies of all Business Material Contracts. Section 3.13 of the Diageo Disclosure Schedule lists, as of the date hereof, each note, mortgage, indenture and other obligation and agreement and other instrument for or relating to any lending or borrowing (including assumed or guaranteed debt) of $10,000,000 or more effected by any Business Entity or to which any properties or assets of any of the Business Entities are subject. Section 3.14 Brokers, Finders, etc. Except for the services of the Diageo Financial Advisors, neither Diageo nor any of its Subsidiaries has employed, or is subject to any valid claim of, any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who might be entitled to a fee or commission in connection with such transactions. Section 3.15 Opinion of Diageo Financial Advisor. The Board of Directors of Diageo has received consent as of the date hereof from each of the Diageo Financial Advisors to the inclusion of their respective names in any documents delivered to the shareholders of Diageo in connection with the transactions contemplated by this Agreement. Section 3.16 Board Approval. The Board of Directors of Diageo, by resolutions duly adopted by unanimous vote at a meeting duly called and held and not subsequently re- 22 scinded or modified in any way, has duly (a) determined that the Transactions are fair to and in the best interests of Diageo and its shareholders, (b) approved this Agreement and (c) determined to recommend to the shareholders of Diageo that such shareholders approve the Transactions. Section 3.17 Required Vote. The affirmative vote of the holders of a majority of the outstanding common shares of Diageo is the only vote of the holders of any class of capital stock of Diageo necessary to approve the transactions contemplated by this Agreement (the "Required Diageo Vote"). Section 3.18 Environmental Compliance. (a) Each Business Entity has obtained all permits, licenses and other authorizations which are required with respect to the operation of the Business Entities as presently conducted under federal, state and local laws and regulations relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases or discharges of Air Pollutants, Hazardous Substances, Oils, Pollutants or Contaminants (as such terms are currently defined at 42 U.S.C. ss. 7602 and in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5) into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Air Pollutants, Hazardous Substances, Oils, Pollutants or Contaminants (the "Environmental Laws"), except for the failure to have obtained such permits, licenses and other authorizations as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. (b) Each Business Entity as presently conducted is in compliance with all terms and conditions of the permits, licenses and authorizations required by the Environmental Laws, and is also in compliance with all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except for such noncompliance which would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. There is no civil, criminal or administrative action, suit, demand, notice of violation, investigation known to Diageo or Pillsbury, proceeding, notice or demand letter pending relating to the property or business of any Business Entity or, to the knowledge of Diageo and Pillsbury, threatened against the business or property of any Business Entity under Environmental Laws or any code, plan, order, or decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, that would, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. (c) Except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect, to the knowledge of Diageo and Pillsbury none of the Business Entities nor any other Person has buried, released, dumped or disposed of any Hazardous Substances, Oils, Pollutants or Contaminants in quantities requiring investigation or cleanup under Environmental Laws in each case which have been produced by, or resulting from, any business, commercial or industrial activities, operations, or processes, on or beneath, the property of any Business Entity, including, to the knowledge of Diageo and Pills- 23 bury, properties formerly owned by any Business Entity for which any Business Entity has retained any material liability. (d) Except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect, no cleanup has occurred at any property currently owned or operated by any Business Entity, which would result or reasonably be expected to result in the assertion or creation of a material Lien on such property by any Governmental Authority with respect thereto, nor has any such assertion of a material Lien been made by any Governmental Authority with respect thereto. (e) Except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect, none of the Business Entities has received any notice from any Governmental Authority or private or public entity or individual requesting information pursuant to Environmental Laws in connection with or advising it that it is in non-compliance with applicable Environmental Laws, or responsible for, or potentially responsible for, costs with respect to a release, a threatened release or clean-up of Air Pollutants, Hazardous Substances, Oils, Pollutants, or Contaminants generated, stored, treated, disposed of or transported by any Business Entity, and no Business Entity has entered into any agreement for the clean-up of any Hazardous Substances, Oils, Pollutants or Contaminants. (f) Notwithstanding any other representation and warranty in this Article III, the representations and warranties contained in this Section 3.18 constitute the sole representations and warranties of Pillsbury or Diageo with respect to any Environmental Law, environmental permit or any Air Pollutants, Hazardous Substances, Oils, Pollutants or Contaminants. Section 3.19 Employee Benefit Plans. (a) Diageo has made available to General Mills copies of each material Employee Plan (and, if applicable, related trust agreements) and all amendments thereto together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto, summary plan description and any material modifications thereto, annual financial report and actuarial valuation report prepared in connection with any such Employee Plan and all trust agreements, insurance contracts and other funding vehicles relating thereto. Section 3.19(a) of the Diageo Disclosure Schedule identifies each such Employee Plan that is (i) a Multiemployer Plan, (ii) a Title IV Plan, (iii) maintained in connection with any trust described in Section 501(c)(9) of the Code or (iv) is funded through a welfare benefit fund within the meaning of Section 419 of the Code. (b) Each Employee Plan that is intended to be qualified under Section 401(a) of the Code and each trust created under any such Plan that is intended to be exempt from tax under Section 501(a) of the Code has received a favorable determination letter from the IRS. Diageo has made available to General Mills the most recent determination letter of the Internal Revenue Service relating to each such Employee Plan. Each Employee Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including ERISA and the Code, except where the failure to be in compliance would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. 24 (c) Diageo has made available to General Mills copies (or if there is no written plan document, any existing written descriptions) of each material Benefit Arrangement (and, if applicable, related trust agreements) and all amendments thereto. Each such Benefit Arrangement has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations and has been maintained in good standing with applicable regulatory authorities, except where the failure to be in compliance or to maintain good standing would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. (d) Each International Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations (including any special provisions relating to qualified plans where such Plan was intended so to qualify) and has been maintained in good standing with applicable regulatory authorities, except where the failure to be in compliance or to maintain good standing would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. There has been no amendment to, written interpretation of or announcement (whether or not written) by Pillsbury or any of its Subsidiaries relating to, or change in employee participation or coverage under, any International Plan that would increase materially the expense of maintaining such International Plan above the level of expense incurred in respect thereof for the most recent fiscal year ended prior to the date hereof. Each such International Plan that is intended to be funded and/or book-reserved is fully funded and/or book-reserved, as appropriate, based upon reasonable actuarial assumptions. (e) Diageo's Disclosure Schedule contains a complete list of all material Employee Plans and material Benefit Arrangements. Except as specifically provided in the foregoing documents made available to General Mills, and except as set forth in Section 5.4 of the Diageo Disclosure Schedule, no amendments to any Employee Plan or Benefit Arrangement have been adopted or approved nor has any Business Entity undertaken to make any such amendments or to adopt or approve any new Employee Plan or Benefit Arrangement, except as would not materially increase the obligations of any Business Entity under such amendment or new Employee Arrangement. (f) With respect to each Title IV Plan, except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect: (i) there does not exist any accumulated funding deficiency within the meaning of Code Section 412 or Section 302 of ERISA, whether or not waived; (ii) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived has occurred, and the consummation of the transactions contemplated by this Agreement will not result in the occurrence of any such reportable event; (iii) all premiums to the PBGC have been timely paid in full; (iv) no material liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by any of the Business Entities; (v) the actuarial present value of the accumulated plan benefits under such Title IV Plan (whether or not vested) as of the close of its most recent plan year did not exceed the fair market value of the assets allocable thereto, and there are no facts or circumstances that would materially change the funded status of any such Title IV Plan since the close of such plan year; and (vi) the PBGC has not instituted proceedings to terminate any such Title IV Plan and, to Diageo's knowledge, no condition exists that presents a risk that such proceedings will be instituted or which would constitute 25 grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such Title IV Plan. (g) None of the Business Entities nor any of their respective ERISA Affiliates has incurred any material Withdrawal Liability that has not been satisfied in full. With respect to each Employee Plan that is a Multiemployer Plan and except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect: (i) if any of the Business Entities or any of their respective ERISA Affiliates were to experience a withdrawal or partial withdrawal from such plan, no material Withdrawal Liability would be incurred; and (ii) none of the Business Entities, nor any of their respective ERISA Affiliates has received any notification, nor does any of them have knowledge, that any such Employee Plan is in reorganization, has been terminated, is insolvent, or may reasonably be expected to be in reorganization, to be insolvent, or to be terminated. (h) Diageo's Disclosure Schedule sets forth: (i) each Employee Arrangement under which the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby could (either alone or in conjunction with any other event such as termination of employment) result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any payment or benefit to any employee, officer or director of any Business Entity, or for which any Business Entity could be liable in an amount which would be material, or would limit the right of any of the Business Entities to amend, merge, terminate or receive a reversion of assets from any Employee Arrangement or related trust; and (ii) estimates of the aggregate dollar amounts payable by the Business Entities pursuant to or with respect to bonuses and other incentive compensation in connection with or as a result of the consummation of the transactions contemplated hereby. (i) There are no pending or, to Pillsbury's knowledge, threatened claims (other than claims for benefits in the ordinary course), investigations, lawsuits or arbitrations which have been asserted or instituted against the Employee Arrangements, any fiduciaries thereof with respect to their duties to such Employee Arrangements or the assets of any of the trusts under any of such Employee Arrangements which would reasonably be expected to result in any liability of any Business Entity to the PBGC, the Department of Treasury, the Department of Labor, or any other U.S. or foreign governmental authority, or to any of such Employee Arrangements, any participant in any such Employee Arrangement, or any other party, except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Without limiting the generality of the foregoing, none of the Business Entities has any actual or contingent liability under any such Employee Arrangement or under any applicable law or regulation for pay or benefits incurred as a result of corporate restructuring, downsizing, layoffs or similar events that has not been fully satisfied or adequately reserved for in the audited consolidated financial statements (including the related notes) and unaudited consolidated financial statements (including the related notes) of the Business Entities, except as would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect. Section 3.20 Acquisition of Shares for Investment. Diageo, the Pillsbury Stockholder and the Selling Affiliates have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of their acquisition of the Pur- 26 chase Price Shares and the Additional Shares, if any, and have been provided access to personnel and books of General Mills and its Subsidiaries for purposes of making their evaluation. Diageo, the Pillsbury Stockholder and the Selling Affiliates are acquiring the Purchase Price Shares and the Additional Shares, if any, for investment and not with a view toward any distribution thereof, or with any present intention of distributing such shares. Diageo, the Pillsbury Stockholder and the Selling Affiliates agree that the Purchase Price Shares and the Additional Shares, if any, may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act, except pursuant to an exemption from such registration available under the Securities Act. Section 3.21 Products. Except as would not result in out-of-pocket costs and expenses to the Business Entities exceeding $1,500,000 in the aggregate, net of recovery or reimbursement from insurers or other third parties, since December 31, 1998: (a) no shipment or other delivery of products made by any of the Business Entities prior to the date hereof (the "Products") is: (i) "adulterated" or "misbranded" within the meaning of Section 342 or Section 343, respectively, of the Federal Food, Drug and Cosmetic Act, as amended (the "FD&C Act"); (ii) an article which may not be introduced into interstate commerce under the provisions of Section 344 of the FD&C Act; or (iii) "adulterated" or "misbranded" within the meaning of any applicable material pure food law of any state in effect on the date hereof; (b) there have been no recalls or withdrawals related to the Products; and (c) there have been no tampering incidents relating to the Products. ARTICLE IV Representations and Warranties of General Mills and Merger Sub -------------------------------------------------------------- Except as set forth in the corresponding sections or subsections of the disclosure schedule delivered to Diageo by General Mills on or prior to the date hereof (the "General Mills Disclosure Schedule"), each of General Mills and Merger Sub hereby represents and warrants to Diageo and Pillsbury as follows: Section 4.1 Incorporation; Authorization; etc. (a) Each of General Mills and each of its Subsidiaries is duly organized and validly existing and, with respect to each U.S. Corporation, in good standing, under the laws of the jurisdiction of its organization. Each of General Mills and each of its Subsidiaries (i) has the requisite corporate or similar power and authority to own its properties and assets and to carry on its business as it is now being conducted and (ii) with respect to each U.S. Corporation, is in good standing and is duly qualified to transact business in each jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be so qualified, except where the failure to be so organized or in good 27 standing or to be duly qualified to transact business, or to have such power and authority, would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on the business, assets, liabilities, condition (financial or otherwise) or results of operations of General Mills and its Subsidiaries, taken as a whole (a "General Mills Material Adverse Effect"). (b) General Mills and Merger Sub have the requisite corporate power to execute and deliver this Agreement and to perform their obligations hereunder and to consummate the transactions contemplated hereby. General Mills has the requisite corporate power and authority to execute the Stockholders Agreement and to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution and delivery by General Mills and Merger Sub of this Agreement, the performance by General Mills and Merger Sub of their obligations hereunder and the consummation by General Mills and Merger Sub of the transactions contemplated hereby have been duly and validly authorized by the respective Boards of Directors of General Mills and Merger Sub and, except for the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and the filing with such Secretary of Articles of Amendment to General Mills' certificate of incorporation to reflect the Charter Amendment, and except for obtaining the approval by the stockholders of General Mills of (i) an amendment to the Restated Certificate of Incorporation of General Mills, as amended, to eliminate Article V thereof (the "Charter Amendment") and (ii) the issuance of the Purchase Price Shares and the Additional Shares, if any, pursuant to this Agreement (the "General Mills Share Issuance") by the Required General Mills Votes, no other corporate proceedings on the part of General Mills or Merger Sub, their respective Boards of Directors or stockholders are necessary therefor. (c) The execution, delivery and performance of this Agreement and the Ancillary Agreements will not (i) subject to effecting the Charter Amendment, violate any provision of General Mills' or any of its Subsidiaries' respective certificate of incorporation or by-laws (or equivalent organizational documents instruments), (ii) violate any provision of, or be an event that is (or with the passage of time will result in) a violation of, or result in the acceleration of or entitle any party to accelerate or exercise (whether after the giving of notice or lapse of time or both) any obligation or right under, or result in the imposition of any Lien upon or the creation of a security interest in any shares of capital stock of General Mills or its Subsidiaries or any of General Mills' or any of its Subsidiaries' assets or properties pursuant to, any Lien, agreement, instrument, order, arbitration award, judgment or decree to which General Mills or any of its Subsidiaries is a party or by which any of them is bound, or (iii) violate or conflict with any other restriction of any kind or character to which General Mills or any of its Subsidiaries is subject, that, in the case of clauses (ii) or (iii) would, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect or prevent the Merger and the Subsidiary Purchases from occurring prior to the Termination Date. This Agreement has been duly executed and delivered by General Mills and Merger Sub, and, assuming the due execution hereof by Diageo and Pillsbury, this Agreement constitutes the legal, valid and binding obligations of General Mills and Merger Sub, enforceable against General Mills and Merger Sub in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, liquidation, dissolution, moratorium or other similar laws relating to or affecting the rights of creditors generally and to the effect of the application of general principles of equity (regardless of whether considered in proceedings at law or in equity). At the Closing, each of the Ancillary Agreements to which General Mills or a Buying Affiliate is a party will be duly executed and 28 delivered by General Mills and such Buying Affiliates, as applicable, and, assuming the due execution and delivery thereof by the other parties thereto, at the Closing will constitute the legal, valid and binding obligations of General Mills and such Buying Affiliates, enforceable against General Mills and such Buying Affiliates in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, liquidation, dissolution, moratorium or other similar laws relating to or affecting the rights of creditors generally and to the effect of the application of general principles of equity (regardless of whether considered in proceedings at law or in equity). General Mills has delivered to Diageo true and correct copies of the certificate of incorporation and by-laws, as amended to date, of General Mills. Section 4.2 Capitalization; Structure. (a) As of May 28, 2000, the authorized capital stock of General Mills consisted of (i) one billion shares of General Mills Common Stock, of which 285,422,376 were issued and outstanding and 122,884,288 were held in the treasury of General Mills, and (ii) five million shares of Cumulative Preference Stock, par value $.10 per share, of which none were outstanding and 2,000,000 have been designated Series B Participating Cumulative Preference Stock and reserved for issuance upon exercise of the rights (the "Rights") distributed to the holders of shares of General Mills Common Stock pursuant to the General Mills Rights Agreement. Since May 28, 2000 to the date of this Agreement, there have been no issuances of shares of the capital stock of General Mills other than issuances of shares (and the related Rights) pursuant to options or rights outstanding as of May 28, 2000 or granted since such time under General Mills' stock-based incentive plans in the ordinary course of business. All of the issued and outstanding shares of capital stock of General Mills are duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights. (b) The General Mills Disclosure Schedule sets forth a list of all of the Subsidiaries of General Mills as of the date of this Agreement that are Significant Subsidiaries within the meaning of Rule 1-02 of Regulation S-X under the Exchange Act (the "General Mills Significant Subsidiaries"). All of the outstanding shares of capital stock or other equity interests of each of the General Mills Significant Subsidiaries have been validly issued, and are fully paid and nonassessable and free of preemptive rights, and are owned directly or indirectly by General Mills, free and clear of all Liens. Except as set forth in the General Mills SEC Reports, neither General Mills nor any of its Subsidiaries directly or indirectly owns any equity interest in any Person, other than the Subsidiaries of General Mills, that is or would be expected to be material to General Mills and its Subsidiaries taken as a whole. Except for (i) the Rights (ii) options and other stock-based awards covering up to 59,210,825 shares of General Mills Common Stock outstanding on May 28, 2000 and (iii) stock options granted in the ordinary course in June 2000 pursuant to General Mills' annual grant of stock options, as of the date hereof there are no outstanding options, warrants or other rights of any kind to acquire from General Mills or any of its Subsidiaries, or obligations of General Mills or its Subsidiaries to issue, shares of capital stock of any class of, or other equity interests in, General Mills. (c) All of the Pillsbury Purchase Price Shares, when issued in the Merger pursuant to this Agreement, all of the Subsidiary Purchase Price Shares, when delivered by the Buying Affiliates to the Selling Affiliates pursuant to this Agreement and the Subsidiary Purchase Agreements, and all of the Additional Shares, if any, delivered pursuant hereto will, at such times, be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights. 29 Section 4.3 Financial Statements. (a) General Mills has filed all forms, reports and documents (including all Exhibits, Schedules and Annexes thereto) required to be filed by it with the SEC since January 1, 1999, including any amendments or supplements thereto (collectively, the "General Mills SEC Reports"). As of their respective dates, none of the General Mills SEC Reports (and, if amended or superseded by a filing prior to the date of this Agreement or the Closing Date, then on the date of such filing) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The financial statements, including all related notes and schedules, contained in the General Mills SEC Reports (or incorporated therein by reference) (the "General Mills Financial Statements") fairly present in all material respects the consolidated financial position and results of operations and cash flows of General Mills and its Subsidiaries for the respective periods or as of the respective dates set forth therein, in each case in accordance with U.S. GAAP applied on a consistent basis throughout the periods involved (except as otherwise indicated therein and except, in the case of unaudited General Mills Financial Statements, for changes resulting from normal and recurring year-end adjustments). Section 4.4 No Undisclosed Liabilities. Except as disclosed in the General Mills SEC Reports filed prior to the date hereof, and except for liabilities which are reflected or reserved against in the unaudited consolidated balance sheet of General Mills and its Subsidiaries as of February 27, 2000 included in the General Mills SEC Reports (the "General Mills Balance Sheet"), none of General Mills and its Subsidiaries has any liabilities or obligations that would be required to be reflected on a consolidated balance sheet of General Mills and its Subsidiaries or in the footnotes thereto prepared in accordance with U.S. GAAP, except for liabilities or obligations arising in the ordinary course of business consistent with past practice since February 27, 2000, which would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. Section 4.5 Properties. With the exception of properties disposed of since the date of the General Mills Balance Sheet in the ordinary course of business and except as set forth in the General Mills SEC Reports filed prior to the date hereof, General Mills and its Subsidiaries have good title to, or hold by valid and existing lease or license, free and clear of all Liens other than Permitted Liens, each piece of real and personal property capitalized on or included in the General Mills Balance Sheet and each piece of real and personal property acquired by General Mills or any of its Subsidiaries since the date of the General Mills Balance Sheet that would, had it been acquired prior to such date, be capitalized on or included in the General Mills Balance Sheet, except where the failure to have such title or hold such lease or license would not have or reasonably be expected to have a General Mills Material Adverse Effect. Section 4.6 Absence of Certain Changes. Except in connection with this Agreement or the Subsidiary Purchase Agreements or as set forth in the General Mills SEC Reports filed prior to the date hereof, since the date of the General Mills Balance Sheet, there has been no (a) change or development in, or effect which has had, or would reasonably be expected to have, a General Mills Material Adverse Effect or (b) action taken by General Mills or any of 30 its Subsidiaries prior to the date hereof which, if taken from the date hereof through the Closing, would violate any of the provisions of subsections (i), (ii), (iii), (iv) or (v) of Section 5.4(b). Section 4.7 Litigation; Orders. Except as set forth in the General Mills SEC Reports filed prior to the date hereof, there are no lawsuits, actions, administrative or arbitration or other proceedings or governmental investigations pending or, to General Mills' knowledge, threatened against General Mills or any of its Subsidiaries that would, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect or prevent the Merger and the Subsidiary Purchases from occurring prior to the Termination Date. There are no judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency, or by arbitration) against General Mills or any of its Subsidiaries or any of their respective properties or businesses that would, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect or prevent the Merger and the Subsidiary Purchases from occurring prior to the Termination Date. Section 4.8 Intellectual Property. General Mills and its Subsidiaries own, or are validly licensed or otherwise have the right to use, all General Mills Intellectual Property Rights used in the conduct of their businesses, except as would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. No General Mills Intellectual Property Right is subject to any outstanding judgment, injunction, order, decree or agreement restricting the use thereof by General Mills or any of its Subsidiaries or restricting the licensing thereof by General Mills and its Subsidiaries to any Person, except for any judgment, injunction, order, decree or agreement which would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. Neither General Mills nor any of its Subsidiaries is infringing on any other Person's Intellectual Property Rights and to the knowledge of General Mills no Person is infringing on any General Mills Intellectual Property Rights, except, in either case, as would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. Except for such matters as would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect (i) neither General Mills nor any of its Subsidiaries is a defendant in any action, suit, investigation or proceeding relating to, or otherwise was notified of, any alleged claim of infringement of any Intellectual Property Right and (ii) General Mills and its Subsidiaries have no outstanding claim or suit for any continuing infringement by any other Person of any General Mills Intellectual Property Rights. Section 4.9 Licenses, Approvals, Other Authorizations, Consents, Reports, etc. (a) Except as set forth in the General Mills SEC Reports filed prior to the date of this Agreement, all Licenses of General Mills and its Subsidiaries are in full force and effect except for those whose failure to be in full force and effect would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. No proceeding is pending or, to General Mills' knowledge, threatened seeking the revocation or limitation of any such License which revocation or limitation would, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. (b) Section 4.9(b) of the General Mills Disclosure Schedule contains a list of all registrations, filings, applications, notices, consents, approvals, orders, qualifications and 31 waivers required to be made, filed, given or obtained by General Mills or any of its Subsidiaries with, to or from any Persons or Governmental Authorities in connection with the consummation of the Merger or the Subsidiary Purchases, except for those with respect to which the failure to make, file, give or obtain would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. Section 4.10 Labor Matters. Neither General Mills nor any of its Subsidiaries is involved in or, to General Mills' knowledge, threatened with any work stoppage, labor dispute, arbitration, lawsuit or administrative proceeding relating to labor matters involving the employees of General Mills or any of its Subsidiaries (excluding routine workers' compensation claims) that would, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. Section 4.11 Compliance with Laws. Except as set forth in the General Mills SEC Reports filed prior to the date hereof, the conduct of the businesses of General Mills and its Subsidiaries complies with all Laws applicable thereto, except for those violations of Law which would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect; it being understood that nothing set forth in this Section 4.11 is intended to address any compliance issue that is the subject of any other representation or warranty set forth in Section 4.9 or in Article VII. Section 4.12 Insurance. General Mills and its Subsidiaries are covered by valid and currently effective insurance policies issued in favor of General Mills and its Subsidiaries that are customary for companies of similar size in the industry and locale in which General Mills and its Subsidiaries, as the case may be, operate. Section 4.13 Material Contracts. As of the date hereof, except as set forth in the General Mills SEC Reports filed prior to the date hereof or as set forth on Section 4.13 of the General Mills Disclosure Schedule (such exceptions, the "General Mills Material Contracts"), neither General Mills nor any of its Subsidiaries is a party to or bound by any (a) "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) or (b) contract or agreement that materially limits or purports to materially limit the ability of any of General Mills or any of its Affiliates to compete in any line of business or in any geographic area. With respect to all General Mills Material Contracts, (i) neither General Mills nor any of its Subsidiaries nor, to General Mills' knowledge, any other party to any such General Mills Material Contract is in breach thereof or default thereunder, and (ii) there does not exist under any provision thereof, any event that, with the giving of notice or the lapse of time or both, would constitute such a breach or default, except for such breaches, defaults and events which in the case of clauses (i) and (ii) would not, individually or in the aggregate, have or reasonably be expected to have a General Mills Material Adverse Effect. General Mills has made available to Diageo and Pillsbury true and correct copies of all General Mills Material Contracts. Section 4.14 Brokers, Finders, etc. Except for the services of the General Mills Financial Advisors, neither General Mills nor any of its Subsidiaries has employed, or is subject to any valid claim of, any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who might be entitled to a fee or commission in connection with such transactions. 32 Section 4.15 Opinions of General Mills Financial Advisors. The Board of Directors of General Mills has received the opinions of each of the General Mills Financial Advisors, each dated the date of this Agreement, to the effect that the consideration to be paid by General Mills and the Buying Affiliates pursuant to this Agreement and the Subsidiary Purchase Agreements is fair from a financial point of view to General Mills, each of which opinions contains the consent of the applicable General Mills Financial Advisor to the inclusion in full of the text of such opinion in any document delivered to the stockholders of General Mills in connection with the transactions contemplated by this Agreement. Section 4.16 Board Approval; Rights Plan. (a) The Board of Directors of General Mills, by resolutions duly adopted by unanimous vote at a meeting duly called and held and not subsequently rescinded or modified in any way, has duly (i) determined that the transactions contemplated by this Agreement are fair to and in the best interests of General Mills and its stockholders, (ii) approved this Agreement and (iii) determined to recommend to the stockholders of General Mills that such stockholders approve the Charter Amendment and the General Mills Share Issuance. (b) The Board of Directors of General Mills has taken or will take prior to the Closing the requisite action such that neither Diageo nor any of its Affiliates shall become an "Acquiring Person," and no "Share Acquisition Date" or "Distribution Date" (as such terms are defined in the General Mills Rights Agreement) will occur, solely by reason of the approval, execution or delivery of this Agreement, the Ancillary Agreements or the consummation of the transactions contemplated hereby and thereby. Section 4.17 Required Vote. The affirmative vote of (a) a majority of the votes cast by the holders of the outstanding shares of General Mills Common Stock, provided that the total vote cast represents over 50% in interest of all shares of General Mills Common Stock entitled to vote, is the only vote of the holders of any class of capital stock of General Mills necessary to approve the General Mills Share Issuance, and (b) the holders of 51% of the issued and outstanding shares of General Mills Common Stock is the only vote of the holders of any class of capital stock of General Mills necessary to approve the Charter Amendment (together, the "Required General Mills Votes"). Section 4.18 Antitakeover Statute. General Mills has taken or will take prior to the Closing all action necessary to exempt the Merger and this Agreement and the transactions contemplated hereby from the provisions of Section 203 of the DGCL. ARTICLE V Covenants of the Parties Section 5.1 Investigation of Business; Access to Properties and Records. (a)From the date hereof through the Closing, Pillsbury and Diageo shall, and shall cause their respective Subsidiaries to, afford to General Mills and General Mills' accountants, counsel and other representatives reasonable access during regular business hours, upon reasonable advance notice, to the offices, plants, properties, books and records and to employees of the Business Entities and, to the extent related to the Business, Diageo and its other Subsidiaries, and their agents 33 and consultants, subject to any applicable Laws and compliance with any policies of the Business Entities with respect to plant visits, in order that General Mills may make reasonable investigations of the affairs of the Business and the Business Entities. (b) From the date hereof through the Closing, General Mills shall, and shall cause its Subsidiaries to, afford to Diageo and Diageo's accountants, counsel and other representatives reasonable access during regular business hours, upon reasonable advance notice, to the offices, plants, properties, books and records and to employees of General Mills and its Subsidiaries, and their agents and consultants, subject to any applicable Laws and compliance with any policies of General Mills and its Subsidiaries with respect to plant visits, in order that Diageo may make reasonable investigations of the affairs of General Mills and its Subsidiaries. (c) Any information provided to General Mills or Diageo or their respective representatives pursuant to this Agreement shall be subject to the terms of the Confidentiality Agreement dated April 6, 2000 between Diageo and General Mills (the "Confidentiality Agreement"). (d) Following the Closing, Diageo shall, and shall cause the Continuing Affiliates to, afford to General Mills and General Mills' accountants, counsel and other representatives reasonable access during regular business hours, upon reasonable advance notice, to any books and records retained by Diageo or the Continuing Affiliates that relate in part to the operations of the Business Entities (but that do not relate primarily to the operations of the Business Entities and are therefore not Books and Records that must be delivered to General Mills and its Subsidiaries), but such access need be given only with respect to the portion of such books and records as are related to the operations of the Business Entities. Upon General Mills' request, Diageo shall, and shall cause the Continuing Affiliates to, provide General Mills with copies of the portions of such books and records that relate to the operations of the Business Entities. (e) Following the Closing, General Mills shall, and shall cause its Subsidiaries to, (i) retain, for a period of six years following the Closing, all Books and Records in the possession of the Business Entities as of the Closing or delivered pursuant to this Agreement and (ii) afford to Diageo and Diageo's accountants, counsel and other representatives reasonable access during regular business hours, upon reasonable advance notice, to any Books and Records in connection with matters that are the subject of indemnification under Section 9.2 or otherwise necessary for Diageo to comply with the terms of this Agreement or any applicable Law. Section 5.2 Filings; Other Actions; Notification. (a) Each of the parties hereto shall use (and shall cause their respective Subsidiaries, officers and directors, and shall use reasonable best efforts to cause their Affiliates, employees, agents, attorneys, accountants and representatives, to use) their respective reasonable best efforts as soon as practicable to take or cause to be taken all action, and to do or cause to be done all things, necessary, proper or advisable on its part under this Agreement, the Ancillary Agreements and any applicable Law to consummate and make effective the Merger, the Subsidiary Purchases and any other transaction contemplated by this Agreement or the Ancillary Agreements, including (i) preparing and filing with the SEC the General Mills Proxy Statement and with the U.K. Listing Authority the Diageo Circular and all necessary amendments or supplements to those filings; (ii) preparing, providing and filing all documentation and other information to effect all necessary notices, reports, applications, filings 34 and other submissions, and to obtain as promptly as is practicable all consents, approvals, waivers, licenses, permits, authorizations, registrations, qualifications, decisions, determinations or other permissions or actions necessary or advisable to be obtained from any Governmental Authority or any other Person in order to consummate the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements; (iii) provide all such information concerning such party, its Subsidiaries and its officers, directors, employees, partners and Affiliates as may be necessary or reasonably requested in connection with any of the foregoing; (iv) avoid the issuance or entry of, or have vacated or terminated, any decree, order, injunction, judgment, decision or determination that would, in whole or in part, restrain, prevent or delay the consummation of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements; (v) commit to divest and, if divestiture is required prior to consummation of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements, divest such plants, assets or businesses of the Business Entities and/or of General Mills (including entering into customary ancillary agreements on commercially reasonable terms relating to any such divestiture of such plants, assets or businesses) as may be required in order to (x) avoid the issuance or entry of any decree, order, injunction, judgment, decision or determination or the initiation of any lawsuit, action or proceeding by any Governmental Authority seeking to, in whole or in part, enjoin, prevent or delay the consummation of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements, or (y) effect the dissolution or termination of, any injunction, temporary restraining order, or other decree, order, judgment, decision or determination in any suit, action, inquiry, investigation or proceeding, that would otherwise have the effect of preventing or delaying, in whole or in part, the consummation of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements; provided, however, that General Mills shall not be required to offer, take or agree to any actions in connection with, or agree to, any hold separate order, sale, divestiture or disposition of plants, assets or businesses that accounted in the aggregate for more than $650 million in revenues for the fiscal year ended June 30, 1999; and provided further that neither Pillsbury nor Diageo shall, nor shall they cause any of their Subsidiaries to, divest or dispose of any plants, assets or businesses pursuant to the obligations of this Section 5.2 without the prior consent of General Mills, which consent shall not be withheld unreasonably so long as the proposed divestiture or disposition is within the parameters contemplated by the immediately preceding proviso. (b) Subject to applicable Laws relating to the exchange of information, the parties hereto shall have the right to review in advance, and to the extent practicable to consult the other parties on, all the information relating to the Business Entities or General Mills, as the case may be, and any of their respective Subsidiaries, that appear in any filing made with, or written materials submitted to, any Governmental Authority or any other Person in connection with the Merger, the Subsidiary Purchases and any other transaction contemplated by this Agreement or the Ancillary Agreements. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as is practicable. (c) The parties hereto shall keep the other parties reasonably apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by such 35 parties or any of their respective Subsidiaries from any third party and/or any Governmental Authority with respect to the transactions contemplated by this Agreement. (d) General Mills and Diageo shall cooperate in obtaining the opinion of Diageo's tax counsel to satisfy the condition set forth in Section 8.3(d). (e) Without limiting the generality of the undertakings provided in this Section 5.2, the parties hereto agree to take or cause to be taken the following actions: (i) the prompt provision to any and all federal, state, local or foreign Governmental Authority with jurisdiction over enforcement of any applicable antitrust laws ("Governmental Antitrust Authority") of information and documents requested by any Governmental Antitrust Authority or necessary, proper or advisable to permit consummation of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements; (ii) subject to the provisos of Section 5.2(a), the proffer by the parties, or any of them, of their willingness to sell or otherwise dispose of, or to hold separate and agree to sell or otherwise dispose of, such plants, assets, categories of assets or businesses of the Business Entities and/or General Mills or their respective Subsidiaries (and to enter into agreements with the relevant Governmental Antitrust Authority giving effect thereto) if such action should be reasonably necessary or advisable to avoid the initiation of any action or proceeding, or the entry or issuance of any decree, order, injunction, judgment, decision, determination or other action, by any Governmental Antitrust Authority to delay, restrain, enjoin or otherwise prohibit, in whole or in part, consummation of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements; and (iii) subject to the provisos of Section 5.2(a), use reasonable best efforts to take promptly, in the event that any permanent or preliminary injunction or other decree, order, judgment, decision or determination is entered or issued, or becomes reasonably foreseeable to be entered or issued, in any lawsuit, investigation, inquiry, action or proceeding that would make consummation, in whole or in part, of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements unlawful or that would prevent or delay, in whole or in part, consummation of the Merger, the Subsidiary Purchases or any other transaction contemplated by this Agreement or the Ancillary Agreements, any and all steps (including the taking of any appeal, the posting of any bond or the taking of the steps contemplated by clause (ii) of this paragraph) necessary to vacate, modify or suspend such injunction, decree, order, judgment, decision or determination so as to permit such consummation on a schedule as close as possible to that contemplated by this Agreement and the Ancillary Agreements; provided, however, that the obligations of this Section 5.2 may be modified or amended by written agreement signed by the respective duly authorized representatives of the parties hereto. The parties agree that none of the steps or actions required to be taken pursuant to this Section 5.2 shall be considered a Pillsbury Material Adverse Effect or General Mills Material Adverse Effect. Section 5.3 Further Assurances. The parties hereto agree that, from time to time, whether before, at or after the Closing Date, each of them will execute and deliver such further instruments of conveyance and transfer and take such other actions as may be necessary to carry out the purposes and intents of this Agreement. Without limiting the generality of the foregoing, the parties hereto agree that: 36 (a) Between the date hereof and the Closing, they will use their reasonable best efforts to ensure that the Business Entities hold all of the assets and liabilities of the Business and no other assets or liabilities. (b) Following the Closing, to the extent any assets or rights of the Business have been retained by Diageo and the Continuing Affiliates, Diageo shall and shall cause the Continuing Affiliates to use their respective reasonable best efforts to convey such assets or rights to the Business Entities as promptly as practicable (and pending such conveyance to provide the Business Entities with the benefit of such assets). (c) To the extent any real property or other assets or facilities, or any rights or services, are shared or used jointly by the Business, on the one hand, and the businesses of Diageo and its Subsidiaries other than the Business, on the other hand, the parties will use their reasonable best efforts to reach equitable arrangements under which such real property, assets, facilities, rights and services will cease to be shared at or prior to the Closing. To the extent this is not possible, the parties will mutually agree in good faith on reasonable transition arrangements that will allow such sharing to cease as soon as practicable following the Closing (except to the extent the parties agree on longer term sharing arrangements, which shall be agreed on an arm's-length basis). Section 5.4 Conduct of Business. (a) Conduct of the Business Entities. Pillsbury agrees, as to itself and its Subsidiaries, and Diageo agrees, as to each of the Business Entities, that, from the date hereof until the Effective Time, except as set forth in Section 5.4 of the Diageo Disclosure Schedule, as expressly contemplated by this Agreement (including (i) actions taken pursuant to Section 5.2, (ii) transactions (as to which Diageo has provided General Mills reasonable notice and opportunity to consult with Diageo in advance of consummation) incident to the Subsidiary Purchases, which transactions are not detrimental to General Mills or any of its Subsidiaries or Affiliates or to any of the Business Entities, or (iii) as required by applicable Law), or as otherwise agreed to in writing by General Mills, the Business of the Business Entities shall be conducted in the ordinary and usual course and, to the extent consistent therewith (and subject to the restrictions set forth in this Section 5.4(a)), the Business Entities will use all reasonable best efforts to preserve and maintain existing relations and goodwill with employees, customers, brokers, suppliers and other Persons with which the Business Entities as a group have significant business relations. Without limiting the foregoing, Pillsbury agrees, as to itself and its Subsidiaries, and Diageo agrees, as to each of the Business Entities, that, from the date hereof until the Effective Time, except as set forth in Section 5.4 of the Diageo Disclosure Schedule, as expressly contemplated by this Agreement (including (i) actions taken pursuant to Section 5.2, (ii) transactions (as to which Diageo has provided General Mills reasonable notice and opportunity to consult with Diageo in advance of consummation) incident to the Subsidiary Purchases, which transactions are not detrimental to General Mills or any of its Subsidiaries or Affiliates or to any of the Business Entities or (iii) as required by applicable Law), or as otherwise agreed to in writing by General Mills, Pillsbury shall not and shall cause its Subsidiaries not to, and Diageo shall cause each of the Business Entities not to, directly or indirectly do, or commit to do, any of the following: (i) except for dividends or distributions paid between the date of this Agreement and the Closing Date to fund estimated income Tax liabilities of the Business Enti- 37 ties, which liabilities arise in connection with the net income of the Business Entities prior to the Closing Date, and except as otherwise provided in Section 5.15, declare or pay any dividend or other distribution with respect to any share of its capital stock other than dividends and other distributions paid by any Business Entity to its parent corporation if such parent is another Business Entity wholly owned, directly or indirectly, by Pillsbury or a Food Subsidiary and other than dividends and other distributions paid by a Food Subsidiary in the ordinary course of business consistent with past practice; (ii) repurchase, redeem or otherwise acquire any shares of capital stock or other securities of, or other ownership interests in, any of the Business Entities; (iii) issue, deliver, pledge, encumber or sell any shares of capital stock of or other equity interests in any Business Entity, or any securities convertible into any such shares of capital stock or other equity interests, or any rights, warrants or options to acquire any such shares of capital stock or other equity interests; (iv) amend its Certificate of Incorporation or By-Laws or other comparable organizational documents or amend any terms of the outstanding securities of any Business Entity; (v) merge or consolidate with any other Person, make any investment in any other Person, including any joint venture, or acquire the stock or assets or rights of any other Person other than (A) in each case in the ordinary course of business consistent with past practice with a commitment period of one year or less, purchases of finished product, raw materials, property, plant and equipment, services and items used or consumed in the manufacturing process, (B) capital expenditures made pursuant to Pillsbury's 2001 Capital Expenditure Program, a copy of which has been provided to General Mills (provided that promptly following the date hereof, and in any event no later than 30 days after such date, Diageo and General Mills shall cause their respective responsible executives to meet and reasonably reprioritize such 2001 Capital Expenditure Plan, and thereafter this clause 5.4(a)(v)(B) shall apply to such reprioritized plan), or (C) other transactions not described in (A) or (B) that are in the ordinary course and not individually in excess of $5 million; (vi) sell, lease, license or otherwise dispose of any Business Entity or any assets, securities, rights or property of any Business Entity other than (A) sales of inventory and equipment in the ordinary course of business consistent with past practice or (B) transactions that are in the ordinary course and not individually in excess of $5 million; (vii) except as set forth in Section 5.15, incur any indebtedness for borrowed money, guarantee any such indebtedness, enter into any new or amend existing facilities relating to indebtedness, issue or sell any debt securities or warrants or other rights to acquire any debt securities or guarantee any debt securities; (viii) except as required under any collective bargaining agreement or in the ordinary course of business consistent with past practice, enter into or adopt any new, or amend or terminate any existing, Employee Arrangement (including any trust or other 38 funding arrangement), other than as required by law, except that, in order to retain a current employee or recruit a new employee, in each case consistent with past practice, a Business Entity may amend or enter into Employee Arrangements with individual employees who are not executive officers who earn $100,000 or more or directors, in each case, of a Business Entity if such amendment or new arrangement will not materially increase the obligations of the Business Entities; (ix) except (A) as permitted under paragraph (viii) of this Section 5.4(a) or in Article VI of this Agreement (B) to the extent required under any collective bargaining agreement or by written employment agreements existing on the date of this Agreement, make any new grants or awards to, vest, accelerate or otherwise modify any grant, benefit or awards made to, or increase the compensation payable or to become payable to its officers, directors or employees or pay any severance or bonus not otherwise due to its officers, directors or employees, except for increases in compensation or new individual grants, awards, severance payments or bonus payments that are not part of any plan or program, in the ordinary course of business consistent with past practice to employees (who are not executive officers or directors of any Business Entity) that, in any event, do not result in aggregate increases in such compensation by more than 2% over the compensation in effect on the date of this Agreement (or, outside the United States, by more than 2% over the local rate of inflation or not in accord with the current financial plan for each respective country); (x) renew any collective bargaining agreement or enter into any new collective bargaining agreement, if such renewed or new collective bargaining agreement would materially increase the costs and/or obligations imposed on the Business Entities thereunder (net of inflation in the case of agreements outside the United States); (xi) contribute any material amount to any trust or other arrangement funding any Employee Arrangement, except to the extent required by the existing terms of such Employee Arrangement, trust or other funding arrangement, by any collective bargaining agreement, by any written employment agreement existing on the date of this Agreement, or by applicable law; (xii) (A) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization or (B) enter into any agreement or exercise any discretion providing for acceleration of payment or performance as a result of a change of control of any Business Entity; (xiii) renew or enter into any non-compete, exclusivity or similar agreement that would restrict or limit, in any material respect, the operations of the Business Entities, taken as a whole, or, after the Effective Time, of General Mills or its Subsidiaries, taken as a whole, other than license and distribution arrangements with franchisees in the ordinary course of business consistent with past practice; (xiv) (A) modify in any material respect, amend in any material respect or terminate any Business Material Contract set forth in subsection (d) or (g) of Section 3.13 or (B) enter into any Business Material Contract of the type set forth in subsection (d) or (g) 39 of Section 3.13 or, except in the ordinary course, any other Business Material Contract; (xv) renew, enter into, amend or waive any material right under (A) any contract with or loan to any Affiliate of a Business Entity (other than another Business Entity), except with respect to certain employment matters as permitted under other covenants contained herein, (B) any distribution agreement that is not terminable without penalty on one years notice, other than any distribution agreement which involves or would be expected to involve monthly sales not in excess of $7.5 million and which is otherwise in the ordinary course of business consistent with past practice, (C) any brokerage arrangement that is not terminable on ninety days notice or less or (D) any joint venture agreement; (xvi) settle or compromise any material litigation, or waive, release or assign any material claims, including with respect to any Business Intellectual Property Rights; (xvii) adopt any change, other than as required by applicable generally accepted accounting principles, in its accounting policies, procedures or practices; (xviii) sell, license, lease or otherwise dispose of any Business Intellectual Property or any brand or line of business; (xix) make any change in any method of accounting for Tax purposes, make any Tax election that is inconsistent with past practice or file any Tax Return other than in a manner consistent with past practice; (xx) other than in the ordinary course of business, consistent with past practice, take any action (A) to build inventory levels at the trade or factory level or (B) to permit factory inventory levels to fall below reasonably expected requirements; (xxi) fail to maintain advertising spending and support, trade incentives and broker incentives in the ordinary course of business, consistent with past practice over the past two fiscal years; or (xxii) agree or commit to do any of the foregoing. (b) Conduct by General Mills. General Mills agrees that from the date hereof until the Effective Time, except as set forth in Section 5.4 of the General Mills Disclosure Schedule, as expressly contemplated by this Agreement (including actions taken pursuant to Section 5.2 or as required by applicable Law), or as otherwise agreed to in writing by Diageo, the business of General Mills and its Subsidiaries shall be conducted in the ordinary and usual course and, to the extent consistent therewith (and subject to the restrictions set forth in this Section 5.4(b)), General Mills and its Subsidiaries will use all reasonable best efforts to preserve and maintain existing relations and goodwill with employees, customers, brokers, suppliers and other Persons with which General Mills and its Subsidiaries as a group have significant business relations. Without limiting the foregoing, General Mills agrees, as to itself and its Subsidiaries, that, from the date hereof until the Effective Time, except as set forth in Section 5.4 of the General Mills Disclosure Schedule, as expressly contemplated by this Agreement (including actions taken pursuant to Section 5.2 or as required by applicable Law), or as otherwise agreed to in 40 writing by Diageo, General Mills shall not and shall cause its Subsidiaries not to, directly or indirectly do, or commit to do, any of the following: (i) in the case of General Mills only, amend or otherwise change its Certificate of Incorporation or By-Laws (other than the Charter Amendment), or amend, modify or terminate the General Mills Rights Agreement except as provided in Section 4.16; (ii) in the case of General Mills only, (A) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock (other than regular quarterly dividends consistent with past practices, including any increases consistent with past practice), (B) split, combine or reclassify its outstanding shares of capital stock, or (C) repurchase, redeem or otherwise acquire, except in connection with any employee benefit plans or arrangements and except pursuant to General Mills' ongoing stock repurchase program or hedging activities, or permit any of its Subsidiaries to purchase or otherwise acquire, any shares of General Mills' capital stock or any securities convertible into or exchangeable or exercisable for any shares of General Mills' capital stock; (iii) in the case of General Mills only, adopt a plan of complete or partial liquidation or dissolution; (iv) in the case of General Mills only, issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class or other equity interests, other than (A) issuable pursuant to any employee option or benefit plan or arrangement, (B) issued in connection with any merger, consolidation or acquisition permitted by clause (v) below, (C) issued in other issuances that do not, in the aggregate, represent more than 5% of the outstanding General Mills Common Stock and (D) in connection with General Mills' hedging activities; (v) acquire by merger, consolidation or acquisition of stock or assets (from any Person other than General Mills or a Subsidiary of General Mills) any corporation, partnership or other business organization or division thereof if (A) the aggregate consideration is in excess of $100 million for any individual transaction or $300 million for all such transactions or (B) such acquisition would be reasonably likely to prevent the Merger and the Subsidiary Purchases from occurring prior to the Termination Date; or (vi) agree or commit to do any of the foregoing. (c) Certain Joint Ventures and Franchises. With respect to the joint ventures set forth in Section 5.4(c) of the Diageo Disclosure Schedule, within 45 days of the date hereof, General Mills and Diageo will discuss and mutually agree on a strategic plan for such joint ventures and thereafter will cooperate reasonably to implement such plan. With respect to the franchises described in Section 5.4 of the Diageo Disclosure Schedule, Diageo will pre-review with General Mills all new franchisees (but shall not be required to pre-review with General Mills new shops with existing franchisees). 41 Section 5.5 Public Announcements. Subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), General Mills and Diageo will consult with each other before issuing, or permitting any agent or Affiliate to issue (and will use reasonable best efforts to agree upon the text of), any press releases or otherwise making or permitting any agent or Affiliate to make, any public statements with respect to this Agreement and the transactions contemplated hereby. Section 5.6 Intercompany Accounts; Guaranties. (a) Except as otherwise provided in Section 5.15, (i) prior to the Effective Time, no Business Entity shall repay (A) any indebtedness or other payable owing to Diageo or any Continuing Affiliate or (B) any other indebtedness except as required by the terms thereof and (ii) effective as of the Effective Time, all intercompany receivables, payables, loans and investments then existing between Diageo or any Continuing Affiliate, on the one hand, and the Business Entities, on the other hand, shall be settled by way of capital contribution (with respect to intercompany payables or loans due to Diageo or any Continuing Affiliate) or by way of dividend in kind (with respect to receivables of any Business Entity owed by Diageo or any Continuing Affiliate). (b) General Mills shall use its reasonable best efforts to cause itself or one or more of its Affiliates to be substituted in all respects for Diageo or any Continuing Affiliate, effective as of the Closing, in respect of all obligations of Diageo and any Continuing Affiliate under each of the material guaranties, bonding arrangements, letters of credit and letters of comfort given by Diageo or any of its Continuing Affiliates for the benefit of the Business Entities, which material guaranties, performance bonds, letters of credit and letters of comfort are set forth in Schedule 5.6 of the Diageo Disclosure Schedule. Diageo shall use its reasonable best efforts to cause itself or one or more of the Continuing Affiliates to be substituted in all respects for any Business Entity, effective as of the Closing, in respect of all obligations of any Business Entity under each material guaranty, bonding arrangement, letter of credit and letter of comfort given by any of the Business Entities for the benefit of Diageo or any of the Continuing Affiliates and not related to the Business. Section 5.7 Subsidiary Purchase Agreements. As soon as reasonably practicable following the execution hereof, (a) Diageo will cause the Selling Affiliates to execute and deliver duly executed counterparts to the Subsidiary Purchase Agreements and (b) General Mills will notify Diageo of the identity of each of the Buying Affiliates and will cause each such Buying Affiliate to execute and deliver duly executed counterparts to the Subsidiary Purchase Agreements. Subject to the provisions of Section 5.8(b), the Subsidiary Purchase Agreements will be based on (and reflect the substantive terms contained in) the model form of stock purchase agreement attached hereto as Exhibit B, subject to such revisions that are mutually agreed to by Diageo and General Mills as necessary or appropriate to reflect the laws, regulations and other requirements of any jurisdiction in which the applicable Purchased Entity, Selling Affiliate or Buying Affiliate is incorporated or organized. Section 5.8 Allocation; Structure of Subsidiary Purchases. (a) Promptly following the date of this Agreement, Diageo and General Mills shall mutually agree to a reasonable allocation of the Purchase Price Shares amongst the Merger and each of the Subsidiary Purchases. 42 (b) General Mills and Diageo shall cooperate to determine whether the Subsidiary Purchases shall be consummated as stock purchases, acquisitions of assets and liabilities or alternative structures and shall consummate such acquisitions pursuant to the terms hereof according to such mutually agreed structures; provided that, unless otherwise agreed, the Subsidiary Purchases shall be consummated pursuant to the Subsidiary Purchase Agreements. The parties will agree on the final structure of the Subsidiary Purchases based on compliance with the laws, rules and regulations of the applicable local jurisdictions, tax efficiency and any other relevant considerations; provided that the economic terms of such Subsidiary Purchases shall be consistent with this Agreement and the model form of Subsidiary Purchase Agreement attached hereto as Exhibit B. Section 5.9 No Solicitation. (a) Neither Diageo nor any of its Subsidiaries nor any of the officers and directors of any of them shall, and Diageo shall direct and use its reasonable best efforts to cause its and its Subsidiaries' employees, agents and representatives, including any investment banker, attorney or accountant retained by it or any of its Subsidiaries (Diageo, its Subsidiaries and their respective officers, directors, employees, agents and representatives being the "Diageo Representatives") not to, directly or indirectly through another Person, (i) solicit, initiate or encourage or otherwise facilitate any inquiries (including by way of furnishing any non-public information or otherwise) or the making of any inquiry, proposal or offer from any Person which constitutes an Acquisition Proposal (or would reasonably be expected to lead to an Acquisition Proposal) or (ii) participate in any discussions or negotiations regarding an Acquisition Proposal. For purposes of this Agreement, "Acquisition Proposal" means any direct or indirect inquiry, proposal or offer (or any improvement, restatement, amendment, renewal or reiteration thereof) relating to any direct or indirect acquisition or purchase of any capital stock of or other equity interest in, or any significant portion of the businesses of, any of the Business Entities or a merger, consolidation or other business combination transaction involving the Business Entities or a sale of any significant portion of the assets of the Business Entities, other than the transactions contemplated by this Agreement or as permitted by Section 5.4(a) or requested by General Mills in connection with any actions taken pursuant to Section 5.2. (b) Neither General Mills nor any of its Subsidiaries nor any of the officers and directors of any of them shall, and General Mills shall direct and use its reasonable best efforts to cause its and its Subsidiaries' employees, agents and representatives, including any investment banker, attorney or accountant retained by it or any of its Subsidiaries (General Mills, its Subsidiaries and their respective officers, directors, employees, agents and representatives being the "General Mills Representatives") not to, directly or indirectly through another Person, (i) solicit, initiate or encourage or otherwise facilitate any inquiries (including by way of furnishing any non-public information or otherwise) or the making of any inquiry, proposal or offer from any Person which constitutes a Business Combination Proposal with respect to General Mills (or would reasonably be expected to lead to such a Business Combination Proposal) or (ii) participate in any discussions or negotiations regarding a Business Combination Proposal with respect to General Mills. (c) In addition to the obligations of Diageo and General Mills set forth in paragraphs (a) and (b), respectively, of this Section 5.9, Diageo or General Mills, as the case may be, shall promptly (but in any event within one Business Day) notify the other orally and in writing of any Acquisition Proposal or any inquiry regarding the making of any Acquisition Proposal 43 or, with respect to General Mills, any Business Combination Proposal or any inquiry regarding the making of any Business Combination Proposal, indicating, in connection with such notice, the name of the Person making such Acquisition Proposal or Business Combination Proposal or inquiry and the terms and conditions of any such Acquisition Proposal or Business Combination Proposal or inquiry. Each of Diageo and General Mills agrees that it shall take the necessary steps promptly to inform its Subsidiaries and the Diageo Representatives and General Mills Representatives, respectively, of the obligations undertaken by it in this Section 5.9. Section 5.10 Proxy Statement; Diageo Circular. (a) Each of General Mills and Diageo shall cooperate and promptly prepare and General Mills shall file as promptly as practical a preliminary form of the proxy statement to be sent to General Mills stockholders in connection with the General Mills Stockholders Meeting (the "General Mills Proxy Statement"). General Mills and Diageo (with respect to information supplied by it or its Affiliates) will cause the General Mills Proxy Statement to comply as to form in all material respects with the applicable provisions of the Exchange Act and the rules and regulations thereunder. Each of General Mills and Diageo shall use its respective reasonable best efforts to have the General Mills Proxy Statement cleared by the SEC as promptly as practicable after such filing. General Mills will advise Diageo, promptly after it receives notice thereof, of any request by the SEC for amendment of the General Mills Proxy Statement or comments thereon. (b) General Mills and Diageo each agrees, as to itself and its Affiliates, that none of the information supplied or to be supplied by it or its Affiliates for inclusion or incorporation by reference in the General Mills Proxy Statement, and any amendment or supplement thereto will, at the date of mailing to stockholders and at the time or times of the General Mills Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time prior to the date of the General Mills Stockholders Meeting any information relating to General Mills or Diageo, or any of their respective Affiliates, officers or directors, should be discovered by General Mills or Diageo which should be set forth in an amendment or supplement to the General Mills Proxy Statement, so that such document would not include any misstatement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other party and, to the extent required by applicable law, an appropriate amendment or supplement describing such information shall be filed promptly with the SEC and, to the extent required by law, disseminated to the General Mills stockholders. (c) Each of General Mills and Diageo shall cooperate and promptly prepare and Diageo shall file as promptly as practicable with the U.K. Listing Authority a circular to be sent to Diageo shareholders in connection with the Diageo Shareholders Meeting (the "Diageo Circular"), containing (i) a notice convening the Diageo Shareholders Meeting, (ii) such other information (if any) as may be required by the U.K. Listing Authority and the U.K. Listing Rules and (iii) such other information as Diageo and General Mills shall agree to include therein. Diageo and General Mills each agrees, as to itself and its Subsidiaries, that the Diageo Circular and any supplements thereto and any other circulars or documents issued to Diageo shareholders, will contain all particulars relating to Diageo and General Mills and their respective Subsidiaries 44 required to comply in all material respects with all United Kingdom statutory and other legal provisions and all such information contained in such documents will be substantially in accordance with the facts and will not omit anything material likely to affect the import of such information. (d) Each of General Mills and Diageo will use its reasonable best efforts to cause the General Mills Proxy Statement and the Diageo Circular, respectively, to be mailed to its stockholders or shareholders as promptly as practicable after the date hereof. Section 5.11 Stockholder Meetings; Board Recommendations. General Mills will take all action necessary to convene a meeting of the stockholders of General Mills at which the stockholders of General Mills shall consider approval of the General Mills Share Issuance and the Charter Amendment (the "General Mills Stockholders Meeting") as promptly as practicable after the General Mills Proxy Statement has been cleared by the SEC. Diageo will take all action necessary to convene an extraordinary general meeting of Diageo shareholders at which resolutions will be proposed to approve the Transactions (the "Diageo Shareholders Meeting") as promptly as practicable after the Diageo Circular is cleared by the U.K. Listing Authority; provided that Diageo shall not be required to hold the Diageo Shareholders Meeting earlier than September 8, 2000. Subject to fiduciary obligations and the requirements of applicable law, the Board of Directors of each of General Mills and Diageo shall recommend to its respective stockholders and shareholders the approval of the matters to be submitted to its stockholders or shareholders at the General Mills Stockholders Meeting and the Diageo Shareholders Meeting, respectively, which recommendations shall be set forth in the General Mills Proxy Statement and the Diageo Circular, respectively, and shall use reasonable best efforts to solicit such approval. The General Mills Stockholders Meeting and the Diageo Shareholders Meeting will be held regardless of any failure to make such recommendation or any change in such recommendation. Section 5.12 General Mills Board of Directors. At or prior to the Effective Time, General Mills' Board of Directors will take such action as may be necessary to elect Paul S. Walsh and John M.J. Keenan to the Board of Directors of General Mills effective as of the Effective Time (and, in the event Mr. Walsh or Mr. Keenan shall at the Effective Time be unable or unwilling to serve in such capacity, another individual in his stead mutually agreed upon by Diageo and General Mills from amongst a pool of the Diageo Directors, provided that Diageo and General Mills shall be entitled, should they agree, to select an individual not from amongst such pool). Section 5.13 Stock Exchange Listing. General Mills shall use its reasonable best efforts to cause the shares of General Mills Common Stock to be issued in the Merger and delivered pursuant to the Subsidiary Purchase Agreements to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Closing Date. Section 5.14 Delivery of Financial Statements and Other Information. (a) As promptly as practicable following the execution of this Agreement (but in any event no later than August 14, 2000), Diageo shall deliver to General Mills true and complete copies of the audited combined financial statements of the Business Entities containing balance sheets as of June 30, 1999 and June 30, 2000, and statements of operations and of cash flows for each of the three fiscal years in the three-year period ended June 30, 2000, in each case prepared in accordance with 45 U.S. GAAP (the "2000 Financial Statements"). Diageo shall also deliver to General Mills as promptly as practicable such other financial statements or information relating to the Business Entities as General Mills may reasonably request in connection with the preparation of the General Mills Proxy Statement. (b) As promptly as practicable following execution of this Agreement, Diageo shall deliver to General Mills true and correct copies of the certificate of incorporation and by-laws (or equivalent organizational documents), each as amended to date, of each of the Business Entities other than Pillsbury. Section 5.15 Closing Date Indebtedness. (a) Prior to the Effective Time, Diageo and General Mills shall agree in good faith on, and cooperate to implement, a plan for the incurrence (and prepayment) by Pillsbury of new third-party indebtedness in an amount equal to (i) $5.142 billion less (ii) the amount of aggregate outstanding indebtedness of the Business Entities as of the Closing Date (other than intercompany indebtedness owing to Diageo or one or more Continuing Affiliates, all of which intercompany indebtedness will be repaid and/or contributed to capital pursuant to paragraph (b) of this Section 5.15 and Section 5.6(a)). Pillsbury shall not enter into any new debt facilities or otherwise incur any indebtedness pursuant to this Section 5.15(a) without General Mills' consent to the amount and terms thereof, which consent will not be unreasonably withheld. (b) Immediately prior to the Effective Time, Pillsbury will pay to Pillsbury Stockholder and/or another Continuing Affiliate all of the proceeds of the new third-party indebtedness incurred pursuant to paragraph (a) of this Section 5.15, either as a dividend or as a repayment of intercompany loans or payables, or a combination of dividend and repayment. Any intercompany loans or payables not repaid pursuant to this paragraph (b) will be contributed to capital at the Effective Time as contemplated by Section 5.6(a). Section 5.16 Insurance. (a) From the date hereof to the Effective Time, Diageo and General Mills will cooperate reasonably to develop and implement a transition plan with respect to insurance coverage for the Business Entities, with the goal of ensuring continuing insurance coverage and transfer at the Effective Time of the responsibility for risk management relating to the Business Entities from Diageo to General Mills (subject to the remaining provisions of this Section 5.16). (b) From and after the Effective Time, Diageo shall use its reasonable efforts, subject to the terms of the Diageo Insurance Policies, to retain the right to make claims and receive recoveries, subject to Section 5.16(f), for the benefit of the Business Entities, as well as for the benefit of Diageo and the Continuing Affiliates, under any insurance policies maintained at any time prior to the Closing by Diageo or a Continuing Affiliate or the predecessors of any of them that provide coverage on an "occurrence" rather than a "claims made" basis (collectively, the "Diageo Insurance Policies"), covering any loss, liability, claim, damage or expense relating to the assets, business, operations, conduct, products and employees (including former employees) of any of the Business Entities and their respective predecessors (in each case, in so far as they cover or otherwise relate to the Business or otherwise relate to losses, liabilities, claims, damages or expenses as to which any of the Business Entities could have responsibility) that relates to or arises out of occurrences prior to or at the Closing (an "Insurance Claim"). 46 (c) General Mills or the applicable Business Entity will pay, incur and bear all amounts relating to any self-retention or deductible and any gaps in or limits on coverage applicable to an Insurance Claim asserted at any time with respect to the applicable Diageo Insurance Policy and the coverage available with respect to any Insurance Claim shall be the actual coverage available under such Dover Insurance Policy at the time the Insurance Claim is made, taking into account the effect of any prior claim payments on any self-retention or deductible or in causing any gap or limits on coverage under the terms of such Diageo Insurance Policy, whether or not the applicable Diageo Insurance Policy solely covers claims of the Business Entities or covers claims of both Diageo and the Continuing Affiliates on the one hand, and the Business Entities on the other hand. In the event that any legal action, arbitration, negotiation or other proceedings are required for coverage to be asserted against any insurer in connection with the Diageo Insurance Policies or for an Insurance Claim to be perfected, in each case on behalf of any of the Business Entities, (i) General Mills shall, to the extent possible, do so at its own expense or at the expense of the applicable Business Entity or (ii) if General Mills is not permitted to assert coverage or perfect an Insurance Claim, Diageo or one of the Continuing Affiliates shall do so, and, in either event, General Mills or the applicable Business Entity shall reimburse Diageo and the Continuing Affiliates for any reasonable costs and expenses that they may incur because of such action (other than the incurrence of normal internal administrative expenses). (d) Each of Diageo, General Mills and the Business Entities shall use its reasonable best efforts (i) to cooperate fully and to cause its Affiliates to cooperate fully with the others in submitting good faith Insurance Claims on behalf of the Business Entities under the Diageo Insurance Policies and (ii) to pay promptly over to General Mills (or, at General Mills' request, to the applicable Business Entities) any and all amounts received by Diageo or the Continuing Affiliates under the Diageo Insurance Policies with respect to Insurance Claims. (e) Diageo and the Continuing Affiliates shall retain custody of the Diageo Insurance Policies and any and all service contracts, claim settlements and all other insurance records relating thereto; and General Mills and the Business Entities shall have access to and the right to make copies of all such documents and records upon reasonable request to Diageo or the Continuing Affiliates. (f) Nothing contained herein to the contrary shall prohibit Diageo from managing its risk management program with respect to post-Closing periods, including without limitation the cancellation or reduction of the amount or scope of insurance coverage with respect to post-Closing periods, in a manner consistent with their business judgment as applied to the operations of Diageo and the Continuing Affiliates. Nothing contained in this Section 5.16 shall affect the indemnification rights or obligations of the parties pursuant to this Agreement. ARTICLE VI Employee Benefits Matters Section 6.1 Employee Benefits Matters. (a) Continued Benefits. For one year following the Closing, General Mills shall continue to provide all current U.S. employees of the Business Entities employed as of the 47 Closing Date who continue to be employed following the Closing Date (the "Employees") with base compensation no less than the base compensation in effect for such Employee immediately prior to the Closing. The term "Employees" shall not include any employees or former employees of the Business Entities who prior to the Closing Date have retired, or have otherwise terminated employment. For one year following the Closing, General Mills shall maintain employee benefit plans, programs, policies and arrangements which provide benefits that are no less favorable in the aggregate than those provided under the applicable employee benefit plans, programs, policies and arrangements of the Business Entities in effect on the Closing Date or, at the election of General Mills, shall be provided employee benefit plans, programs, policies and arrangements which provide benefits that are no less favorable in the aggregate than those provided to similarly situated employees of General Mills and its Affiliates; provided, however, that the requirements of this paragraph shall not apply to Employees who are covered by a collective bargaining agreement. (b) Severance and Retention. Notwithstanding the foregoing, (i) for a period of one year from the Closing Date, General Mills will provide or will cause to be provided severance pay and benefits to eligible Employees (other than Employees covered by a collective bargaining agreement) that are at least equal to those that would have been provided to such Employee by the Minneapolis Salaried Employees Severance Plan or the Executive Severance Plan, as amended, whichever is applicable, (ii) for a period of one year following the Closing Date, General Mills shall make reasonable efforts, which shall not require increases in payments or benefits, to include Diageo under any release of liability obtained from terminated Employees, (iii) General Mills shall maintain the July 2000 Completion and Performance Plan provided to General Mills prior to the date hereof implemented by Pillsbury prior to the Closing (for the position levels set forth in such plan), without amendment or modification that would result in any reduction of the benefits provided thereunder, and (iv) General Mills shall pay each retention bonus arising from the Pillsbury March, 2000 reorganization, pursuant to the terms of such retention program, upon the earlier of its payment date or the participating Employee's termination of employment by General Mills (other than a termination of employment for Cause); provided, that any payment under (iii) or (iv) above, shall be an offset to a later payment under (iii) or (iv), as applicable. Nothing in this Agreement shall require General Mills or its Affiliates to maintain the employment of any Employee. (c) Collective Bargaining Agreements. General Mills agrees to cause each Business Entity from and after the Closing to comply with the provisions of all collective bargaining agreements to which such Business Entity is a party. Between the date hereof and the Closing Date, Pillsbury shall consult with General Mills with respect to extension, modification, renewal or renegotiation of any collective bargaining agreement. (d) Service Credit. To the extent permitted by law, Employees shall be given credit under each employee benefit plan, compensation program, policy or arrangement (including, but not limited to, pension, severance, vacation, health and welfare, incentive bonus and equity-based plans) of General Mills or any of its Affiliates in which the Employees are eligible to participate for all service with any Business Entity or its Affiliates (to the extent such credit was given by the Business Entity's applicable employee benefit plan, program, policy or arrangement) for purposes of participation, eligibility and vesting, and for benefit accrual for liabilities 48 assumed under Section 6.1(l). The provisions in this paragraph (d) shall not be required with respect to Employees who are covered by a collective bargaining agreement. (e) Employee Benefit Transition. General Mills shall waive pre-existing condition requirements, evidence of insurability provisions, waiting period requirements or any similar provisions for any Employees under any medical, dental, disability or life insurance plan maintained or sponsored by or contributed to by General Mills for such individuals after the Closing Date, other than pre-existing conditions and evidence of insurability that would have been applicable under the Employee Arrangements. General Mills shall also apply towards any deductible requirements and out-of-pocket maximum limits under such plans any amounts paid (or accrued) by each Employee under the Business Entity's comparable benefit plans during the calendar year in which the Closing occurs. The provisions in this paragraph (e) shall not be required with respect to Employees who are covered by a collective bargaining agreement (f) Vacation. As of the Closing Date, General Mills will assume all obligations to Employees for any vacation entitlement and vacation pay entitlement as of the Closing Date to the extent reflected on the Closing Date Operating Working Capital Calculation. (g) COBRA. General Mills will be responsible for satisfying obligations under Section 601 et seq. of ERISA and Section 4980B of the Code ("COBRA coverage") and any applicable similar state laws, to provide continuation coverage to or with respect to any Employee in accordance with law with respect to any "qualifying event," provided, that Diageo shall remain responsible for COBRA coverage with respect to any employee of a Business Entity who had a qualifying event prior to Closing under a welfare plan not sponsored by a Business Entity. (h) No Third-Party Beneficiary Rights. Nothing in this Agreement, express or implied, shall create a third-party beneficiary relationship or otherwise confer any benefit, entitlement, or right upon any person or entity other than the parties hereto, including any right to employment or continued employment for any specified period, of any nature or kind whatsoever. Nothing in this Agreement shall cause duplicate benefits to be paid or provided to or with respect to any employee under any employee benefit policies, plans, arrangements, programs, practices, or agreements. (i) Plans Not Sponsored by Business Entities. Except as provided in Section 6.1(l), Diageo (and its Affiliates other than the Business Entities) shall be responsible for all benefits and liabilities under any Employee Arrangement that is not sponsored by a Business Entity (each, a "Diageo Plan"). Diageo shall take all actions necessary and appropriate to ensure that as of the Closing Date, except as provided in Section 6.1(j) below, all Employees shall cease to accrue benefits under Diageo Plans and the Business Entities shall withdraw from participation in any Diageo Plans. Except as provided in Section 6.1(j) below, Diageo shall vest, as of the Closing Date, all equity awards held by employees of the Business Entities, and shall be responsible for honoring such equity awards. (j) TSR Plan. Until such time as all such payments or benefits have been provided, Diageo shall maintain the Diageo Long Term Incentive Plan, also known as the Total Shareholder Return Plan (and shall provide or cause to be provided in a timely manner all payments due with respect to 1998 and 1999 grants made thereunder) for Employees who provide 49 services to Pillsbury and its Affiliates following the Closing (as if they were continuing to provide services for Diageo and its Affiliates (other than the Business Entities)) and who participated in such plans immediately prior to the Closing upon the terms provided in such plans, which terms shall be no less favorable than those applicable to other employees of Diageo or its Affiliates. General Mills and the Business Entities shall not be responsible for any payments or benefits under the Total Shareholder Return Plan. (k) Controlled Group Liability. Diageo shall indemnify and hold General Mills and the Business Entities harmless from any and all Controlled Group Liability (the occurrence of which is unrelated to the Business Entities). (l) Asset Transfers. At the election of General Mills, on a plan-by-plan basis, to the extent permitted by local law, General Mills will assume responsibility for pension liabilities for active participants employed by the Business Entities as of the Closing Date (subject to appropriate adjustment to reflect payments made following the Closing Date) under pension plans and arrangements that are Diageo Plans and Diageo will transfer or cause its applicable pension fund to transfer to General Mills' pension fund corresponding assets to cover such liabilities on a projected obligation basis based upon specified actuarial methods and assumptions mutually agreed upon by actuaries for Diageo and General Mills in accordance with local Law and practice; provided, that such transfer shall not be required for any unfunded plan, to the extent such liabilities were reflected on the Closing Date Operating Working Capital Calculation. If such actuaries cannot agree, such methods and assumptions shall be reasonable both individually and in the aggregate as determined by a mutually agreed upon third party actuary whose expenses shall be split by the parties. Where required, the parties hereto will use reasonable efforts to obtain any necessary consents to such transfer of assets and liabilities. Such transfers shall occur as soon as practicable following the Closing Date. To the extent permitted by Law and the terms of such contracts, Diageo shall transfer to General Mills or the relevant Business Entity the assets and insurance contracts, if any, used to fund liabilities under health, life and accident insurance plans sponsored by the Business Entities. (m) International Plan Disclosure. With respect to material International Plans, Diageo shall deliver to General Mills within 45 days following the date hereof, a list of each such plan, and a copy of the relevant plan document and trust agreement, the latest financial report and actuarial report, and insurance contracts and other funding vehicles, if applicable. ARTICLE VII Tax Matters Section 7.1 Tax Representations of Diageo. Each of Diageo and Pillsbury hereby represents and warrants to General Mills and Merger Sub as follows: (a) (a) The Business Entities have duly filed or caused to be filed (or had filed on their behalf) all material federal, state, local and foreign Tax Returns (including, but not limited to, those filed on a consolidated, combined or unitary basis) required to have been filed by (or on behalf of) any of them. All of the foregoing Tax Returns are true and correct in all material respects, and the Business Entities have, within the time and manner prescribed by applica- 50 ble law, paid all material Taxes required to be paid in respect of the periods covered by such Tax Returns or otherwise due to any Taxing Authority other than any Taxes the validity of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves in accordance with U. S. GAAP have been provided. Except as set forth in Section 7.1(a) of the Diageo Disclosure Schedule, none of the Business Entities has requested or filed any document having the effect of causing any extension of time within which to file any material Tax Returns in respect of any fiscal year which have not since been filed. Except as set forth in Section 7.1(a) of the Diageo Disclosure Schedule, no deficiencies for any material Tax have been proposed, asserted or assessed in writing, in each case, by any Taxing Authority, against any of the Business Entities. Except as set forth in Section 7.1(a) of the Diageo Disclosure Schedule, none of the Business Entities is the subject of any currently ongoing material Tax audit. Except as set forth in Section 7.1(a) of the Diageo Disclosure Schedule, there are no pending requests for waivers of the time to assess any material Tax, other than those made in the ordinary course and for which payment has been made. Except as set forth in Section 7.1(a) of the Diageo Disclosure Schedule, none of the Business Entities has waived any statute of limitations in respect of material Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency. There are no material liens with respect to Taxes upon any of the properties or assets, real or personal, tangible or intangible of any of the Business Entities (other than liens for Taxes not yet due). No material claim has ever been made in writing by a Taxing Authority in a jurisdiction where a Business Entity does not file Tax Returns that such Business Entity is or may be subject to taxation by that jurisdiction. None of the Business Entities has filed an election under Section 341(f) of the Code to be treated as a "consenting corporation" within the meaning of such Code Section. (b) The Business Entities have withheld and paid or have caused to be withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party. (c) None of the Business Entities has constituted either a "distributing corporation" or a "controlled corporation" within the meaning of Section 355(a)(1)(A) of the Code in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement (or will constitute such a corporation in the two years prior to the Closing Date) or (ii) in a distribution which otherwise constitutes part of a "plan" or "series of related transactions" within the meaning of Section 355(e) of the Code in conjunction with the Merger. Section 7.2 General Mills Reorganization-Related Representations. Each of General Mills and Merger Sub hereby represents and warrants to Diageo and Pillsbury as follows: (a) Following the Merger, General Mills, or a member of its qualified group of corporations (as defined in Treasury Regulation Section 1.368-1(d)(4)(ii)), will continue the historic business of Pillsbury or will use a significant portion of Pillsbury's historic business assets in a business. For purposes of this representation, General Mills and such members (i) shall be deemed to own that portion of the assets of a partnership reflecting their interest therein and (ii) shall be treated as conducting the business of a partnership of which they are members, pro- 51 vided that (x) they own in the aggregate at least a 33 1/3% interest in the partnership or (y) they own in the aggregate at least a 20% interest in such partnership and perform active and substantial managerial functions with respect thereto. (b) General Mills has no plan or intention to cause Pillsbury to issue additional shares of its stock that would result in General Mills not having "control" of Pillsbury. For purposes of this Section 7.2(b), "control" of a corporation means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of such corporation. (c) Merger Sub was formed by General Mills for purposes of consummating the Merger, will have nominal assets at the time of the Merger, has no liabilities and will have no liabilities at the time of the Merger (other than pursuant to this Agreement), and will not transfer to Pillsbury any assets subject to liabilities. Merger Sub has not conducted and will not conduct any business activities or other operations of any kind prior to the consummation of the Merger, other than the issuance of its stock to General Mills. (d) General Mills has no plan or intention to liquidate Pillsbury, to merge Pillsbury with or into another corporation (other than merging Merger Sub into Pillsbury in the Merger), or to sell or otherwise dispose of the stock of Pillsbury except for transfers of stock described in Code Section 368(a)(2)(C) or Treasury Regulation Section 1.368-2(k)(2). (e) General Mills shall not cause Pillsbury to take any Substantially All Action. A "Substantially All Action" is a distribution by Pillsbury of assets to a shareholder, the incurrence of indebtedness by Pillsbury (other than any refinancing of indebtedness that exists at the time of the Merger) or the repayment of Pillsbury indebtedness that exists at the time of the Merger (other than any refinancing of such indebtedness), which distribution, incurrence or repayment (i) occurs after the Merger and prior to the one year anniversary thereof and (ii) (A) causes Pillsbury to fail to hold at least 90 percent of the fair market value of its net assets held immediately prior to the Merger, (B) causes Pillsbury to fail to hold at least 70 percent of the fair market value of its gross assets held immediately prior to the Merger, (C) causes Pillsbury to fail to hold at least 90 percent of the fair market value of Merger Sub's net assets held immediately prior to the Merger or (D) causes Pillsbury to fail to hold at least 70 percent of the fair market value of Merger Sub's gross assets held immediately prior to the Merger. For purposes of this representation, amounts paid by Pillsbury or Merger Sub to shareholders who receive cash or other property, amounts used by Pillsbury or Merger Sub to pay reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by Pillsbury or Merger Sub in connection with the Merger will be included (to the extent that General Mills has knowledge thereof) as assets of Pillsbury or Merger Sub, respectively, held immediately prior to the Merger, and shares of General Mills Common Stock issued in the Merger will not be so included. Section 7.3 Tax Indemnification. (a) From and after the Closing Date, the Diageo Tax Indemnitors shall pay or cause to be paid, and jointly and severally shall indemnify each General Mills Tax Indemnitee and protect, save and hold each General Mills Tax Indemnitee harmless from and against the following Taxes: 52 (i) Any Tax imposed upon or relating to Diageo or any of the Continuing Affiliates for any period, including any such Tax for which any of the Business Entities (or any Non-Controlled Foreign Entity or Subsidiary thereof) may be liable (w) under Section 1.1502-6 of the Treasury Regulations (or any similar provision of state, local or foreign law), (x) as a transferee or successor, (y) by contract or (z) otherwise; (ii) Any Tax imposed upon or relating to any of the Business Entities for any Pre-Closing Period; and (iii) Any Tax imposed upon, relating to or resulting from (x) the Merger or the provisions of Section 2.13 or 2.14 hereof (except, in each case, to the extent set forth in Section 7.3(b)(ii) below), (y) any of the Subsidiary Purchases or (z) any restructuring undertaken in contemplation of the Merger or any of the Subsidiary Purchases. (b) From and after the Closing Date, the General Mills Tax Indemnitors shall pay or cause to be paid, and jointly and severally shall indemnify each Diageo Tax Indemnitee and protect, save and hold each Diageo Tax Indemnitee harmless from and against the following Taxes: (i) Any Tax imposed upon or relating to any of the Business Entities for any Post-Closing Period; and (ii) Any Tax imposed upon the Pillsbury Stockholder on the Merger that would not have arisen but for a breach by General Mills of any of the representations set forth in Section 7.2. (c) Except as otherwise provided in Section 7.7, payment in full of any amount due to a Tax Indemnitee under this Section 7.3 shall be made to the affected Tax Indemnitee in immediately available funds at least two Business Days before the date payment of the Taxes to which such payment relates is due. Section 7.4 Section 338(g) Elections for Purchased Entities . General Mills may, at its option, cause a timely and irrevocable election (a "338 Election") under Section 338(g) of the Code (and any corresponding provisions of state or local Tax law) to be made with respect to any or all of the Purchased Entities or any of their respective Subsidiaries which, in each case, is not, as of the date hereof, owned directly or indirectly, by a U.S. corporation (the "338 Election Subsidiaries"). If General Mills causes such elections to be made, each of General Mills and Diageo shall, and shall cause their respective Subsidiaries and Affiliates to, (i) treat the 338 Elections as valid, (ii) file all Tax Returns in a manner consistent with such 338 Elections and the 338 Election Allocations (as defined below) and (iii) take no position contrary thereto, except to the extent required pursuant to a determination (as defined in Section 1313(a) of the Code or any similar state or local Tax provision) (a "Determination"). With respect to each 338 Election, General Mills shall prepare and submit to Diageo for Diageo's consent and agreement (i) the aggregate deemed sale price (as defined in Treasury Regulation Section 1.338-4T) (the "ADSP") and (ii) the allocation of the ADSP among the assets of each of the 338 Election Subsidiaries (collectively, the "338 Election Allocations"). The 338 Election Allocations shall be reasonable and shall be determined in accordance with Section 338 of the Code and the applicable Treasury 53 Regulations thereunder. Diageo shall provide General Mills such assistance as General Mills may reasonably request in connection with the preparation of any form or document required to effect a valid and timely 338 Election. Diageo shall not be responsible for any failure of an attempted 338 Election to be valid, except to the extent that such failure results from a failure by Diageo to comply with its obligations under this Section 7.4. Section 7.5 Allocation of Certain Taxes. (a) If any of the Business Entities is permitted but not required under applicable state, local or foreign income Tax laws to treat the Closing Date as the last day of a taxable period, then the parties shall cause such Business Entity to treat that day as the last day of a taxable period. (b) In the case of Taxes arising in a taxable period of any of the Business Entities that includes but does not end on the Closing Date, except as provided in Section 7.5(c), the allocation of such Taxes between the Pre-Closing Period and the Post-Closing Period shall be made on the basis of an interim closing of the books as of the end of the Closing Date. For purposes of this Article VII, (i) any Tax on gain or income resulting from the triggering into income of deferred intercompany transactions under Section 1.1502-13 of the Treasury Regulations or excess loss accounts under Section 1.1502-19 of the Treasury Regulations that occurs as a result of the Merger shall be considered to be attributable to the Pre-Closing Period and (ii) each partnership or "flowthrough" entity in which any of the Business Entities holds an interest shall be treated as if its taxable year ended at the close of business on the Closing Date and Taxes attributable to the income and gain of such entities through the close of business on the Closing Date (as determined in a reasonably practicable manner) shall be considered to be attributable to the Pre-Closing Period. (c) In the case of (i) franchise Taxes based on capitalization, debt or shares of stock authorized, issued or outstanding and (ii) ad valorem Taxes, in either case attributable to a Straddle Period (as defined below), the portion of such Taxes attributable to the Pre-Closing Period shall be the amount of such Taxes for the entire taxable period, multiplied by a fraction the numerator of which is the number of calendar days in such taxable period ending on and including the Closing Date and the denominator of which is the entire number of calendar days in such taxable period, and the balance of such Taxes shall be attributable to the Post-Closing Period; provided, however, that if any property, asset or other right of any of the Business Entities is sold or otherwise transferred prior to the Closing Date, then ad valorem Taxes pertaining to such property, asset or other right shall be attributed entirely to the Pre-Closing Period. Section 7.6 Carryovers, Refunds and Related Matters. (a) Any refund or credit of Taxes (including any interest thereon) that relates to any of the Business Entities and that is a refund or credit of Taxes with respect to a Pre-Closing Period shall be the property of Diageo or its designee and shall be retained by Diageo or its designee (or promptly reimbursed to Diageo or such designee by the Business Entity if any such refund or credit (or interest thereon) is received by General Mills, a Business Entity or any of their respective Subsidiaries or Affiliates); provided, however, that any refund, credit or other benefit actually received or realized in cash by Diageo, any Continuing Affiliate or any Business Entity with respect to a Pre-Closing Period that results from, and would not have resulted but for, the carryback of any Tax attribute of General Mills, any Business Entity or any of their respective Subsidiaries or Affiliates arising in a Post-Closing Period (to the extent that such carryback does not preclude or delay utilization of a Dia- 54 geo Group Tax attribute or Business Entity Pre-Closing Period Tax attribute) shall be the property of and retained by the Business Entity (or paid by Diageo to the Business Entity promptly after actual receipt or realization in cash of such refund, credit or other benefit by Diageo or any of its Subsidiaries or Affiliates). (b) Any refund or credit of Taxes (including any interest thereon) that relates to any of the Business Entities and that is a refund or credit of Taxes with respect to a Post-Closing Period shall be the property of General Mills or the Business Entity and shall be retained by General Mills or the Business Entity (or promptly paid by Diageo to General Mills or the Business Entity if any such refund or credit (or interest thereon) is received by Diageo or any of its Subsidiaries or Affiliates); provided, however, that any refund, credit or other benefit actually received or realized in cash by General Mills or any Business Entity with respect to a Post-Closing Period that results from, and would not have resulted but for, the carryover of any Business Entity Tax attribute arising in a Pre-Closing Period (to the extent that such carryover does not preclude or delay utilization of a General Mills Group Tax attribute or Business Entity Post-Closing Period Tax attribute) shall be the property of Diageo or its designee and shall be paid by the Business Entity to Diageo or its designee promptly after actual receipt or realization in cash of such refund, credit or other benefit by General Mills or a Business Entity. (c) In applying Section 7.6(a) and Section 7.6(b), (i) any refund or credit of Taxes (including any interest thereon) for a Straddle Period (as defined below) shall be allocated between the Pre-Closing Period and the Post-Closing Period in accordance with Section 7.5 and (ii) any foreign tax that is deemed paid by a Business Entity in a taxable period pursuant to Section 902 of the Code shall be considered to be "with respect to" such taxable period, regardless of when the underlying foreign tax was actually paid or accrued. (d) In the event of any adjustment of a Pre-Closing Period Tax deduction or income item of a Business Entity by a Taxing Authority pursuant to a Determination (or otherwise in a Tax Proceeding), which adjustment results in a Tax benefit (determined for purposes of this Section 7.6(d) after taking into account any preclusion or delay in the utilization of any General Mills Group Tax attribute or any Business Entity Post-Closing Period Tax attribute) actually received or realized in cash by General Mills or any Business Entity and such Tax benefit would not have been so received or realized but for such adjustment, then to the extent such Tax benefit arises with respect to (the Post-Closing Period portion of) a taxable period of a Business Entity ending on or prior to the second anniversary of the Closing Date and would otherwise have been for the account of General Mills hereunder, the Business Entity shall pay Diageo or its designee the amount of such Tax benefit promptly after actual receipt or realization in cash of such Tax benefit by General Mills or the Business Entity. (e) In the event of any adjustment of a Post-Closing Period Tax deduction or income item of a Business Entity by a Taxing Authority pursuant to a Determination (or otherwise in a Tax Proceeding), which adjustment results in a Tax benefit (determined for purposes of this Section 7.6(e) after taking into account any preclusion or delay in the utilization of any Diageo Group Tax attribute or any Business Entity Pre-Closing Period Tax attribute) actually received or realized in cash by Diageo, any Continuing Affiliate or any Business Entity and such Tax benefit would not have been so received or realized but for such adjustment, then to the extent such Tax benefit arises with respect to the Pre-Closing Period and would otherwise have 55 been for the account of Diageo hereunder, the Business Entity shall retain such Tax benefit (or Diageo or its designee shall pay such Business Entity the amount of such Tax benefit promptly after actual receipt or realization in cash of such Tax benefit by Diageo or any of its Subsidiaries or Affiliates). Section 7.7 Preparation and Filing of Tax Returns. (a) Diageo shall file or cause to be filed (i) any combined, consolidated or unitary Return that includes Diageo, the Pillsbury Stockholder or any Continuing Affiliate and (ii) any other Return of any of the Business Entities for any taxable period that ends on or before the Closing Date. All such Returns shall be filed in a manner consistent with past practice, shall not include any change in any method of accounting and shall not include any Tax election that is inconsistent with past practice (except for the 338 Elections). Diageo shall, reasonably promptly after the filing of a Return described in clause (i) or (ii) above, provide General Mills a copy of such Return (or a copy of a pro forma separate Return in the case of a Return described in clause (i)). Diageo shall remit to the relevant Taxing Authority all Taxes shown by such Returns to be due. General Mills shall cause the Business Entities to furnish information to Diageo in connection with any such Return, at Diageo's expense, in accordance with the past procedures, customs and practices of Diageo. (b) Except to the extent set forth in Section 7.7(a), General Mills shall file or cause to be filed all Returns of, or that include, any of the Business Entities. (c) With respect to any Return of any of the Business Entities for a taxable period that, with respect to such Business Entity, begins on or before and ends after the Closing Date (such a Return, a "Straddle Period Return" and such a taxable period, a "Straddle Period"), General Mills shall deliver a copy of such Return to Diageo at least 40 Business Days prior to the due date (giving effect to any extension thereof), accompanied by an allocation between the Pre-Closing Period and the Post-Closing Period of the Taxes shown to be due on such Return. Such Return and allocation shall be final and binding on Diageo, unless, within 10 Business Days after the date of receipt by Diageo of such Return and allocation, Diageo delivers to General Mills a written request for changes to such Return or allocation. If Diageo delivers such a request, then General Mills and Diageo shall undertake in good faith to resolve the issues raised in such request prior to the due date (including any extension thereof) for filing such Return. If General Mills and Diageo are unable to resolve any issue within 10 Business Days from the date of receipt by General Mills of the request for changes, then Diageo and General Mills jointly shall engage the Neutral Auditors to determine the correct treatment of the item or items in dispute. Each of Diageo and General Mills shall bear and pay one-half of the fees and other costs charged by the Neutral Auditors. The determination of the Neutral Auditors shall be final and binding on the parties hereto. (d) In the case of each Straddle Period Return, not later than two Business Days before the due date (including any extension thereof) for payment of Taxes with respect to such Return, Diageo shall pay to General Mills or the relevant Business Entity the portion of the Taxes in connection with such Return for which Diageo is responsible pursuant to Section 7.3. Section 7.8 Tax Contests. (a) Notices. If any Taxing Authority asserts a Tax Claim, then the party hereto first receiving notice of such Tax Claim promptly shall provide written notice thereof to the other party or parties hereto; provided, however, that the failure of such 56 party to give such prompt notice shall not relieve the other party of any of its obligations under this Article VII, except to the extent that the other party is actually prejudiced thereby. Such notice shall specify in reasonable detail the basis for such Tax Claim and shall include a copy of the relevant portion of any correspondence received from the Taxing Authority. (b) Pre-Closing Taxable Periods. Diageo shall have the right to control, at its own expense, any audit, examination, contest, litigation or other proceeding by or against any Taxing Authority (a "Tax Proceeding") (A) in respect of a Business Entity for any taxable period that ends on or before the Closing Date or (B) involving a challenge to the qualification of the Merger as a tax-free "reorganization" within the meaning of Code Section 368; provided, however, that (i) insofar as any such Tax Proceeding relates to the matters set forth in clause (A) or (B) above, Diageo shall provide General Mills with a timely and reasonably detailed account of each stage of such Tax Proceeding and (ii) in the case of any Tax Proceeding involving a challenge to the qualification of the Merger as a tax-free "reorganization" within the meaning of Code Section 368 on the basis (in whole or in part) of the inaccuracy of any of the representations made by General Mills and Merger Sub in Section 7.2, (I) Diageo shall consult with General Mills before taking any significant action in connection with such Tax Proceeding, (II) Diageo shall consult with General Mills and offer General Mills an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Proceeding, (III) Diageo shall defend such Tax Proceeding diligently and in good faith as if it were the only party in interest in connection with such Tax Proceeding, (IV) General Mills shall be entitled to participate in such Tax Proceeding and receive copies of any written materials relating to such Tax Proceeding received from the relevant Taxing Authority or other Governmental Authority, and (V) Diageo shall not settle, compromise or abandon any such Tax Proceeding without obtaining the prior written consent, which consent shall not be unreasonably withheld, of General Mills. Notwithstanding any other provision, none of the General Mills Tax Indemnitors shall have any obligation whatsoever pursuant to Section 7.3(b)(ii) arising from a Tax Proceeding described in clause (B) above, if Diageo fails to comply with the covenant set forth in clause (i) above in connection with such Tax Proceeding, fails to consult with General Mills before taking any significant action in connection with such Tax Proceeding, fails to consult with General Mills and offer General Mills an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Proceeding, fails to defend such Tax Proceeding diligently and in good faith as if Diageo were the only party in interest in connection with such Tax Proceeding, fails to provide General Mills with an opportunity to participate in such Tax Proceeding or fails to provide General Mills with copies of any written materials relating to such Tax Proceeding that are received from the relevant Taxing Authority or other Governmental Authority or if Diageo settles, compromises or abandons any such Tax Proceeding without obtaining the prior written consent (except to the extent such consent is unreasonably withheld) of General Mills. (c) Straddle Periods. In the case of a Tax Proceeding for a Straddle Period of a Business Entity (i) the Controlling Party shall provide the Non-controlling Party with a timely and reasonably detailed account of each stage of such Tax Proceeding, (ii) the Controlling Party shall consult with the Non-controlling Party before taking any significant action in connection with such Tax Proceeding, (iii) the Controlling Party shall consult with the Non-controlling Party and offer the Non-controlling Party an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Proceeding, (iv) the Controlling 57 Party shall defend such Tax Proceeding diligently and in good faith as if it were the only party in interest in connection with such Tax Proceeding, (v) the Non-controlling Party shall be entitled to participate in such Tax Proceeding if such Tax Proceeding could have an adverse impact on the Non-controlling Party or any of its affiliated Tax Indemnitees and (vi) the Controlling Party shall not settle, compromise or abandon any such Tax Proceeding without obtaining the prior written consent, which consent shall not be unreasonably withheld, of the Non-controlling Party if such settlement, compromise or abandonment could have an adverse impact on the Non-controlling Party or any of its affiliated Tax Indemnitees. "Controlling Party" shall mean whichever of Diageo and General Mills is reasonably expected to bear the greater Tax liability in connection with a Straddle Period Tax Proceeding, and "Non-controlling Party" shall mean whichever of Diageo and General Mills is not the Controlling Party with respect to such Straddle Period Tax Proceeding. (d) Post-Closing Taxable Periods. General Mills shall have the right to control any Tax Proceeding involving any of the Business Entities, Non-Controlled Foreign Entities or any Subsidiary thereof (other than any Tax Proceeding which Diageo is entitled to control under Section 7.8(b) or (c)). Section 7.9 Cooperation. Each party hereto shall, and shall cause its Subsidiaries and Affiliates to, provide to each of the other parties hereto such cooperation, documentation and information as any of them reasonably may request in (i) filing any Return, amended Return or claim for refund, (ii) determining a liability for Taxes or an indemnity obligation under this Article VII or a right to refund of Taxes, (iii) conducting any Tax Proceeding or (iv) determining an allocation of Taxes between a Pre-Closing Period and Post-Closing Period. Such cooperation and information shall include providing copies of all relevant portions of relevant Returns, together with all relevant portions of relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Taxing Authorities and relevant records concerning the ownership and Tax basis of property and other information, which any such party may possess. Each party will retain all Returns, schedules and work papers, and all material records and other documents relating to Tax matters, of the Business Entities for their respective Tax periods ending on or prior to the Closing Date until the later of (x) the expiration of the statute of limitations for the Tax periods to which the Returns and other documents relate or (y) eight years following the due date (without extension) for such Returns. Thereafter, the party holding such Returns or other documents may dispose of them, provided that such party shall give to the other party written notice prior to doing so. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. Each party required to file Returns pursuant to this Article VII shall bear all costs of filing such Returns. Section 7.10 Termination of Tax Sharing Agreements. Any and all Tax allocation or sharing agreements or other agreements or arrangements relating to Tax matters between any of the Business Entities (or Non-Controlled Foreign Entities or Subsidiaries thereof) on the one hand and Diageo, Pillsbury Stockholder or any Continuing Affiliate on the other hand shall be terminated with respect to each of the Business Entities (and the Non-Controlled Foreign Entities and Subsidiaries thereof) as of the day before the Closing Date and, from and after the Closing Date, the Business Entities (and the Non-Controlled Foreign Entities and Subsidiaries thereof) shall not have any rights or obligations thereunder for any past or future period. 58 Section 7.11 General Mills Consolidated Returns. Notwithstanding any other provision, (a) General Mills shall be entitled to control in all respects, and neither Diageo, Pillsbury Stockholder nor any Subsidiary or Affiliate of any of them shall be entitled to participate in, any Tax Proceeding with respect to any consolidated, combined or unitary Tax Return that includes General Mills or any other member of the General Mills Group and (b) General Mills and its Subsidiaries and Affiliates shall not be required to provide any Person with any consolidated, combined or unitary Tax Return or copy thereof that includes General Mills or any other member of the General Mills Group (provided, however, that to the extent that such Tax Returns would be required to be delivered but for this Section 7.11(b), the Person that would be required to deliver such Tax Returns shall instead deliver pro forma Tax Returns relating solely to the Business Entities). Section 7.12 Diageo Consolidated Returns. Notwithstanding any other provision, (a) except to the extent set forth in Section 7.8, Diageo shall be entitled to control in all respects, and neither General Mills nor any of its Subsidiaries or Affiliates shall be entitled to participate in, any Tax Proceeding with respect to any consolidated, combined or unitary Tax Return that includes Diageo, Pillsbury Stockholder or any Continuing Affiliate and (b) Diageo and its Subsidiaries and Affiliates shall not be required to provide any Person with any consolidated, combined or unitary Tax Return or copy thereof that includes Diageo, Pillsbury Stockholder or any other Continuing Affiliate (provided, however, that to the extent that such Tax Returns would be required to be delivered but for this Section 7.12(b), the Person that would be required to deliver such Tax Returns shall instead deliver pro forma Tax Returns relating solely to the Business Entities). Section 7.13 Definitions. The following terms shall have the meanings set forth as follows: (a) "Diageo Group" shall mean Diageo and each of its Subsidiaries and Affiliates, other than the Business Entities. (b) "Diageo Tax Indemnitees" means Diageo, the Pillsbury Stockholder and each of the Continuing Affiliates. (c) "Diageo Tax Indemnitors" means Diageo, the Pillsbury Stockholder and each of the Selling Affiliates. (d) "General Mills Group" shall mean General Mills and each of its Subsidiaries and Affiliates, other than the Business Entities. (e) "General Mills Tax Indemnitees" means General Mills and each of its Subsidiaries and Affiliates, including the Business Entities. (f) "General Mills Tax Indemnitors" shall mean General Mills and the Buying Affiliates. (g) "Post-Closing Period" means any taxable period or portion thereof beginning, with respect to the Business Entities, after the Closing Date or, as the context may require, all such periods and portions. 59 (h) "Pre-Closing Period" means any taxable period or portion thereof ending, with respect to the Business Entities, on or before the Closing Date or, as the context may require, all such periods and portions. (i) "Returns" or "Tax Returns" means any returns, reports or statements (including any amended returns or information returns) required to be filed for purposes of a particular Tax. (j) "Tax" or "Taxes" means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, bank shares, withholding, payroll, employment, excise, property, alternative minimum, environmental or other taxes, assessments, duties, fees, levies or other governmental charges of any nature whatsoever, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. (k) "Tax Claim" means any claim with respect to Taxes made by any Taxing Authority that, if pursued successfully, would reasonably be expected to serve as the basis for a claim for indemnification of a Tax Indemnitee under this Article VII. (l) "Tax Indemnitee" shall mean a Diageo Tax Indemnitee or a General Mills Tax Indemnitee. (m) "Taxing Authority" means any governmental agency, board, bureau, body, department or authority of any United States federal, state or local jurisdiction or any foreign jurisdiction, having or purporting to exercise jurisdiction with respect to any Tax. Section 7.14 Survival. The representations and warranties of Diageo set forth in Section 7.1 shall not survive the Effective Time. The representations and warranties of General Mills set forth in Section 7.2 shall survive the Effective Time until the expiration of the applicable statute of limitations. Section 7.15 Adjustments. Any indemnification payment hereunder and any payment made pursuant to Section 2.13 or 2.14 shall be treated for U.S. federal income Tax purposes as an adjustment to purchase price, except to the extent otherwise required pursuant to a Determination. Section 7.16 Tax Transactions. From and after the date hereof through the Closing Date, none of the Business Entities shall enter into any contract, agreement or other arrangement relating to (i) Tax indemnification, (ii) the transfer to, or utilization by, a Person of Tax credits, deductions or other benefits of another Person or (iii) the transfer or assignment to a Person of income or revenues of another Person. None of the Business Entities shall become required to include in income any adjustment pursuant to Section 481 of the Code (or a comparable provision of state, local or foreign Tax law) by reason of a voluntary change, on or after the date hereof, in accounting method made by or at the direction of Diageo. From and after the date hereof through the Closing Date, none of the Business Entities shall become a party to a transaction being accounted for as an installment obligation under Section 453 of the Code, a "reportable transaction" within the meaning of Treasury Regulation Section 1.6011-4T (without regard to the effective date provisions of such Regulation) or any other transaction pursuant to which 60 income is economically received in one taxable period and intended to be reported in a later period. ARTICLE VIII Conditions Precedent -------------------- Section 8.1 Conditions to Each Party's Obligation. The obligations of Pillsbury, Merger Sub and General Mills to consummate the Merger shall be subject to the satisfaction on or prior to the Closing Date of all of the following conditions: (a) Receipt of Stockholder Approvals. (i) General Mills shall have obtained the Required General Mills Votes in connection with the approval of the General Mills Share Issuance and the Charter Amendment by the stockholders of General Mills and (ii) Diageo shall have obtained the Required Diageo Vote in connection with the approval of the Transactions by the shareholders of Diageo. (b) No Injunctions or Restraints, Illegality. No Laws shall have been adopted or promulgated, and no temporary restraining order, preliminary or permanent injunction or other order issued by a court or other Governmental Authority of competent jurisdiction shall be in effect having the effect of making the Merger or the Subsidiary Purchases illegal or otherwise prohibiting consummation of the Merger or the Subsidiary Purchases. (c) HSR Act and EU Approval. The waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired and the notification of and approval by the European Commission (the "EC") under EU Council Regulation 4064/89, as amended, shall have been received, if required. (d) Governmental and Regulatory Approvals. Other than the filings pursuant to the HSR Act and with the EC, all consents, approvals and actions of, filings with and notices to any Governmental Authority required of General Mills, Diageo or any of their Subsidiaries to consummate the Merger and the Subsidiary Purchases and the other transactions contemplated hereby, the failure of which to be obtained or made would have or would reasonably be expected to have a Pillsbury Material Adverse Effect or a General Mills Material Adverse Effect shall have been obtained or made. (e) NYSE Listing. The shares of General Mills Common Stock to be issued in the Merger and delivered pursuant to the Subsidiary Purchases shall have been approved for listing on the NYSE, subject to official notice of issuance. (f) Subsidiary Purchases. The Subsidiary Purchases shall be consummated concurrently with consummation of the Merger. Section 8.2 Additional Conditions to General Mills' and Merger Sub's Obligations. The obligations of General Mills and Merger Sub to consummate the Merger shall be subject to the satisfaction on or prior to the Closing Date of all of the following additional conditions: 61 (a) Representations, Warranties and Covenants of Diageo and Pillsbury. (i) Each of the representations and warranties of Diageo and Pillsbury set forth in this Agreement that is qualified as to Pillsbury Material Adverse Effect shall be true and correct, and each of the representations and warranties of Diageo and Pillsbury set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent in either case that such representations and warranties speak as of another date) and (ii) each of the representations and warranties of the Selling Affiliates in the Subsidiary Purchase Agreements shall be true and correct in all material respects, in each case when made and as of the Closing Date as though made on and as of the Closing Date (except to the extent that such representations and warranties speak as of another date). (b) Performance of Obligations of Diageo and Pillsbury. Each of Diageo and Pillsbury shall have performed or complied in all material respects with all agreements and covenants required to be performed by it under this Agreement at or prior to the Closing Date. (c) Indebtedness. The aggregate outstanding indebtedness of the Business Entities as of the Closing Date (excluding off balance sheet financing and operating and capitalized finance leases that are reflected in the profits and losses statement of the Business Entities in the ordinary course consistent with past practice) shall not exceed $5.142 billion. (d) Certificate. General Mills shall have received at the Closing a certificate dated the Closing Date and validly executed by the chief executive officer and the chief financial officer of each of Diageo and Pillsbury to the effect that the conditions specified in paragraphs (a), (b) and (c) of this Section 8.2 have been satisfied. (e) Deliveries. Diageo or the Selling Affiliates shall have delivered all the certificates, instruments, agreements and other documents to be delivered pursuant to Section 2.11. Section 8.3 Additional Conditions to Pillsbury's Obligation. Pillsbury's obligation to consummate the Merger shall be subject to the satisfaction on or prior to the Closing Date of all of the following additional conditions: (a) Representations, Warranties and Covenants of General Mills and Merger Sub. (i) Each of the representations and warranties of General Mills and Merger Sub set forth in this Agreement that is qualified as to General Mills Material Adverse Effect shall be true and correct, and each of the representations and warranties of General Mills and Merger Sub set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent in either case that such representations and warranties speak as of another date) and (ii) each of the representations and warranties of the Buying Affiliates in the Subsidiary Purchase Agreements shall be true and correct in all material respects, in each case when made and as of the Closing Date as though made on and as of the Closing Date (except to the extent that such representations and warranties speak as of another date). 62 (b) Performance of Obligations of General Mills and Merger Sub. Each of General Mills and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required to be performed by it under this Agreement at or prior to the Closing Date. (c) Certificate. Diageo shall have received at the Closing a certificate dated the Closing Date and validly executed by the chief executive officer and the chief financial officer of General Mills to the effect that the conditions specified in paragraphs (a) and (b) of this Section 8.3 have been satisfied. (d) Tax Opinion of Diageo's Counsel. Diageo shall have received from Sullivan & Cromwell, special tax counsel to Diageo, a written opinion dated as of the Closing Date to the effect that the Merger will qualify as a "reorganization" within the meaning of Code Section 368. In rendering such opinion, counsel to Diageo shall be entitled to rely upon information, representations and assumptions provided by General Mills in an officer's certificate containing solely the representations set forth in Section 7.2 and by Diageo in an officer's certificate. (e) Deliveries. General Mills or the Buying Affiliates shall have delivered to Diageo all the certificates, instruments, agreements and other documents to be delivered pursuant to Section 2.12. ARTICLE IX Survival; Indemnification ------------------------- Section 9.1 Survival. (a) The representations and warranties of Diageo and Pillsbury contained in this Agreement shall survive the Effective Time until the first anniversary of the Effective Time, except the representations and warranties set forth (i) in Section 3.18 which shall survive the Effective Time until the second anniversary of the Effective Time and (ii) in Article VII, whose survival shall be as set forth in Article VII. The representations and warranties of General Mills and Merger Sub contained in this Agreement shall survive the Effective Time until the first anniversary of the Effective Time, except the representations and warranties set forth in Article VII, whose survival shall be as set forth in Article VII. (b) The covenants and agreements of the parties hereto contained in this Agreement which by their terms apply or are to be performed in whole or in part after the Effective Time and this Article IX shall survive the Effective Time. Section 9.2 Indemnification by Diageo. (a) Subject to Section 9.5(a) hereof, from and after the Closing Date, Diageo, the Pillsbury Stockholder and the Selling Affiliates (the "Diageo Indemnifying Parties") shall indemnify and hold harmless General Mills and its Subsidiaries (including the Business Entities) and their respective officers, directors and Affiliates (collectively, the "General Mills Indemnified Parties") from and against any and all Covered Losses suffered by such General Mills Indemnified Parties resulting from or arising out of (i) any inaccuracy in or breach of any of the representations or warranties (without giving effect to any materiality qualifiers contained therein) (A) of Diageo or Pillsbury in this Agreement (other than those set forth in Article VII hereof, indemnity for which is addressed in Article VII) and (B) of 63 the Selling Affiliates in the Subsidiary Purchase Agreements, in each case when made, and, except for representations and warranties that speak of a specific date or time (which need only be true and correct as of such date and time), on and as of the Closing Date, (ii) any breach or nonfulfillment of any covenants or agreements made by Diageo or Pillsbury herein or by the Selling Affiliates in the Subsidiary Purchase Agreements and (iii) any liability or obligation of any of the Business Entities arising from or relating to any business other than the Business. (b) The General Mills Indemnified Parties shall not be entitled to assert any indemnification pursuant to clause (i) of Section 9.2(a): (i) after the second anniversary of the Closing Date, with respect to such inaccuracies in or breaches of the representations and warranties contained in Section 3.18 hereof, or (ii) after the first anniversary of the Closing Date, with respect to all other inaccuracies in or breaches of the representations and warranties of Diageo or Pillsbury contained in any other Section hereof or of the Selling Affiliates contained in the Subsidiary Purchase Agreements; provided that if on or prior to such first or second anniversary of the Closing Date, as the case may be, a Notice of Claim shall have been given to Diageo pursuant to Section 9.4 hereof for such indemnification, the General Mills Indemnified Parties shall continue to have the right to be indemnified with respect to such indemnification claim until such claim for indemnification has been satisfied or otherwise resolved as provided in this Article IX. Section 9.3 Indemnification by General Mills. (a) Subject to Section 9.5(b) hereof, from and after the Closing Date, General Mills and the Buying Affiliates (the "General Mills Indemnifying Parties") shall indemnify and hold harmless Diageo and its Subsidiaries (excluding the Business Entities) and their respective officers, directors and Affiliates (collectively, the "Diageo Indemnified Parties") from and against any and all Covered Losses suffered by such Diageo Indemnified Parties resulting from or arising out of (i) any inaccuracy in or breach of any of the representations or warranties (without giving effect to any materiality qualifiers contained therein) (A) of General Mills or Merger Sub in this Agreement (other than those set forth in Article VII hereof, indemnity for which is addressed in Article VII) and (B) of the Buying Affiliates in the Subsidiary Purchase Agreements, in each case when made, and, except for representations and warranties that speak of a specific date or time (which need only be true and correct as of such date and time), on and as of the Closing Date, (ii) any breach or nonfulfillment of any covenants or agreements made by General Mills or Merger Sub herein or by the Buying Affiliates in the Subsidiary Purchase Agreements and (iii) any liability or obligation of any of the Business Entities other than those for which the Diageo Indemnified Parties have indemnified the General Mills Indemnified Parties pursuant to Section 9.2. (b) The Diageo Indemnified Parties shall not be entitled to assert any indemnification pursuant to clause (i) of Section 9.3(a) after the first anniversary of the Closing Date; provided that if on or prior to such first anniversary of the Closing Date a Notice of Claim shall have been given to General Mills pursuant to Section 9.4 hereof for such indemnification, the Diageo Indemnified Parties shall continue to have the right to be indemnified with respect to such indemnification claim until such claim for indemnification has been satisfied or otherwise resolved as provided in this Article IX Section 9.4 Indemnification Procedures. (a) Upon obtaining knowledge of any claim or demand which has given rise to, or is expected to give rise to, a claim for indemnification hereunder, General Mills or Diageo, as the case may be, shall give written notice ("Notice of 64 Claim") of such claim or demand to the other. The party giving such Notice of Claim shall furnish to the other party in reasonable detail such information as the General Mills Indemnified Parties or the Diageo Indemnified Parties, as the case may be, may have with respect to such indemnification claim (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). Subject to the limitations set forth in Sections 9.2(b) and 9.3(b) hereof, no failure or delay by General Mills or Diageo in the performance of the foregoing shall reduce or otherwise affect the obligation of the Diageo Indemnifying Parties or the General Mills Indemnifying Parties, respectively, to indemnify and hold the General Mills Indemnified Parties or the Diageo Indemnified Parties, respectively, harmless, except to the extent that such failure or delay shall have actually adversely affected the General Mills Indemnifying Parties' or Diageo Indemnifying Parties', as the case may be, ability to defend against, settle or satisfy any Covered Losses for which the party seeking indemnification is entitled to indemnification hereunder. (b) If the claim or demand set forth in the Notice of Claim given pursuant to Section 9.4(a) hereof is a claim or demand asserted by a third party, the party receiving such Notice of Claim shall have 15 days after the date on which Notice of Claim is given to notify the party giving such Notice of Claim in writing of its election to defend such third party claim or demand on behalf of the party seeking indemnification. If the party receiving such Notice of Claim elects, on behalf of the General Mills Indemnifying Parties or Diageo Indemnifying Parties, as the case may be, to defend such third party claim or demand, the party seeking indemnification shall make available to the indemnifying party and its agents and representatives all records and other materials which are reasonably required in the defense of such third party claim or demand and shall otherwise cooperate with, and assist the indemnifying party in the defense of, such third party claim or demand, and so long as Diageo or General Mills, as the case may be, is defending such third party claim in good faith, the General Mills Indemnified Parties or Diageo Indemnified Parties, as applicable, shall not pay, settle or compromise such third party claim or demand. In such case, the General Mills Indemnifying Parties or the Diageo Indemnifying Parties, as the case may be, may pay, settle or compromise such third party claim or demand (i) with the written consent of Diageo or General Mills, on behalf of the Diageo Indemnified Parties or the General Mills Indemnified Parties, as the case may be, or (ii) without such consent, so long as such settlement includes (A) an unconditional release of the Diageo Indemnified Parties or the General Mills Indemnified Parties, as the case may be, from all liability in respect of such claim or litigation, (B) does not subject the indemnified parties to any material injunctive relief or other material equitable remedy, and (C) does not include a statement or admission of fault, culpability or failure to act by or on behalf of any indemnified party. If the party receiving such Notice of Claim elects to defend such third party claim or demand, the General Mills Indemnified Party or the Diageo Indemnified Party, as the case may be, shall have the right to participate in the defense of such third party claim or demand, at such indemnified party's own expense. In the event, however, that such indemnified party reasonably determines that representation by counsel to the indemnifying parties of both such indemnifying parties and the indemnified party could reasonably be expected to present such counsel with a conflict of interest, then the indemnified party may employ separate counsel to represent or defend it in any such action or proceeding and the indemnifying parties will pay the fees and expenses of such counsel; provided, that the Diageo Indemnifying Parties or the General Mills Indemnifying Parties, as the case may be, shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to local 65 counsel) at any time for all General Mills Indemnified Parties or Diageo Indemnified Parties, as the case may be. If the party receiving such Notice of Claim does not elect to defend such third party claim or demand or does not defend such third party claim or demand in good faith, the General Mills Indemnified Parties or Diageo Indemnified Parties, as the case may be, shall have the right, in addition to any other right or remedy they may have hereunder, at the Diageo Indemnifying Parties' or General Mills Indemnifying Parties', as the case may be, expense, to defend such third party claim or demand; provided, however, that (i) such General Mills Indemnified Parties or Diageo Indemnified Parties, as the case may be, shall not have any obligation to participate in the defense of, or defend, any such third party claim or demand; (ii) such General Mills Indemnified Parties' or Diageo Indemnified Parties', as the case may be, defense of or participation in the defense of any such third party claim or demand shall not in any way diminish or lessen the obligations of the Diageo Indemnifying Parties or General Mills Indemnifying Parties, as applicable, under the agreements of indemnification set forth in this Article IX; and (iii) such General Mills Indemnified Parties or Diageo Indemnified Parties, as the case may be, may not settle any claim without the consent of Diageo or General Mills, respectively, on behalf of the Diageo Indemnifying Parties or General Mills Indemnifying Parties, respectively (which consent shall not be unreasonably withheld or delayed). (c) Diageo and General Mills shall cooperate in the defense of any claim or litigation subject to this Article IX and the records of each shall be available to the other with respect to such defense. (d) Except for third party claims being defended in good faith, (i) Diageo shall satisfy the Diageo Indemnifying Parties' obligations under this Article IX in respect of a valid claim for indemnification hereunder which is not contested by Diageo in good faith, at its election, either (A) in cash or (B) by payment in the form of a number of shares of General Mills Common Stock equal to (x) the amount of such obligation divided by (y) Market Value on the date of delivery of such shares, in either case within 30 days after the date on which Notice of Claim is given and (ii) General Mills shall satisfy the General Mills Indemnifying Parties' obligations under this Article IX in respect of a valid claim for indemnification hereunder which is not contested by General Mills in good faith within 30 days after the date on which Notice of Claim is given by payment in the form of a number of shares of General Mills Common Stock equal to (A) the amount of such obligation divided by (B) the Market Value on the date of delivery of such shares. Section 9.5 Limitations on Indemnification. (a) The Diageo Indemnifying Parties shall have no liability for indemnification pursuant to clause (i) of Section 9.2(a) with respect to Covered Losses for which indemnification is provided thereunder, unless such Covered Losses exceed in the aggregate $100 million, in which case the Diageo Indemnifying Parties shall be liable for all such Covered Losses in excess of such amount; provided, that the Diageo Indemnifying Parties shall have no liability for such Covered Losses (and such Covered Losses will not be aggregated for purposes of such $100 million) in connection with any individual claim or series of related claims unless the aggregate amount of Covered Losses associated with such claim or series of related claims exceeds $5 million. (b) The General Mills Indemnifying Parties shall have no liability for indemnification pursuant to clause (i) of Section 9.3(a) with respect to Covered Losses for which in- 66 demnification is provided thereunder, unless such Covered Losses exceed in the aggregate $100 million, in which case the General Mills Indemnifying Parties shall be liable for all such Covered Losses in excess of such amount; provided, that the General Mills Indemnifying Parties shall have no liability for such Covered Losses (and such Covered Losses will not be aggregated for purposes of such $100 million) in connection with any individual claim or any series of related claims unless the aggregate amount of Covered Losses associated with such claim or series of related claims exceeds $5 million. Section 9.6 Exclusive Tax Indemnification. Notwithstanding anything to the contrary in this Article IX, the above provisions of this Article IX shall not apply to Tax indemnification matters, which matters shall instead be governed by Article VII. ARTICLE X Termination ----------- Section 10.1 Termination. This Agreement may be terminated at any time prior to the Closing by: (a) General Mills and Diageo by mutual written consent; (b) either General Mills or Diageo if the Effective Time shall not have occurred by the close of business on March 31, 2001 (the "Termination Date"); provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(b) shall not be available to (i) General Mills, if its or Merger Sub's failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before the Termination Date or (ii) Diageo, if its or Pillsbury's failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before the Termination Date; (c) either General Mills or Diageo if any Governmental Authority shall have issued an order, decree or ruling or taken any other action (which such party shall have used its reasonable best efforts to resist, resolve or lift, as applicable, in accordance with Section 5.2) permanently restraining, enjoining or otherwise prohibiting the Merger or the Subsidiary Purchases, and such order, decree, ruling or other action shall have become final and nonappealable; (d) by either General Mills or Diageo if (i) the General Mills Stockholders Approval shall not have been obtained by reason of the failure to obtain the Required General Mills Votes in connection with the approval of the General Mills Share Issuance and the Charter Amendment or (ii) the Diageo Shareholders Approval shall not have been obtained by reason of the failure to obtain the Required Diageo Vote in connection with the approval of the Transactions, in each case upon the taking of such vote(s) at a duly held meeting of stockholders or shareholders of General Mills or Diageo, as the case may be, or at any adjournment thereof; or (e) (i) by General Mills, prior to the Diageo Shareholders Meeting, if the Board of Directors of Diageo shall have withdrawn or modified in any manner adverse to General Mills its recommendation that the shareholders of Diageo approve the Transactions or shall 67 have resolved to take any such action, or (ii) by Diageo, prior to the General Mills Stockholders Meeting, if the Board of Directors of General Mills shall have withdrawn or modified in any manner adverse to Diageo its recommendation that the stockholders of General Mills approve the General Mills Share Issuance and the Charter Amendment or shall have resolved to take any such action. Section 10.2 Procedure and Effect of Termination. In the event of termination of this Agreement by either or both of Diageo and General Mills pursuant to Section 10.1, written notice thereof shall forthwith be given by the terminating party to the other, and this Agreement shall thereupon terminate and become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, except that the provisions of Section 10.3 and Article XI shall survive the termination of this Agreement; provided, however, that such termination shall not relieve any party hereto of any liability for any breach of this Agreement. Section 10.3 Termination Fees. (a) Fee Payable by General Mills. In the event that this Agreement is terminated by General Mills or Diageo pursuant to Section 10.1(d)(i), General Mills shall pay to Diageo a termination fee of $105 million; provided that in the event that at the time of the General Mills Stockholders Meeting a Business Combination Proposal with respect to General Mills shall have been publicly announced or otherwise become known to the stockholders of General Mills generally, the fee payable by General Mills to Diageo pursuant to this sentence shall be increased to $315 million. In the event that this Agreement is terminated by Diageo pursuant to Section 10.1(e)(ii), General Mills shall pay to Diageo a termination fee of $315 million. (b) Fee Payable by Diageo. In the event that this Agreement is terminated by General Mills or Diageo pursuant to Section 10.1(d)(ii), Diageo shall pay to General Mills a termination fee of $105 million; provided that in the event that at the time of the Diageo Shareholders Meeting an Acquisition Proposal or a Business Combination Proposal with respect to Diageo shall have been publicly announced or otherwise become known to the shareholders of Diageo generally, the fee payable by Diageo to General Mills pursuant to this sentence shall be increased to $315 million. In the event that General Mills terminates this Agreement pursuant to Section 10.1(e)(i), Diageo shall pay to General Mills a termination fee of $315 million. (c) Making of Payments. Any payments required to be made by General Mills or Diageo pursuant to this Section 10.3 shall be made promptly following the termination of this Agreement, by wire transfer in immediately available funds, to the account specified by the other party. ARTICLE XI Miscellaneous ------------- Section 11.1 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. 68 Section 11.2 Governing Law; Jurisdiction and Forum; Waiver of Jury Trial. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. (b) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any Delaware state or federal court of appropriate jurisdiction in any Action arising out of or relating to this Agreement or the Subsidiary Purchase Agreements, and hereby irrevocably agrees that all claims in respect of such Action may be heard and determined in such Delaware state or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such Action. The parties further agree, to the extent permitted by applicable Law, that any final and unappealable judgment against any of them in any Action contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment. (c) To the extent that any party hereto has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such party hereby irrevocably waives such immunity in respect of its obligations with respect to this Agreement. (d) Each party waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect of any Action arising out of or relating to this Agreement. Each party certifies that it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications set forth above in this Section 11.2. Section 11.3 Entire Agreement. This Agreement and the Ancillary Agreements, the Schedules and Exhibits hereto and thereto, and the Confidentiality Agreement contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. Except for Section 7.3, which is intended to benefit, and to be enforceable by, the General Mills Tax Indemnitees and the Diageo Tax Indemnitees, Section 9.2 which is intended to benefit, and be enforceable by, the General Mills Indemnified Parties, and Section 9.3 which is intended to benefit, and be enforceable by, the Diageo Indemnified Parties, this Agreement is not intended to confer upon any person not a party hereto (and their successors and assigns permitted by Section 11.6) any rights or remedies hereunder. Section 11.4 Expenses. Except as set forth in this Agreement and the Subsidiary Purchase Agreements, whether the Merger is or is not consummated, all legal, investment banking and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. For the avoidance of doubt, any costs incurred in connection with the Agreement and the transactions contemplated hereby by Diageo and its Subsidiaries (including Pillsbury, the Purchased Entities and their respective Subsidiaries) prior to the Closing, including any arrangements referred to in Section 3.14 with respect to the Diageo Financial Advisors (including any indemnity obligations 69 to the Diageo Financial Advisors), shall be deemed incurred by Diageo or one or more of the Continuing Affiliates, and not by any of the Business Entities. Section 11.5 Notices. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. Notices to Diageo or Pillsbury shall be addressed to: Diageo plc 8 Henrietta Place London England W1M9AG Attn.: Group General Counsel Telecopy No.: 011-44207-927-4864 with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attn.: Francis J. Aquila, Esq. Telecopy No.: (212) 558-3588 or at such other address and to the attention of such other person as Diageo may designate by written notice to General Mills. Notices to General Mills or Merger Sub shall be addressed to: General Mills, Inc. Number One General Mills Blvd. Minneapolis, Minnesota 55426 Attn.: General Counsel Telecopy No.: (763) 764-3302 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn.: Steven A. Rosenblum, Esq. Telecopy No.: (212) 403-2000 or at such other address and to the attention of such other person as General Mills may designate by written notice to Diageo. Section 11.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that no party hereto will assign its rights or delegate any or all of its obligations under this Agreement without the express prior written consent of each other party hereto. 70 Section 11.7 Headings; Definitions. The section and article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. The terms "hereof", "herein", and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Exhibits hereto) and not to any particular provision of this Agreement. The word "including" and words of similar import when used in this Agreement shall mean "including without limitation" unless the context otherwise requires or unless otherwise specified. All references in this Agreement to any period of days shall be deemed to be to the relevant number of calendar days unless otherwise specified. Section 11.8 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Any party hereto may, only by an instrument in writing, waive compliance by another party hereto with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. Section 11.9 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any party fails to consummate the transactions contemplated by this Agreement in accordance with the terms of this Agreement and that the parties shall be entitled to specific performance in such event, in addition to any other remedy or law or in equity. 71 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above. GENERAL MILLS, INC. By: /s/ Stephen W. Sanger ------------------------------------------- Name: Stephen W. Sanger Title: Chairman and Chief Executive Officer GENERAL MILLS NORTH AMERICAN BUSINESSES, INC. By: /s/ James A. Lawrence ------------------------------------------- Name: James A. Lawrence Title: Executive Vice President DIAGEO plc By: /s/ Paul S. Walsh ------------------------------------------- Name: Paul S. Walsh Title: Group Chief Operating Officer THE PILLSBURY COMPANY By: /s/ Paul S. Walsh ------------------------------------------- Name: Paul S. Walsh Title: Chairman of the Board 72 EX-99.(B) 4 exh-b.txt FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER EXHIBIT (b) FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is made as of April 12, 2001 by and among General Mills, Inc., a Delaware corporation ("General Mills"), General Mills North American Businesses, Inc., a Delaware corporation and wholly owned subsidiary of General Mills ("Merger Sub"), Diageo plc, a public limited company incorporated under the laws of England and Wales ("Diageo"), and The Pillsbury Company, a Delaware corporation and indirect wholly owned subsidiary of Diageo ("Pillsbury"). Unless otherwise specified, capitalized terms herein shall have the meaning ascribed to them in the Merger Agreement (as herein defined). RECITALS WHEREAS, General Mills, Merger Sub, Diageo and Pillsbury are the parties to that certain Agreement and Plan of Merger, dated as of July 16, 2000 (the "Merger Agreement"). WHEREAS, the parties to the Merger Agreement desire to amend the Merger Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Amendment, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Amendment of Termination Provisions. Section 10.1(b) of the Merger Agreement is hereby replaced in its entirety with the following: "(b) either General Mills or Diageo, if the Effective Time shall not have occurred by the close of business on June 30, 2001 (the "Termination Date");" 2. Counterparts; Effectiveness. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same agreement. Except as expressly amended hereby, the terms and conditions of the Merger Agreement shall remain in full force and effect. The Merger Agreement, as amended by this Amendment, shall be binding upon the parties hereto and their successors and permitted assigns. This Amendment shall be effective as of the date first written above. 3. Governing Law; Jurisdiction and Forum; Waiver of Jury Trial. (a) This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. (b) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any Delaware state or federal court of appropriate jurisdiction in any Action arising out of or relating to this Amendment, and hereby irrevocably agrees that all claims in respect of such Action may be heard and determined in such Delaware state or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such Action. The parties further agree, to the extent permitted by applicable Law, that any final and unappealable judgment against any of them in any Action contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment. (c) To the extent that any party hereto has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such party hereby irrevocably waives such immunity in respect of its obligations with respect to this Amendment. (d) Each party waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect of any Action arising out of or relating to this Amendment. Each party certifies that it has been induced to enter into this Amendment by, among other things, the mutual waivers and certifications set forth above in this Section 3. 4. Headings; Definitions. The section and article headings contained in this Amendment are inserted for convenience of reference only and will not affect the meaning or interpretation of this Amendment. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. GENERAL MILLS, INC. By: /s/ James A. Lawrence ------------------------------------------- Name: James A. Lawrence Title: Executive Vice President and Chief Financial Officer GENERAL MILLS NORTH AMERICAN BUSINESSES, INC. By: /s/ James A. Lawrence ------------------------------------------- Name: James A. Lawrence Title: Executive Vice President DIAGEO plc By: /s/ Paul Steven Walsh ------------------------------------------- Name: Paul Steven Walsh Title: Group Chief Executive THE PILLSBURY COMPANY By: /s/ John Stewart ------------------------------------------- Name: John Stewart Title: Senior Vice President Strategy and Business Development 3 EX-99.(C) 5 exh-c.txt SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER EXHIBIT (c) SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is made as of October 31, 2001 by and among General Mills, Inc., a Delaware corporation ("General Mills"), General Mills North American Businesses, Inc., a Delaware corporation and wholly owned subsidiary of General Mills ("Merger Sub"), Diageo plc, a public limited company incorporated under the laws of England and Wales ("Diageo"), and The Pillsbury Company, a Delaware corporation and indirect wholly owned subsidiary of Diageo ("Pillsbury"). Unless otherwise specified, capitalized terms used herein shall have the meaning ascribed to them in the Merger Agreement (as herein defined). RECITALS WHEREAS, General Mills, Merger Sub, Diageo and Pillsbury are the parties to that certain Agreement and Plan of Merger, dated as of July 16, 2000, as amended by the First Amendment to Agreement and Plan of Merger, dated as of April 12, 2001 (the "Merger Agreement"); and WHEREAS, the parties to the Merger Agreement desire to further amend the Merger Agreement as set forth in this Amendment and to provide for such other agreements among the parties as set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Amendment, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Exhibits. (a) Exhibit C to the Merger Agreement is hereby replaced in its entirety with Exhibit C hereto. (b) The Merger Agreement (including the list of Exhibits contained therein) is hereby amended by adding new Exhibit F (Subsidiary Purchase Price Allocation), new Exhibit G (Form of Purchase Agreement), new Exhibit H (Form of Lease) and new Exhibit I (2001 Business Financial Statements) to the Merger Agreement, such new Exhibits to the Merger Agreement attached as Exhibits F, G, H and I, respectively, hereto. 2. Recitals. (a) The fifth recital following the preamble in the Merger Agreement is hereby replaced in its entirety with the following: "WHEREAS, in connection with the closing of the transactions contemplated by this Agreement, it is contemplated that General Mills, Diageo and the Pillsbury Stockholder will enter into a Stockholders Agreement (the "Stockholders Agreement" and collectively with the Subsidiary Purchase Agreements, the "Ancillary Agreements") in the form set forth as Exhibit C to this Agreement." (b) The third recital following the preamble in the Merger Agreement is hereby deleted. 3. Article I. Article I of the Merger Agreement is hereby amended as follows: (a) The definition of "Additional Shares" is hereby deleted. (b) The definition of "Anniversary Date" is hereby deleted. (c) The following definitions are hereby inserted following the definition of "Business Intellectual Property Rights": '"CVR Measurement Date" means the eighteen-month anniversary of the Effective Time (or if such date is not a Business Day, the next Business Day).' '"Closing Date Third Party Debt" shall mean the amount of aggregate outstanding indebtedness (excluding off balance sheet financing and operating and capitalized finance leases that are reflected in the profits and losses statement of the Business Entities in the ordinary course consistent with past practice) of the Business Entities as of the Closing Date (other than intercompany indebtedness owing to Diageo or one or more Continuing Affiliates, all of which intercompany indebtedness will be contributed to capital pursuant to Section 5.6(a)).' (d) The words "Anniversary Date" in the definition of "Contingent Share Value" are hereby replaced with the words "CVR Measurement Date". (e) The definition of "General Mills Shares Held" is replaced in its entirety with the following: '"General Mills Shares Held" means the number of shares of General Mills Common Stock issued to the Pillsbury Stockholder pursuant to Section 2.8(a) of this Agreement and continued to be held by the Pillsbury Stockholder or its Permitted Transferees as of the CVR Measurement Date or the Disposition, as the case may be.' (f) The definition of "Maximum Contingent Share Value" is replaced in its entirety with the following: '"Maximum Contingent Share Value" means $5.00.' (g) The following definition is hereby inserted following the definition of "Pillsbury Common Stock": "Pillsbury Purchase Price Cash Amount" shall mean (i) $3,019,672,996.00 less (ii) the Closing Date Third Party Debt.' (h) The definition of "Pillsbury Purchase Price Shares" is replaced in its entirety with the following: 2 '"Pillsbury Purchase Price Shares" shall mean 134 million shares of General Mills Common Stock.' (i) The definition of "Purchase Price Shares" is hereby deleted. (j) The definition of "Subsidiary Purchase Price Shares" is replaced in its entirety with the following: '"Subsidiary Purchase Price Cash Amount" shall mean $810,327,004.00.' (k) The definition of "Target Price" is replaced in its entirety with the following: '"Target Price" means $49.00.' (l) The following terms are hereby deleted from the chart contained in Article I paragraph (b): Adjustment Payment Date Escrow Agent Escrow Agreement Escrow Fund Joint Instruction (m) The following terms are hereby inserted into the chart contained in Article I paragraph (b): 2001 Business Financial Statements . . . . . . . 3.3(c) 2001 Business Balance Sheet . . . . . . . . . . . . .3.3(c) Closing Date Cash . . . . . . . . . . . . . . . . . .. . . 5.4(d) Estimated Closing Date Third Party Debt . . . 5.15 4. Article II. Article II of the Merger Agreement is hereby amended as follows: (a) Section 2.8(a) is hereby replaced in its entirety with the following: "(a) At the Effective Time, by virtue of the Merger and without any action on the part of Diageo or the Pillsbury Stockholder, all of the shares of Pillsbury Common Stock issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall forthwith cease to exist and shall collectively be converted into the right to receive the Pillsbury Purchase Price Shares and the Pillsbury Purchase Price Cash Amount." (b) Sections 2.10, 2.11, 2.12 and 2.13 are hereby replaced in their entirety with the following: "Section 2.10. Aggregate Consideration. The aggregate consideration paid to the Pillsbury Stockholder pursuant to this Agreement in connection with the Merger and to the Selling Affiliates for the Subsidiary Purchases shall consist 3 of (a) the Pillsbury Purchase Price Shares, (b) the Pillsbury Purchase Price Cash Amount and (c) the Subsidiary Purchase Price Cash Amount (collectively, the "Purchase Price"), subject to any adjustment to the Purchase Price pursuant to Section 2.13, 2.14 or 9.4(d). Section 2.11. Deliveries by Diageo and the Selling Affiliates. At the Closing, Diageo shall, or shall cause the Pillsbury Stockholder or one or more of the Selling Affiliates to, as the case may be, deliver the following to General Mills or, in the case of paragraph (a) below, the applicable Buying Affiliate: (a) certificates or notarial assignment deed for, or such other instruments evidencing ownership under applicable law of, the Purchased Interests, which constitute and will constitute as of the Closing, 100% of the issued and outstanding shares of capital stock or other equity interests of the Purchased Entities owned by the Selling Affiliates, in each case with appropriate stock powers or other instruments of transfer and requisite tax stamps attached and properly signed (or in the event any of the Subsidiary Purchases is in the form of an acquisition of assets and liabilities, such documentation as may be necessary to reflect the transfer of such assets and liabilities to the applicable Buying Affiliate); (b) all Books and Records in the possession of Diageo or any Continuing Affiliate, except as otherwise provided by Law; (c) the certificate required to be delivered by Diageo and Pillsbury pursuant to Section 8.2(d); (d) counterparts of the Stockholders Agreement duly executed by Diageo and the Pillsbury Stockholder; (e) certificates of the Secretary or an Assistant Secretary (or a person holding an equivalent position, in the case of the Selling Affiliates) of Diageo, Pillsbury, the Pillsbury Stockholder and the Selling Affiliates, dated the Closing Date, (i) as to the incumbency and signatures of the officers or representatives of Diageo and Pillsbury executing this Agreement and of Diageo and the Pillsbury Stockholder executing the Stockholders Agreement and of the Selling Affiliates executing the Subsidiary Purchase Agreements, together with evidence of incumbency of such Secretary or Assistant Secretary (or a person holding an equivalent position, in the case of the Selling Affiliates), and (ii) certifying attached resolutions of the respective Board of Directors of Diageo, Pillsbury, the Pillsbury Stockholder and the Selling Affiliates that authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements, as the case may be; (f) resignations, effective as of the Effective Time, of those directors of the Food Subsidiaries as General Mills may request; and 4 (g) such other documents, instruments and certificates as General Mills may reasonably request in connection with the transactions contemplated by this Agreement. Section 2.12. Deliveries by General Mills and the Buying Affiliates. At the Closing, General Mills shall deliver to Diageo, and, in the case of paragraph (b) below, shall cause the Buying Affiliates to deliver to the Selling Affiliates: (a) (i) a certificate or certificates for the Pillsbury Purchase Price Shares (which shares, when delivered, will be duly authorized, validly issued, fully paid and non-assessable), in definitive form, registered in the name of the Pillsbury Stockholder, bearing a legend or legends referencing restrictions under the Securities Act on transfer of the Pillsbury Purchase Price Shares and any legends required by the Stockholders Agreement and (ii) the Pillsbury Purchase Price Cash Amount (the amount of which, for purposes of such delivery at the Closing, shall be calculated based upon the Estimated Closing Date Third Party Debt), by wire transfer in immediately available funds, to the account specified in writing by Diageo at least one Business Day prior to the Closing Date; (b) the Subsidiary Purchase Price Cash Amount, by wire transfer in immediately available funds, to the account specified in writing by Diageo at least one Business Day prior to the Closing Date; (c) the certificate required to be delivered by General Mills pursuant to Section 8.3(c); (d) a duly executed counterpart of the Stockholders Agreement executed by General Mills; (e) certificates of the Secretary or an Assistant Secretary (or a person holding an equivalent position, in the case of the Buying Affiliates) of General Mills, Merger Sub and the Buying Affiliates, dated the Closing Date, (i) as to the incumbency and signatures of the officers or representatives of General Mills and Merger Sub executing this Agreement and of General Mills executing the Stockholders Agreement and of the officers or representatives of General Mills and the Buying Affiliates executing the Subsidiary Purchase Agreements, together with evidence of the incumbency of such Secretary or Assistant Secretary (or a person holding an equivalent position, in the case of the Buying Affiliates), and (ii) certifying attached resolutions of the respective Boards of Directors of General Mills, Merger Sub and the Buying Affiliates, which authorize and approve the execution, delivery and performance of this Agreement and the Ancillary Agreements, as the case may be; and (f) such other documents, instruments and certificates as Diageo may reasonably request in connection with the transactions contemplated by this Agreement. 5 Section 2.13. Contingent Purchase Price Adjustment. (a) Unless the stockholders of General Mills have approved a Disposition prior to the CVR Measurement Date, General Mills shall pay to the Pillsbury Stockholder, on or as promptly as practicable following the CVR Measurement Date, an amount, if any, equal to the product of (i) the number of General Mills Shares Held multiplied by (ii) the Contingent Share Value, such payment to be made by wire transfer in immediately available funds to the account specified in writing by the Pillsbury Stockholder.. (b) In the event the stockholders of General Mills approve a Disposition prior to the CVR Measurement Date, General Mills shall pay to the Pillsbury Stockholder, on or as promptly as practicable following the date of the Disposition, an amount, if any, equal to the product of (i) the number of General Mills Shares Held multiplied by (ii) the Disposition Value, such payment to be made by wire transfer in immediately available funds to the account specified in writing by the Pillsbury Stockholder. (c) The number of shares of General Mills Common Stock or type of property or securities issuable in connection with the transactions contemplated by this Agreement, the Contingent Share Value, the Maximum Contingent Share Value, the Disposition Value, the Target Price, the General Mills Shares Held and the calculation of Market Value shall be appropriately and equitably adjusted to reflect (i) the payment of any extraordinary distribution or dividend on shares of General Mills Common Stock (other than regular quarterly cash dividends), (ii) any stock split, stock dividend or combination of such shares or (iii) any consolidation, merger or other event which results in the conversion or exchange of such shares. (d) All calculations and determinations pursuant to this Section 2.13 shall be mutually agreed upon by Diageo and General Mills in good faith, and shall be final and binding upon all of the parties to this Agreement and on the Pillsbury Stockholder. (c) Section 2.14(d) is hereby replaced in its entirety with the following: "(d) The Purchase Price shall be reduced dollar for dollar by the amount, if any, by which Operating Working Capital shown on the Adjusted Closing Date Operating Working Capital Calculation is less than $100 million or increased dollar for dollar by the amount, if any, by which Operating Working Capital shown on the Adjusted Closing Date Operating Working Capital Calculation is greater than $320 million, provided, however, that if the Closing Date is between October 15 and November 15, inclusive, the $320 million threshold shall be increased to $420 million, and if the Closing Date is between March 15 and April 15, inclusive, the $100 million threshold shall be reduced to zero; provided, further, that if there is a sale, divestiture or disposition of any plants, assets or businesses consummated prior to the Closing pursuant to Section 5.2, Diageo and 6 General Mills shall mutually agree on an appropriate adjustment of the aforementioned thresholds to reflect such sale, divestiture or disposition. For the avoidance of doubt, in the event that the Operating Working Capital shown on the Adjusted Closing Date Operating Working Capital Calculation is not greater or less than the applicable threshold, no adjustment to the Purchase Price shall be made pursuant to this Section 2.14." (d) Section 2.14(e) is hereby replaced in its entirety with the following: "(e) Any adjustment to the Purchase Price made pursuant to Section 2.14(d) shall be paid by Diageo or General Mills, as applicable, by wire transfer in immediately available funds, to an account or accounts specified by General Mills or Diageo, as applicable, within five Business Days after the Adjusted Closing Date Operating Working Capital Calculation is agreed upon or deemed to have been agreed upon by General Mills and Diageo or the written statement of the Neutral Auditors setting forth their determination regarding any remaining disputed items is delivered to General Mills and Diageo, and shall bear interest from (and including) the Closing Date through (and including) the date of payment at the publicly announced prime interest rate of Citibank, N.A. in effect from time to time for unsecured short-term commercial loans." 5. Article III. Article III of the Merger Agreement is hereby amended as follows: (a) The second sentence of Section 3.1(b) is hereby replaced in its entirety with the following: "Each of Diageo and the Pillsbury Stockholder has the requisite corporate or similar power and authority to execute the Stockholders Agreement and to perform its obligations thereunder and to consummate the transactions contemplated thereby." (b) A new Section 3.3(c) is hereby inserted to read as follows: "(c) Attached hereto as Exhibit I are true and complete copies of the unaudited consolidated financial statements of income, balance sheets and statements of cash flows of the Business Entities as of and for the twelve months ended June 30, 2001 (collectively, the "2001 Business Financial Statements"). The 2001 Business Financial Statements present fairly in all material respects the consolidated financial position and results of operations and cash flows of the Business Entities for the respective period or as of the respective date set forth therein, in each case in accordance with U.K. GAAP applied on a consistent basis throughout the periods involved (except as otherwise indicated therein and except for changes resulting from normal and recurring year-end adjustments). The 2001 Business Financial Statements have been prepared from and in all material respects in accordance with the books and records of the Business Entities. The balance sheet as of June 30, 2001 included in the 2001 Business Financial Statements is referred to herein as the "2001 Business Balance Sheet." 7 (c) Section 3.4 is hereby replaced in its entirety with the following: "Section 3.4. No Undisclosed Liabilities. Except for liabilities which are reflected or reserved against in the 2001 Business Balance Sheet or as set forth in Section 3.4 of the Diageo Disclosure Schedule, none of the Business Entities has any liabilities or obligations that would be required to be reflected on a balance sheet prepared in accordance with U.K. GAAP or U.S. GAAP, except for (a) liabilities or obligations arising in the ordinary course of business consistent with past practice since June 30, 2001, which would not, individually or in the aggregate, have or reasonably be expected to have a Pillsbury Material Adverse Effect and (b) with respect to liabilities or obligations that would be required to be reflected on a balance sheet prepared in accordance with U.S. GAAP, deferred income taxes, pension, and postretirement/employment liabilities." (d) Section 3.6 is hereby replaced in its entirety with the following: "Section 3.6. Absence of Certain Changes. Since June 30, 2001, there has been no change or development in or effect on the business or businesses of the Business Entities that has had, or would reasonably be expected to have, a Pillsbury Material Adverse Effect. From December 31, 1999 through July 16, 2000, there was no action taken by any Business Entity which, if taken from July 16, 2000 through the Closing, would violate any of the provisions of subsections (i), (ii), (iii), (iv), (v), (xii)(A) and (xvii) of Section 5.4(a), provided that for the purposes of this representation, the reference in Section 5.4(a)(v)(A) to "a commitment period of one year or less" shall be deemed to be of no consequence for purposes of this Section 3.6 and the reference in Section 5.4(a)(v)(B) to "Pillsbury's 2001 Capital Expenditure Plan" shall be deemed to refer to "Pillsbury's 2000 Capital Expenditure Plan." (e) Section 3.20 is hereby replaced in its entirety with the following: "Section 3.20. Acquisition of Shares for Investment. Diageo and the Pillsbury Stockholder have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of their acquisition of the Pillsbury Purchase Price Shares and have been provided access to personnel and books of General Mills and its Subsidiaries for purposes of making their evaluation. Diageo and the Pillsbury Stockholder are acquiring the Pillsbury Purchase Price Shares for investment and not with a view toward any distribution thereof, or with any present intention of distributing such shares. Diageo and the Pillsbury Stockholder agree that the Pillsbury Purchase Price Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act, except pursuant to an exemption from such registration available under the Securities Act." 8 6. Article IV. Article IV of the Merger Agreement is hereby amended as follows: (a) Clause (ii) of the last sentence of Section 4.1(b) is hereby replaced in its entirety with the following: "(ii) the issuance of the Pillsbury Purchase Price Shares pursuant to this Agreement (the "General Mills Share Issuance") by the Required General Mills Votes, no other corporate proceedings on the part of General Mills or Merger Sub, their respective Boards of Directors or stockholders are necessary therefor." (b) Section 4.2(c) is hereby replaced in its entirety with the following: "(c) All of the Pillsbury Purchase Price Shares, when issued in the Merger pursuant to this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights." 7. Article V. Article V of the Merger Agreement is hereby amended as follows: (a) Section 5.2(d) is hereby replaced in its entirety with the following: "(d) Intentionally omitted." (b) The words "and except as otherwise provided in Section 5.15," in clause (i) of Section 5.4(a) are hereby deleted. (c) The words "except as set forth in Section 5.15," in clause (vii) of Section 5.4(a) are hereby deleted. (d) A new Section 5.4(d) is hereby inserted to read as follows: "(d) Pillsbury Cash Management. Notwithstanding anything in this Agreement to the contrary, prior to the Closing Date Pillsbury and Diageo shall be permitted to engage in cash management activities commonly referred to as a "cash sweep", but only in the ordinary course of business consistent with past practice, except to the extent necessary to comply with Section 5.6(a)(ii); provided that, notwithstanding the foregoing, as of the Closing, the Business Entities shall have not less than $42 million cash on hand (in excess of cash, if any, reflected on the consolidated balance sheet of the Business Entities as of the Closing Date in respect of amounts held in escrow relating to Pillsbury's Indian joint venture) ("Closing Date Cash"). In the event that the amount of Closing Date Cash exceeds $42 million, General Mills shall pay to the Pillsbury Stockholder an amount in cash equal to such difference. In the event that the amount of Closing Date Cash is less than $42 million, Diageo shall cause the Pillsbury Stockholder to pay to General Mills an amount in cash equal to such difference." 9 (e) Section 5.6(a) is hereby replaced in its entirety with the following: "(a) (i) Prior to the Effective Time, no Business Entity shall repay (A) any indebtedness or other payable owing to Diageo or any Continuing Affiliate or (B) any other indebtedness except as required by the terms thereof and (ii) effective as of the Effective Time, all intercompany receivables, payables, loans and investments then existing between Diageo or any Continuing Affiliate, on the one hand, and the Business Entities, on the other hand, shall be settled by way of capital contribution (with respect to intercompany payables or loans due to Diageo or any Continuing Affiliate) or by way of dividend in kind (with respect to receivables of any Business Entity owed by Diageo or any Continuing Affiliate)." (f) Section 5.8(a) is hereby replaced in its entirety with the following: "(a) The Subsidiary Purchase Price Cash Amount shall be allocated as set forth on Exhibit F hereto." (g) The words "and delivered pursuant to the Subsidiary Purchase Agreements" in Section 5.13 are hereby deleted. (h) A new Section 5.14(c) is hereby inserted to read as follows: "(c) As promptly as practical following the Closing (but in any event no later than November 15, 2001, Pillsbury shall deliver to General Mills true and complete copies of the audited consolidated financial statement of income, balance sheet and statement of cash flows of the Business Entities as of and for the twelve months ended June 30, 2001, in each case prepared in accordance with U.S. GAAP. Such audited financial statements shall not differ in any material respect from the 2001 Business Financial Statements, except for those adjustments relating to differences between U.K. GAAP and U.S. GAAP. (i) Section 5.15 is hereby replaced in its entirety with the following: "Section 5.15. Closing Date Indebtedness. Prior to the Closing, Diageo shall deliver to General Mills a certificate, signed by the Chief Financial Officer of Diageo, setting forth Diageo's good faith estimate of the amount of Closing Date Third Party Debt (the "Estimated Closing Date Third Party Debt"). Promptly following the Closing Date, but in no event later than the date on which General Mills delivers the Closing Date Operating Working Capital Calculation to Diageo pursuant to Section 2.14(b), General Mills shall deliver to Diageo a certificate, signed by the Chief Financial Officer of General Mills, setting forth the amount of Closing Date Third Party Debt. In the event that Diageo disputes the amount of Closing Date Third Party Debt set forth in such certificate, Diageo shall provide General Mills written notice of such dispute within 60 days of Diageo's receipt of such certificate, specifying in reasonable detail the basis for such dispute, and such dispute shall be resolved in the manner for resolving disputes set forth in Section 2.14. If the Closing Date Third Party Debt as set forth in such certificate of General Mills (or as resolved as set forth above) 10 exceeds the Estimated Third Party Closing Date Debt, Diageo shall cause the Pillsbury Stockholder to pay to General Mills an amount equal to such difference. If the Estimated Third Party Closing Date Debt exceeds the Closing Date Third Party Debt as set forth in such certificate of General Mills (or as resolved as set forth above), General Mills shall pay to the Pillsbury Stockholder an amount equal to such difference. Any payment made pursuant to this Section 5.15 shall be paid by wire transfer in immediately available funds to the account specified by the party entitled to receive such payment, within three Business Days after delivery by General Mills of the certificate contemplated by this Section 5.15 (or if there is a dispute with respect to such certificate, three Business Days after such dispute is resolved), and shall bear interest from (and including) the Closing Date through (and including) the date of payment at the publicly announced prime interest rate of Citibank, N.A. in effect from time to time for unsecured short term commercial loans." 8. Article VI. Article VI of the Merger Agreement is hereby amended as follows: (a) A new Section 6.1(n) is hereby added to read as follows: "(n) With respect to the July 2000 Completion and Performance Plan referred to in Section 6.1(b)(iii), Diageo and Pillsbury covenant and agree that the aggregate amount of costs, liabilities and expenses of the Business Entities in respect thereof shall not exceed $60 million. In the event that such costs, liabilities and expenses in the aggregate are greater than $60 million, Diageo shall pay to General Mills an amount in cash equal to such difference. In the event that such costs, liabilities and expenses in the aggregate are less than $60 million, General Mills shall pay to Diageo an amount in cash equal to such difference. 9. Article VII. Article VII of the Merger Agreement is hereby amended as follows: (a) Section 7.2 is hereby replaced in its entirety with the following: "Section 7.2. Intentionally omitted." (b) The words "(except, in each case, to the extent set forth in Section 7.3(b)(ii) below)" in clause (iii) of Section 7.3(a) are hereby deleted. (c) Clause (ii) of Section 7.3(b) is hereby replaced in its entirety with the following: "(ii) Intentionally omitted." (d) Section 7.8(b) is hereby replaced in its entirety with the following: "(b) Pre-Closing Tax Periods. Diageo shall have the right to control, at its own expense, any audit, examination, contest, litigation or other proceeding by or against any Taxing Authority (a "Tax Proceeding") in respect of a Business Entity for any taxable period that ends on or before the Closing Date; provided, however, that insofar as any such Tax Proceeding relates to the matters set forth 11 above in this Section 7.8(b), Diageo shall provide General Mills with a timely and reasonably detailed account of each stage of such Tax Proceeding." (e) The second sentence of Section 7.14 is hereby deleted. (10) Article VIII. Article VIII of the Merger Agreement is hereby amended as follows: (a) The words "and delivered pursuant to the Subsidiary Purchases" in Section 8.1(e) are hereby deleted. (b) Section 8.2(c) is hereby replaced in its entirety with the following: "(c) Indebtedness. There shall be no outstanding indebtedness of the Business Entities as of the Closing Date (excluding off balance sheet financing and operating and capitalized finance leases that are reflected in the profits and losses statement of the Business Entities in the ordinary course consistent with past practice) other than the Closing Date Third Party Debt." (c) A new Section 8.2(f) is hereby added to read as follows: "(f) Data Center. Diageo and Pillsbury shall have delivered to General Mills the Purchase Agreement in the form attached hereto as Exhibit G and the Lease in the form attached hereto as Exhibit H, respectively, in each case duly executed by all parties thereto other than General Mills." (d) Section 8.3(d) is hereby replaced in its entirety with the following: "(d) Intentionally omitted." 11. Article IX. Article IX of the Merger Agreement is hereby amended as follows: (a) The words ", except the representations and warranties set forth in Article VII, whose survival shall be as set forth in Article VII" in Section 9.1(a) are hereby deleted. (b) The words "(other than those set forth in Article VII hereof, indemnity for which is addressed in Article VII)" in Section 9.3(a) are hereby deleted. (c) Section 9.4(d) is hereby replaced in its entirety with the following: "(d) Except for third party claims being defended in good faith, Diageo and General Mills shall satisfy the General Mills Indemnifying Parties' or the Diageo Indemnifying Parties', as applicable, obligations under this Article IX in respect of a valid claim for indemnification hereunder which is not contested by Diageo or General Mills, as applicable, in good faith, in cash within 30 days after the date on which Notice of Claim is given." 12. Disclosure Schedules. The Diageo Disclosure Schedule is hereby amended as set forth in Exhibit J hereto. 12 13. Asset Transfers. The parties understand and agree that Section 6.1(k) of the Merger Agreement shall survive the Closing. 14. Counterparts; Effectiveness. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same agreement. Except as expressly amended hereby, the terms and conditions of the Merger Agreement shall remain in full force and effect. The Merger Agreement, as amended by this Amendment, shall be binding upon the parties hereto and their successors and permitted assigns. This Amendment shall be effective as of the date first written above. 15. Governing Law; Jurisdiction and Forum; Waiver of Jury Trial. (a) This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. (b) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any Delaware state or federal court of appropriate jurisdiction in any Action arising out of or relating to this Amendment, and hereby irrevocably agrees that all claims in respect of such Action may be heard and determined in such Delaware state or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such Action. The parties further agree, to the extent permitted by applicable Law, that any final and unappealable judgment against any of them in any Action contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment. (c) To the extent that any party hereto has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such party hereby irrevocably waives such immunity in respect of its obligations with respect to this Amendment. (d) Each party waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect of any Action arising out of or relating to this Amendment. Each party certifies that it has been induced to enter into this Amendment by, among other things, the mutual waivers and certifications set forth above in this Section 15. 16. Headings; Definitions. The section and article headings contained in this Amendment are inserted for convenience of reference only and will not affect the meaning or interpretation of this Amendment. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. 13 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. GENERAL MILLS, INC. By: /s/ D. I. Malina ------------------------------------------- Name: D.I. Malina Title: Vice President Corporate Development GENERAL MILLS NORTH AMERICAN BUSINESSES, INC. By: /s/ Ernest M. Harper, Jr. ------------------------------------------- Name: Ernest M. Harper, Jr. Title: Vice President, Assistant Treasurer DIAGEO plc By: /s/ Paul S. Walsh ------------------------------------------- Name: Paul S. Walsh Title: Group Chief Executive THE PILLSBURY COMPANY By: /s/ John Stewart ------------------------------------------- Name: John Stewart Title: Senior Vice President Strategy and Business Development 14 EX-99.(D) 6 exh-d.txt STOCKHOLDERS AGREEMENT EXHIBIT (d) STOCKHOLDERS AGREEMENT BY AND AMONG GENERAL MILLS, INC., GRAMET HOLDINGS CORP. AND DIAGEO PLC DATED AS OF OCTOBER 31, 2001 TABLE OF CONTENTS PAGE ARTICLE I CERTAIN DEFINITIONS Section 1.1. Certain Definitions..........................................1 ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1. Representations and Warranties of the Company................5 Section 2.2. Representations and Warranties of the Shareholder Group......5 ARTICLE III STANDSTILL; VOTING; BOARD REPRESENTATION Section 3.1. Standstill Restrictions......................................6 Section 3.2. Termination of the Standstill Restrictions...................7 Section 3.3. Voting.......................................................7 Section 3.4. Board of Directors...........................................7 Section 3.5. Provision of Information.....................................9 Section 3.6. Buy-Up Right.................................................9 ARTICLE IV TRANSFER RESTRICTIONS Section 4.1. Transfer Restrictions........................................9 Section 4.2. Company Repurchase..........................................11 Section 4.3. Obligation to Dispose of Shareholder Group Shares...........12 ARTICLE V REGISTRATION RIGHTS Section 5.1. Demand Registrations........................................12 Section 5.2. Piggy-Back Registration.....................................14 Section 5.3. Termination of Registration Obligations.....................14 Section 5.4. Registration Procedures.....................................15 Section 5.5. Registration Expenses.......................................19 Section 5.6. Indemnification Contributions...............................20 Section 5.7. Purchase Right..............................................22 -i- ARTICLE VI PUT RIGHT Section 6.1. Put Right...................................................23 ARTICLE VII EFFECTIVENESS AND TERMINATION Section 7.1. Effectiveness...............................................23 Section 7.2. Termination.................................................23 ARTICLE VII MISCELLANEOUS Section 8.1. Injunctive Relief...........................................24 Section 8.2. Successors and Assigns......................................24 Section 8.3. Amendments; Waiver..........................................24 Section 8.4. Notices.....................................................24 Section 8.5. Applicable Law..............................................25 Section 8.6. Headings....................................................25 Section 8.7. Integration.................................................25 Section 8.8. Severability................................................26 Section 8.9. Shareholder Group Representative............................26 Section 8.10. Consent to Jurisdiction.....................................26 Section 8.11. Counterparts................................................26 Section 8.12. UK Double Tax Relief Information............................26 -ii- STOCKHOLDERS AGREEMENT, dated as of October 31, 2001 (this "Agreement"), by and among General Mills, Inc., a Delaware corporation (the "Company"), Diageo plc, a public limited company incorporated under the laws of England and Wales ("Parent"), and Gramet Holdings Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Gramet" and, together with Parent, the "Shareholder Group"). W I T N E S S E T H: WHEREAS, the Company, Parent, The Pillsbury Company, a Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Pillsbury"), and General Mills North American Businesses, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), have entered into an Agreement and Plan of Merger, dated as of July 16, 2000 (as it may be amended from time to time, the "Merger Agreement"), pursuant to which, among other things, Merger Sub will merge with and into Pillsbury, with Pillsbury as the surviving corporation, and shares of Pillsbury held by Gramet, the sole stockholder of Pillsbury, will be converted into shares of Common Stock, par value $0.10 per share (including the related preferred share purchase rights, the "Common Stock"), of the Company (the "Merger"); WHEREAS, the execution of this Agreement is a condition to the obligation of the parties to consummate the Merger (the "Closing"); and WHEREAS, the Company and the Shareholder Group desire to establish in this Agreement certain terms and conditions concerning the acquisition and disposition of the shares of Common Stock issued to Gramet pursuant to the Merger Agreement, and related provisions concerning the Shareholder Group's relationship with and investment in the Company following the Closing. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS Section 1.1 Certain Definitions. In addition to other terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the meanings ascribed to them below: "Affiliate" shall mean, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person. As used in this definition, "control" (including, with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). "Agreement" shall have the meaning assigned to such term in the preamble hereto. "Beneficially Own" shall mean, with respect to any securities, having "beneficial ownership" of such securities for purposes of Rule 13d-3 or 13d-5 under the Exchange Act as in effect on the date hereof, and "Beneficial Ownership" shall have the corresponding meaning. "Blackout Period" shall have the meaning assigned in Section 5.1(b). "Board" shall mean the Board of Directors of the Company in office at the applicable time. "Business Day" shall mean any day that is not a Saturday, Sunday or other day on which the commercial banks in New York City or London are authorized or required by law to remain closed. "Claims" shall have the meaning assigned in Section 5.6(a). "Closing" shall have the meaning assigned in the recitals hereto. "Common Stock" shall have the meaning assigned in the recitals hereto. "Company" shall have the meaning assigned in the preamble hereto. "Company Rights Plan" shall mean the Rights Agreement, dated as of December 11, 1995, between the Company and Norwest Bank Minnesota, as Rights Agent, as it may be amended from time to time. "Demand Registration" shall have the meaning assigned in Section 5.1(a). "Demand Request" shall have the meaning assigned in Section 5.1(a). "Demand Shares" shall have the meaning assigned in Section 5.1(a). "Director" shall mean any member of the Board. "Effective Period" shall have the meaning assigned in Section 5.4(a)(iii). "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exercise Notice" shall have the meaning assigned in Section 6.1 "Gramet" shall have the meaning assigned in the recitals hereto. "Market Value" shall mean, as of any date, the average of the daily high and low sales prices per share of Common Stock during the regular trading sessions on the NYSE for each of the 20 full trading days immediately preceding (but not including) such date. "Maximum Number" shall have the meaning assigned in Section 5.2(b). 2 "Merger" shall have the meaning assigned in the recitals hereto. "Merger Agreement" shall have the meaning assigned in the recitals hereto. "NYSE" shall mean the New York Stock Exchange, Inc. "Original Issued Shares" shall mean the Pillsbury Purchase Price Shares(as such term is defined in the Merger Agreement) and any shares of Common Stock issued in respect thereof or into which such shares of Common Stock shall be converted in connection with stock splits, reverse stock splits, stock dividends or distributions, or combinations or any similar recapitalization, on or after the date hereof. "Other Holder" shall have the meaning assigned in Section 5.2(b). "Parent" shall have the meaning assigned in the preamble hereto. "Parent Director" shall have the meaning assigned in Section 3.4(a). "Parent Board Member" shall mean a member of the Board of Directors of Parent or of the Executive Committee of Parent. "Person" shall mean any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Piggy-Back Registration" shall have the meaning assigned in Section 5.2(a). "Piggy-Back Request" shall have the meaning assigned in Section 5.2(a). "Public Shares" shall have the meaning assigned in Section 4.2(a) "Put Closing" shall have the meaning assigned in Section 6.1. "Put Price" shall have the meaning assigned in Section 6.1, "Put Right" shall have the meaning assigned in Section 6.1 "Put Shares" shall mean the 55 million Original Issued Shares represented by the stock certificate for 55 million Original Issued Shares delivered to Gramet at the Closing. "Registrable Shares" shall mean the Shareholder Group Shares. "Repurchase" shall have the meaning assigned in Section 4.2(a). "Repurchase Offer" shall have the meaning assigned in Section 4.2(a). "SEC" shall mean the United States Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. 3 "Security" shall have the meaning assigned in Section 4.1(e). "Select Voting Matter" shall mean any proposed (a) amendment to the certificate of incorporation of the Company or (b) (i) merger, consolidation or other business combination as a result of which the stockholders of the Company prior to such transaction would cease to hold at least 80% of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof), (ii) the acquisition by any Person of at least 20% of the outstanding voting securities of the Company, (iii) the sale, lease, exchange or other disposition of at least 20% of the assets of the Company and its Subsidiaries taken as a whole or (iv) any transaction as a result of which the Directors immediately prior to such transaction would cease to represent two-thirds of the directors comprising the Board or the board of directors of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof). "Shareholder Group" shall have the meaning assigned in the preamble hereto, it being understood that such term shall also include any transferee pursuant to a Transfer pursuant to Section 4.1(f) hereof. "Shareholder Group Director" shall mean either of the Directors elected to the Board at the effective time of the Merger pursuant to Section 5.12 of the Merger Agreement, or any replacement therefor or additional Director elected pursuant to Section 3.4 of this Agreement. "Shareholder Group Shares" shall mean, at any time, the Original Issued Shares that are Beneficially Owned by the Shareholder Group. "Subsidiary" means, with respect to any Person, any other entity of which securities or other ownership interests having ordinary power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person. "Transfer" shall mean any sale (including forward sale), transfer, pledge, encumbrance or other disposition to any Person. "Trustee" shall have the meaning assigned in Section 4.1(e). "Votes" shall mean votes entitled to be cast generally in the election of Directors, assuming the conversion of any securities of the Company then convertible into Common Stock or shares of any other class of capital stock of the Company then entitled to vote generally in the election of Directors. "Voting Power" shall mean, calculated at a particular point in time, the ratio, expressed as a percentage, of (a) the Votes represented by the Voting Securities with respect to which the Voting Power is being determined to (b) the aggregate Votes represented by all then outstanding Voting Securities. "Voting Securities" shall mean (i) the Common Stock, (ii) shares of any other class of capital stock of the Company then entitled to vote generally in the election of Directors 4 and (iii) any securities of the Company then convertible into shares of any class of capital stock of the Company then entitled to vote generally in the election of Directors. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 Representations and Warranties of the Company. The Company represents and warrants to the Shareholder Group as of the date hereof as follows: (a) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has all necessary corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. (b) This Agreement has been duly and validly authorized by the Company and all necessary and appropriate action has been taken by the Company to execute and deliver this Agreement and to perform its obligations hereunder. (c) This Agreement has been duly executed and delivered by the Company and, assuming due authorization and valid execution and delivery by the members of the Shareholder Group, is a valid and binding obligation of the Company, enforceable against it in accordance with its terms. Section 2.2 Representations and Warranties of the Shareholder Group. Each member of the Shareholder Group represents and warrants to the Company as of the date hereof as follows: (a) Such member (i) has been duly incorporated and is validly existing and, with respect to those corporations organized under the laws of one of the States of the United States of America, in good standing under the laws of the jurisdiction of its organization and (ii) has all necessary corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. (b) This Agreement has been duly and validly authorized by each such member and all necessary and appropriate action has been taken by such member to execute and deliver this Agreement and to perform its obligations hereunder. (c) This Agreement has been duly executed and delivered by such member and, assuming due authorization and valid execution and delivery by the Company, is a valid and binding obligation of such member, enforceable against it in accordance with its terms. 5 ARTICLE III STANDSTILL; VOTING; BOARD REPRESENTATION Section 3.1 Standstill Restrictions. Subject to Section 3.2 and Section 3.6, until the twentieth anniversary of the Closing, the members of the Shareholder Group shall not, and shall cause each of their respective Affiliates not to, directly or indirectly: (a) acquire, offer to acquire or agree to acquire Beneficial Ownership of any Voting Securities, except pursuant to stock splits, reverse stock splits, stock dividends or distributions, or combinations or any similar recapitalization, on or after the date hereof; (b) acquire, offer to acquire or agree to acquire any business or material assets of the Company or any of its Subsidiaries; (c) initiate or propose any offer by any third party to acquire Beneficial Ownership of Voting Securities, other than an acquisition of Shareholder Group Shares permitted in accordance with Section 4.1; (d) initiate or propose any merger, tender offer, business combination or other extraordinary transaction involving the Company or any of its Subsidiaries; (e) act, alone or in concert with others, to seek to affect or influence the control of the Board or the management of the Company, or the business, operations, affairs or policies of the Company; provided that this subsection shall not be deemed to restrict the Shareholder Group Directors from participating as members of the Board in their capacity as such; (f) deposit any Voting Securities in a voting trust or subject any Voting Securities to any proxy, arrangement or agreement with respect to the voting of such securities or other agreement having a similar effect, except as provided in Section 3.3; (g) initiate or propose any stockholder proposal or make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" to vote, or seek to influence any Person with respect to the voting of, any Voting Securities, or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act) with respect to Voting Securities; (h) form, join or in any way participate in a group (other than a group comprised exclusively of the members of the Shareholder Group) of Persons acquiring, holding, voting or disposing of any Voting Securities which would be required under Section 13(d) of the Exchange Act and the rules and regulations thereunder to file a statement on Schedule 13D with the SEC as a "person" within the meaning of Section 13(d)(3) of the Exchange Act (or any successor statute or regulation); (i) propose, or agree to, or enter into any discussions, negotiations or arrangements with, or provide any confidential information to, any third party with respect to any of the foregoing; 6 (j) make any statement or disclosure inconsistent with the foregoing; or (k) propose or seek an amendment or waiver of any of the provisions of this Section 3.1. Section 3.2 Termination of the Standstill Restrictions. The restrictions set forth in Section 3.1 shall terminate three years following such time as the Shareholder Group Shares represent less than 5% of the then outstanding shares of Common Stock. Section 3.3 Voting. Until the twentieth anniversary of the Closing or, if earlier, such time as the Shareholder Group Shares represent less than 5% of the then outstanding shares of Common Stock, each member of the Shareholder Group shall (i) vote at any stockholder meeting or in connection with any action by written consent at or in which Voting Securities are entitled to vote, on any matter that may be presented, all of its Shareholder Group Shares in the same proportion as the votes cast by or on behalf of the holders of Voting Securities other than the members of the Shareholder Group; provided that, notwithstanding the above, (A) in connection with any election of Directors by the stockholders of the Company, the Shareholder Group members shall vote all of the Shareholder Group Shares in favor of the election of the full slate of Director nominees recommended by the Board to the stockholders of the Company, which slate shall include the individual(s) nominated pursuant to Section 3.4, and (B) at any time when the Shareholder Group Shares represent less than 10% of the then outstanding shares of Common Stock, the Shareholder Group members shall be entitled to vote the Shareholder Group Shares in their discretion on any Select Voting Matter that may be presented to the stockholders of the Company and (ii) be present in person or represented by proxy, at all meetings of stockholders of the Company so that all Shareholder Group Shares shall be counted for the purpose of determining the presence of a quorum at such meetings. For the avoidance of doubt, it is understood and agreed that nothing contained in Section 3.1 shall limit any Shareholder Group member from exercising its voting rights as permitted under this Section 3.3 with respect to Director elections and Select Voting Matters. Section 3.4 Board of Directors. (a)(i) For so long as the Shareholder Group Shares represent 50% or more of the Original Issued Shares, the original Shareholder Group Directors or any replacements therefor (one of whom shall be the Chief Executive Officer of Parent and one of whom shall be an individual mutually agreed upon by Parent and the Company from amongst a pool of the Parent Board Members (a "Parent Director"), provided that Parent and the Company shall be entitled, should they agree, to select a nominee not from amongst such pool in lieu of such Parent Director) shall be included in the slate of nominees recommended by the Board to stockholders for election as Directors at each annual meeting of stockholders commencing with the first annual meeting of stockholders following the Closing, (ii) for so long as the Shareholder Group Shares represent 5% or more of the then outstanding shares of Common Stock but less than 50% of the Original Issued Shares, the Chief Executive Officer of Parent shall be included in the slate of nominees recommended by the Board to stockholders for election as a Director at each annual meeting of stockholders commencing with the first annual meeting of stockholders following the Closing and (iii) if the Shareholder Group Shares represent less than 5% of the then outstanding shares of Common Stock, Parent shall not be entitled to participate in the selection of any nominees for election to the Board; provided, that in the event the size of the Board shall be increased to at least 16 but fewer than 20 individuals, (A) under the 7 circumstances set forth in clause (i) above, such slate of nominees shall include, in addition to the nominees contemplated by such clause (i), one additional Parent Director (or in lieu of such Parent Director another individual not from amongst the pool of Parent Board Members if mutually agreed upon by Parent and the Company) and (B) for so long as the Shareholder Group Shares represent 10% or more of the then outstanding shares of Common Stock but less than 50% of the Original Issued Shares, such slate of nominees shall include the Chief Executive Officer of Parent and one Parent Director (or in lieu of such Parent Director another individual not from amongst the pool of Parent Board Members if Parent and the Company so mutually agree); and provided, further, that in the event the size of the Board is increased to at least 20 individuals, (A) under the circumstances set forth in clause (i) above, such slate of nominees shall include, in addition to the nominees contemplated by such clause (i), two additional Parent Directors (or in lieu of either of such Parent Directors another individual or individuals not from amongst the pool of Parent Board Members if mutually agreed to by Parent and the Company) and (B) under the circumstances set forth in clause (ii) above, such slate of nominees shall include, in addition to the Chief Executive Officer of Parent, one Parent Director (or in lieu of such Parent Director another individual not from amongst the pool of Parent Board Members if Parent and the Company so mutually agree). Parent shall provide in a timely manner all information required by Regulation 14A and Schedule 14A under the Exchange Act with respect to each such nominee. (b) In the event that any Shareholder Group Director shall cease to serve as a Director for any reason other than the fact that Parent no longer has a right to participate in the selection of nominees to the Board (i) if the vacancy is created by a change in the Chief Executive Officer of Parent, the vacancy created thereby shall be filled by the new Chief Executive Officer of Parent, (ii) if the vacancy is created by the departure of a Parent Director, the vacancy created thereby shall be filled by a Parent Director (or in lieu of such Parent Director another individual not from amongst the pool of Parent Board Members if Parent and the Company shall so mutually agree) or (iii) otherwise, the vacancy created thereby shall be filled by a Parent Director (or in lieu of a Parent Director another individual not from amongst the pool of Parent Board Members if mutually agreed upon by Parent and the Company). (c) Notwithstanding anything in this Agreement to the contrary, (i) upon the first date that the Shareholder Group Shares represent 5% or more of the then outstanding Shares of Common Stock but less than 50% of the Original Issued Shares (A) at such time when there are 15 or fewer Directors serving on the Board, the Shareholder Group members shall use their reasonable best efforts to cause the Shareholder Group Director who is not the Chief Executive Officer of Parent to resign immediately and (B) at such time when there are 20 or more Directors serving on the Board, the Shareholder Group members shall use their reasonable best efforts to cause the Shareholder Group Directors other than the Chief Executive Officer and one other Shareholder Group Director to resign immediately, (ii) upon the first date that the Shareholder Group Shares represent 10% or more of the then outstanding Shares of Common Stock but less than 50% of the Original Issued Shares at such time when there are at least 16 but fewer than 20 Directors serving on the Board, the Shareholder Group members shall use their reasonable best efforts to cause one Shareholder Group Director other than the Chief Executive Officer of Parent to resign immediately, (iii) upon the first date that the Shareholder Group Shares represent 5% or more but less than 10% of the then outstanding Shares of Common Stock at such time when there are at least 16 but fewer than 20 Directors serving on the Board, the Shareholder Group 8 members shall use their reasonable best efforts to cause the Shareholder Group Director other than the Chief Executive Officer of Parent to resign immediately and (iv) upon the first date that the Shareholder Group Shares represent less than 5% of the then outstanding shares of Common Stock, the Shareholder Group members shall use their reasonable best efforts to cause any Shareholder Group Director(s) then serving on the Board to resign immediately. (d) Notwithstanding anything to the contrary contained in this Agreement, the Shareholder Group Directors shall be permitted to provide to Parent information concerning the Company and its Subsidiaries that such individuals receive in their capacity as Directors, provided that with respect to any such information provided, Parent shall, and it hereby agrees to, be bound by the same restrictions on disclosure and use of confidential information as apply to such Shareholder Group Directors in their capacity as Directors. Section 3.5 Provision of Information. The Company shall provide to Parent in a reasonably timely manner such information regarding the Company and its Subsidiaries as Parent requests and which is necessary in order for Parent to prepare (a) the reports and accounts of Parent required under applicable stock exchange rules and regulations or (b) the reports of Parent required to be filed under the Exchange Act, provided that with respect to such information provided, Parent shall, and it hereby agrees to, be bound by the same restrictions on disclosure and use of confidential information as apply to a Shareholder Group Director in its capacity as a Director, it being understood and agreed that nothing contained in this Section 3.5 shall prohibit Parent from including any such information in such reports under applicable stock exchange rules and regulations or under the Exchange Act as and to the extent required to be so included. Section 3.6 Buy-Up Right. Notwithstanding anything to the contrary contained in Section 3.1, in the event that the Company proposes to issue shares of Common Stock such that upon issuance thereof the Shareholder Group's ownership of Common Stock would be diluted below 20% of the outstanding shares of Common Stock, the Shareholder Group shall be permitted to purchase from third parties, in private transactions or transactions effected on the NYSE, up to an aggregate, for all such purchases, of 1% of the number of outstanding shares of Common Stock if such purchases would permit the Shareholder Group to maintain its ownership above 20% of the outstanding shares of Common Stock; provided that the shares so purchased shall be considered Shareholder Group Shares for purposes of this Agreement. ARTICLE IV TRANSFER RESTRICTIONS; LIQUIDITY Section 4.1 Transfer Restrictions. Except for the Transfer to the Company of the Put Shares at the Put Closing, if any, without the prior consent of the Company, the members of the Shareholder Group shall not Transfer any Shareholder Group Shares prior to the first anniversary of the Closing. In addition to the foregoing, without the prior consent of the Company, the members of the Shareholder Group shall not Transfer any Shareholder Group Shares except for: (a) Transfers made prior to the fourteen-month anniversary of the Closing or following the twenty-month anniversary of the Closing (i) in an underwritten public offering in 9 a manner designed to result in a wide distribution or (ii) in one or more privately negotiated transactions exempt from the registration requirements of the Securities Act; provided that in each case no Transfer under this clause (a) is made, to the knowledge of the Shareholder Group (without inquiry in the case of a Transfer pursuant to clause (i)), to any Person or group that, after giving effect to such Transfer, would Beneficially Own Voting Securities representing more than 5% of the Voting Power, except that in the case of a Transfer to a Person specified in Rule 13d-1(b)(1)(ii) promulgated under the Exchange Act that would be eligible based on such Person's status and passive intent with respect to the ownership, holding and voting of such Voting Securities to report such Person's ownership of Voting Securities on Schedule 13G (assuming such Person owned a sufficient number of such Voting Securities to require such filing), no Transfer under this clause (a) is made to any such Person that, after giving effect to such Transfer, would Beneficially Own Voting Securities representing 10% or more of the Voting Power; and provided further, that in the case of a Transfer pursuant to clause (i), the members of the Shareholder Group shall use their reasonable best efforts to cause the underwriter(s) of such offering to agree to use their reasonable efforts to prevent any purchase of shares in such offering by any Person or group that would, upon such purchase, exceed either of the foregoing thresholds; (b) Transfers made following the first anniversary of the Closing but prior to the fourteen-month anniversary of the Closing, and transfers made following the twenty-month anniversary of the Closing, in each case pursuant to Rule 144 under the Securities Act; (c) Transfers pursuant to any business combination, tender or exchange offer to acquire Common Stock or other extraordinary transaction that the Board has recommended, or pursuant to a tender or exchange offer that the Board has not recommended but only after such time as a majority of the shares of Common Stock outstanding have been tendered into such offer and after all material conditions with respect to such offer (including any financing condition, any minimum condition with respect to number of shares tendered and any condition with respect to removal of the Company Rights Plan or any other takeover protections) have been satisfied or irrevocably waived by the offeror; provided that no Shareholder Group Shares shall be tendered into any tender offer or exchange offer not recommended by the Board prior to the time all such material conditions (other than any such condition that can be satisfied only at the closing of such offer) have been satisfied or irrevocably waived by the offeror; (d) Transfers to the Company or a Subsidiary of the Company; (e) Transfers to a bona fide financial institution acting in the capacity of trustee ("Trustee") with respect to an exchangeable or convertible security of Parent (the "Security"); provided, that the terms of the Security shall be consistent with the rights, restrictions and limitations set forth in this Agreement and the powers of the Trustee shall be consistent therewith; and provided further that the distribution by Parent of the Security and the underlying Shareholder Group Shares otherwise complies with the restrictions on Transfer contained in this Section 4.1; and (f) Transfers by a member of the Shareholder Group to Parent or to any controlled Affiliate of Parent or to any new holding company of the Shareholder Group, provided that prior thereto such transferee agrees in writing to acquire and hold such transferred shares 10 subject to all the provisions of this Agreement as if such transferee were an original member of the Shareholder Group. Any certificates for shares of Common Stock issued in respect of any Transfer pursuant to Section 4.1(a)(ii) or Section 4.1(f) shall bear a legend or legends referencing restrictions under the Securities Act on transfer of such shares and, in the case of a Transfer under Section 4.1(f), under this Agreement; provided, that the holder of any certificate(s) bearing any such legend referencing restrictions under the Securities Act shall be entitled to receive from the Company new certificates for a like number of shares of Common Stock not bearing such legend upon the request of such holder and upon delivery to the Company of an opinion of counsel to such holder, which opinion is reasonably satisfactory, in form and substance, to the Company and its counsel, that the restriction referenced in such legend is no longer required in order to ensure compliance with the Securities Act. Prior to the twenty-month anniversary of the Closing Date, no Shareholder Group member nor any of their respective directors and officers shall, and each Shareholder Group member shall use its reasonable best efforts to cause its and its Subsidiaries' employees, agents and representatives, including any investment banker, attorney or accountant retained by it or any of its Subsidiaries not to, make any public statement or announcement regarding, or cause to be known by the public or the investment community generally, any plan or intention of any Shareholder Group member to sell or otherwise dispose of, prior to such twenty-month anniversary of the Closing, any Registrable Shares (or any securities convertible into or exchangeable for any Registrable Shares) to the public or any third party, other than sales or dispositions that are intended to be consummated prior to the fourteen-month anniversary of the Closing Date. Section 4.2 Company Repurchase. (a) Until the twentieth anniversary of the Closing or, if earlier, such time as the Shareholder Group Shares represent less than 5% of the then outstanding shares of Common Stock, if the Company purchases, during any fiscal year of the Company, shares of Common Stock whether by open market repurchase or otherwise, other than by tender offer or in connection with the Company's employee benefit plans (a "Repurchase"), the Company shall, within 30 days after the end of such fiscal year (other than the first fiscal year end occurring after the Closing Date), deliver to Parent, on behalf of the Shareholder Group, a written offer to purchase Shareholder Group Shares from the members of the Shareholder Group on the terms set forth below (a "Repurchase Offer"). Each Repurchase Offer shall offer to purchase a percentage of the Shareholder Group Shares as of the end of such fiscal year equal to the percentage that the shares of Common Stock repurchased from the Beneficial Owners of shares of Common Stock other than the Shareholder Group (the "Public Shares") during such fiscal year (or, in the case of the Repurchase Offer made in respect of the first full fiscal year of the Company occurring after the Closing Date, during the period beginning on the day following the Closing Date and ending on the fiscal year end of the first full fiscal year occurring after the Closing Date) represents of the total average outstanding Public Shares during such fiscal year or period, at a price per share equal to the weighted average per share purchase price paid for Repurchases during such fiscal year or period. Each Repurchase Offer shall set forth the calculation of such percentage, average number of shares outstanding and the weighted average per share purchase price. Parent shall provide notice to the Company within 15 days of receipt of a Repurchase Offer of whether the Shareholder Group accepts such Repurchase Offer, which notice shall specify the total number of Shareholder Group Shares as to which the Repurchase 11 Offer is accepted, the name or names of the selling Shareholder Group members and the number of Shareholder Group Shares to be sold by each such member. (b) Any purchase of Shareholder Group Shares by the Company pursuant to this Section 4.2 shall be on a mutually determined closing date which shall not be more than 20 Business Days after Parent delivers the notice of acceptance pursuant to Section 4.2(a). On the closing date, the selling members of the Shareholder Group shall deliver the shares of Common Stock being sold and documentation reasonably satisfactory to the Company evidencing the transfer of such Common Stock. The purchase price shall be paid by wire transfer of immediately available funds to an account or accounts specified by Parent by notice given no less than two Business Days prior to the closing date. (c) The Company may assign any of its purchase rights under this Section 4.2 to any Subsidiary of the Company without the consent of the Shareholder Group, provided, however, that no such assignment shall relieve the Company of any of its obligations thereunder. Section 4.3 Obligation to Dispose of Shareholder Group Shares. The members of the Shareholder Group shall, and hereby agree to, prior to the tenth anniversary of the Closing Date, sell, transfer or otherwise dispose of Shareholder Group Shares, in each case in accordance with Section 4.1, such that on and as of such tenth anniversary of the Closing Date the Shareholder Group Shares held by the Shareholder Group members shall represent less than 25% of the Original Issued Shares. ARTICLE V REGISTRATION RIGHTS Section 5.1 Demand Registrations. (a) Subject to Section 5.3, at any time prior to the first anniversary of the Closing or following the twenty-month anniversary of the Closing, Parent, on behalf of the Shareholder Group, may, on not more than twelve (12) separate occasions in the aggregate and not more frequently than once during any nine-month period, require the Company to file a registration statement under the Securities Act in respect of all or a portion of the Registrable Shares (so long as such request covers Registrable Shares with a Market Value on the date of the Demand Request of at least $300 million if the aggregate Market Value of all Registrable Shares on such date is at least $300 million or, if such Market Value is less than $300 million, so long as such request covers all Registrable Shares), by delivering to the Company written notice stating that such right is being exercised, specifying the number of shares of Common Stock to be included in such registration (the shares subject to such request, the "Demand Shares") and describing the intended method of distribution thereof, which may include an underwritten offering (a "Demand Request"). Subject to Section 5.7, upon receiving a Demand Request, the Company shall (i) use reasonable best efforts to file as promptly as reasonably practicable a registration statement on such form as the Company may reasonably deem appropriate (provided that the Company shall not be obligated to register any securities on a "shelf" registration statement or otherwise to register securities for offer or sale on a continuous or delayed basis) providing for the registration of the sale of such Demand Shares pursuant to the intended method of distribution (a "Demand Registration") and (ii) after the filing of an initial version of the registration statement, use reasonable best efforts to cause such registration statement to be 12 declared effective under the Securities Act as promptly as practicable after the date of filing of such registration statement. (b) Notwithstanding anything in this Agreement to the contrary, the Company shall be entitled to postpone and delay, for reasonable periods of time, but in no event more than an aggregate of 60 days during any 12-month period (a "Blackout Period"), the filing or effectiveness of any Demand Registration if the Company shall determine that any such filing or the offering of any Registrable Shares would (i) in the good faith judgment of the Board, impede, delay or otherwise interfere with any pending or contemplated material acquisition, corporate reorganization or other similar material transaction involving the Company, (ii) based upon advice from the Company's investment banker or financial advisor, adversely affect any pending or contemplated financing, offering or sale of any class of securities by the Company or (iii) in the good faith judgment of the Board, require disclosure of material non-public information (other than information relating to an event described in clauses (i) or (ii) above) which, if disclosed at such time, would be harmful to the best interests of the Company and its stockholders; provided, however, that the Company shall give written notice to Parent of its determination to postpone or delay the filing of any Demand Registration; and provided, further, that in the event that the Company proposes to register Common Stock, whether or not for sale for its own account, during a Blackout Period, the Shareholder Group shall have the right to exercise its rights under Section 5.2 of this Agreement with respect to such registration, subject to the limitations contained in this Agreement on the exercise of such rights. Upon notice by the Company to Parent of any such determination, the members of the Shareholder Group shall keep the fact of any such notice strictly confidential, and during any Blackout Period, promptly halt any offer, sale, trading or transfer by it of any Common Stock for the duration of the Blackout Period set forth in such notice (or until such Blackout Period shall be earlier terminated in writing by the Company) and promptly halt any use, publication, dissemination or distribution of the Demand Registration, each prospectus included therein, and any amendment or supplement thereto by it for the duration of the Blackout Period set forth in such notice (or until such Blackout Period shall be earlier terminated in writing by the Company) and, if so directed by the Company, will deliver to the Company any copies then in its possession of the prospectus covering such Registrable Shares. (c) In connection with an underwritten offering, if the managing underwriter or co-managing underwriter reasonably and in good faith shall have advised the Company or Parent that, in its opinion, the number of Demand Shares subject to a Demand Request exceeds the number which can be sold in such offering, the Company shall include in such registration the number of Demand Shares that, in the opinion of such managing underwriter or underwriters, can be sold in such offering; provided that if as a result of any reduction pursuant to this paragraph (c) the aggregate Market Value of the Demand Shares to be so included is less than $300 million, the Shareholder Group may withdraw such Demand Request with respect to all Demand Shares covered thereby and such registration shall not count for the purposes of determining the number of Demand Registrations to which the Shareholder Group is entitled under Section 5.1(a). (d) In connection with any underwritten offering, the managing underwriter for such Demand Registration shall be selected by Parent, provided that such managing underwriter shall be a nationally recognized investment banking firm and shall be reasonably accept- 13 able to the Company. The Company may, at its option, select a nationally recognized investment banking firm reasonably acceptable to Parent to act as co-managing underwriter. (e) Nothing in this Article V shall affect or supersede any of the transfer restrictions set forth in Article IV hereof or any of the other provisions of this Agreement. Section 5.2 Piggy-Back Registration. (a) If, at any time following the Closing, the Company proposes to register any Common Stock under the Securities Act on its behalf or on behalf of any of its stockholders, on a form and in a manner that would permit registration of the Registrable Shares (other than in connection with dividend reinvestment plans, rights offerings or a registration statement on Form S-4 or S-8 or any similar successor form), the Company shall give reasonably prompt written notice to Parent, on behalf of the Shareholder Group, of its intention to do so, which notice shall be given to Parent not less than 15 Business Days prior to the contemplated filing date for such registration statement. Upon the written election of Parent, on behalf of the Shareholder Group (a "Piggy-Back Request"), given within 10 Business Days following the receipt by Parent of any such written notice (which election shall specify the number of the Registrable Shares intended to be disposed of by the Shareholder Group), the Company shall include in such registration statement (a "Piggy-Back Registration"), subject to the provisions of this Section 5.2 and, in the case of a registration on behalf of any of the Company's stockholders, subject to the rights of such stockholders, such number of the Registrable Shares as shall be set forth in such Piggy-Back Request. No registration effected under this Section 5.2 shall relieve the Company of its obligations to effect a Demand Registration required under Section 5.1. (b) In the event that the Company proposes to register Common Stock in connection with an underwritten offering and a nationally recognized investment banking firm selected by the Company to act as managing underwriter thereof reasonably and in good faith shall have advised the Company, a member of the Shareholder Group, or any other holder of Common Stock intending to offer Common Stock in the offering (each, an "Other Holder") that, in its opinion, the inclusion in the registration statement of some or all of the Registrable Shares sought to be registered by the Shareholder Group would adversely affect the price or success of the offering, the Company shall include in such registration statement such number of shares of Common Stock as the Company is advised can be sold in such offering without such an effect (the "Maximum Number") as follows and in the following order of priority: (A) first, such number of shares of Common Stock as the Company intended to be registered and sold by the Company if such registration was initiated by the Company or, if such registration is on behalf of any Other Holders, such number of shares of Common Stock as such Other Holders intended to be registered and sold, and (B) second, if and to the extent that the number of shares of Common Stock to be registered under clause (A) is less than the Maximum Number, such number of shares of Common Stock as the Shareholder Group, the Company (if such registration was not initiated by the Company) and any Other Holders (or additional Other Holders) shall have intended to register which, when added to the number of shares of Common Stock to be registered under clause (A), is less than or equal to the Maximum Number, on a pro rata basis according to the total number of shares of Common Stock intended to be registered by each such Person. Section 5.3 Termination of Registration Obligation. Notwithstanding anything in this Agreement to the contrary, if at any time the Company shall obtain a written opinion of 14 legal counsel reasonably satisfactory to Parent to the effect that the Registrable Shares may be publicly offered for sale in the United States by the Shareholder Group without restriction as to manner of sale and amount of securities sold and without registration under the Securities Act, the Company shall no longer be obligated to file or maintain a registration statement with respect to the Registrable Shares pursuant to this Agreement, unless at a later date Parent delivers to the Company an opinion of counsel to Parent, which opinion is reasonably satisfactory in form and substance to counsel to the Company, that registration is then required as a result of a change in applicable law. Section 5.4 Registration Procedures. (a) In connection with each registration statement prepared pursuant to this Article V, and in accordance with the intended method or methods of distribution of the Registrable Shares as described in such registration statement, the Company shall, as soon as reasonably practicable and to the extent practicable: (i) prepare and file with the SEC a registration statement on an appropriate registration form of the SEC and use reasonable efforts to cause such registration statement to become and remain effective promptly, which registration statement shall comply as to form in all materials respects with the requirements of the applicable form and include all financial statements required by such form to be filed therewith; provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to one counsel selected by Parent, on behalf of the Shareholder Group, draft copies of all such documents proposed to be filed at least ten Business Days (in the case of a Demand Registration) or seven days (in the case of any other registration) prior to such filing, which documents will be subject to the reasonable review and comment of Parent and its agents and representatives and the underwriters, if any, and the Company shall not file any registration statement in respect of a Demand Registration or amendment or supplement thereto to which Parent or the underwriters, if any, shall reasonably object; (ii) furnish without charge to the members of the Shareholder Group, and the underwriters, if any, at least one conformed copy of the registration statement and each post-effective amendment or supplement thereto (including all schedules and exhibits but excluding all documents incorporated or deemed incorporated therein by reference, unless requested in writing by Parent, on behalf of the Shareholder Group, or an underwriter) and such number of copies of the registration statement and each amendment or supplement thereto and the summary, preliminary, final, amended or supplemented prospectuses included in such registration statement as Parent or such underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares being sold by the Shareholder Group (the Company hereby consents to the use in accordance with the U.S. securities laws of such registration statement (or post-effective amendment thereto) and each such prospectus (or preliminary prospectus or supplement thereto) by each member of the Shareholder Group and the underwriters, if any, in connection with the offering and sale of the Registrable Shares covered by such registration statement or prospectus); (iii) use reasonable best efforts to keep such registration statement effective for the earlier of (A) 60 days and (B) such time as all of the securities covered by the regis- 15 tration statement have been disposed (the "Effective Period"); prepare and file with the SEC such amendments, post-effective amendments and supplements to the registration statement and the prospectus as may be necessary to maintain the effectiveness of the registration for the Effective Period and to cause the prospectus (and any amendments or supplements thereto) to be filed; (iv) use reasonable best efforts to register or qualify the Registrable Shares covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions in the United States as are reasonably necessary, keep such registrations or qualifications in effect for so long as the registration statement remains in effect, and do any and all other acts and things which may be reasonably necessary to enable the Shareholder Group or any underwriter to consummate the disposition of the Registrable Shares in such jurisdictions; provided, however, that in no event shall the Company be required to qualify to do business as a foreign corporation in any jurisdiction where it would not, but for the requirements of this subparagraph (iv), be required to be so qualified; to execute or file any general consent to service of process under the laws of any jurisdiction; to take any action that would subject it to service of process in suits other than those arising out of the offer and sale of the securities covered by the registration statement; or to subject itself to taxation in any jurisdiction where it would not otherwise be obligated to do so, but for this paragraph (iv); (v) use reasonable best efforts to cause the Registrable Shares to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Shareholder Group to consummate the disposition of the Registrable Shares; (vi) use reasonable best efforts to cause all Registrable Shares covered by such registration statement to be listed on the NYSE or on the principal securities exchange on which the Common Stock is then listed, or if no similar securities are then so listed, cause all such Registrable Shares to be listed on a United States national securities exchange or secure designation of each such Registrable Share as a Nasdaq National Market "national market system security" within the meaning of Rule 11 Aa2-1 of the SEC or secure National Association of Securities Dealers Automated Quotation authorization for such shares and, without limiting the generality of the foregoing, use reasonable best efforts to take such actions as may be required by the Company as the issuer of such Registrable Shares in order to facilitate the registration of at least two market makers as such with respect to such shares with the National Association of Securities Dealers, Inc.; (vii) promptly notify Parent and the managing underwriter or underwriters, if any, after becoming aware thereof, (A) when the registration statement or any related prospectus or any amendment or supplement thereto has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective, (B) of any request by the SEC or any United States state securities authority for amendments or supplements to the registration statement or the related prospectus or for additional information, (C) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose, (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Shares for sale in any jurisdiction or the 16 initiation of any proceeding for such purpose or (E) within the Effective Period of the happening of any event or the existence of any fact which makes any statement in the registration statement or any post-effective amendment thereto, prospectus or any amendment or supplement thereto, or any document incorporated therein by reference untrue in any material respect or which requires the making of any changes in the registration statement or post-effective amendment thereto or any prospectus or amendment or supplement thereto so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (viii) during the Effective Period, use its reasonable best efforts to obtain, as promptly as practicable, the withdrawal of any order enjoining or suspending the use or effectiveness of the registration statement or any post-effective amendment thereto or the lifting of any suspension of the qualification of any of the Registrable Shares for sale in any jurisdiction; (ix) deliver promptly to Parent and the managing underwriters, if any, copies of all correspondence between the SEC and the Company, its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to the registration statement and permit Parent to do such investigation, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary for the purpose of conducting customary due diligence with respect to the Company, provided any such investigation shall not interfere unreasonably with the Company's business; (x) use reasonable best efforts to provide and cause to be maintained a transfer agent and registrar for all such Registrable Shares covered by such registration statement not later than the effective date of such registration statement; (xi) cooperate with the Shareholder Group and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing such Registrable Shares to be sold under the registration statement in a form eligible for deposit with the Depository Trust Corporation not bearing any restrictive legends and not subject to any stop transfer order with any transfer agent, and cause such Registrable Shares to be issued in such denominations and registered in such names as the managing underwriters, if any, may request in writing or, if not an underwritten offering, in accordance with the instructions of the Shareholder Group, in each case at least two Business Days prior to any sale of Registrable Shares; (xii) in the case of an underwritten offering, use reasonable best efforts to enter into an underwriting agreement customary in form and scope for underwritten secondary offerings of the nature contemplated by the applicable registration statement; (xiii) use reasonable best efforts to obtain an opinion from the Company's counsel and a "cold comfort" letter from the Company's independent public accountants (and, if necessary, any other independent certified public accountants of any Subsidiary of the 17 Company or of any business acquired by the Company for which financial statements and financial data is, or is required to be, included in the registration statement) in customary form and covering such matters as are customarily covered by such opinions and "cold comfort" letters in connection with an offering of the nature contemplated by the applicable registration statement; (xiv) not later than the effective date of the applicable registration statement, provide a CUSIP number for all Registrable Shares; (xv) in connection with any underwritten offering of Registrable Shares having a Market Value on the date of the applicable Demand Request of at least $500 million, provide reasonable assistance to the underwriters in the marketing of such Registrable Shares, including by making reasonably available its employees and personnel and by participating reasonably in road shows; and (xvi) use reasonable best efforts to provide to counsel to Parent and to the managing underwriters, if any, no later than the time of filing of any document which is to be incorporated by reference into the registration statement or prospectus (after the initial filing of such registration statement), copies of any such document. (b) In the event that the Company would be required, pursuant to Section 5.4(a)(vii)(E) above, to notify Parent or the managing underwriter or underwriters, if any, of the happening of any event specified therein, the Company shall, subject to the provisions of Section 5.1(b) hereof, as promptly as practicable, prepare and furnish to the Shareholder Group and to each such underwriter a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Shares that have been registered pursuant to this Agreement, such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Parent, on behalf of the Shareholder Group, agrees that, upon receipt of any notice from the Company pursuant to Section 5.4(a)(vii)(E) hereof, Parent shall, and shall use its reasonable best efforts to cause any sales or placement agent or agents for the Registrable Shares and the underwriters, if any, to forthwith discontinue disposition of the Registrable Shares until such Person shall have received copies of such amended or supplemented prospectus and, if so directed by the Company, to destroy or to deliver to the Company all copies, other than permanent file copies, then in its possession of the prospectus (prior to such amendment or supplement) covering such Registrable Shares as soon as practicable after Parent's receipt of such notice. (c) Parent shall furnish to the Company in writing such information regarding the Shareholder Group and its intended method of distribution of the Registrable Shares as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in order for the Company to comply with its obligations under all applicable securities and other laws and to ensure that the prospectus relating to such Registrable Shares conforms to the applicable requirements of the Securities Act and the rules and regulations thereunder. Parent shall notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by Parent to the Company or of the occurrence of any event, in either case as a result of which any prospectus relating to the Registrable Shares 18 contains or would contain an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) (i) The members of the Shareholder Group agree not to effect any public sale or distribution of any Registrable Shares, including any sale pursuant to Rule 144 under the Securities Act, and not to effect any such public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (in each case, other than as part of such underwritten public offering) during the 10 days prior to, and during the 60 day period (or such longer period as Parent agrees with the underwriter of such offering) beginning on, the consummation of any underwritten public offering of the Registrable Shares covered by a registration statement referred to in Section 5.2 to the extent the Shareholder Group's Registrable Shares are being sold thereunder. (ii) The Company hereby agrees that if it shall previously have received a request pursuant to Section 5.1 or 5.2 for registration of Registrable Shares in an underwritten offering, and if such previous registration shall not have been withdrawn or abandoned, the Company shall not sell, transfer, or otherwise dispose of, any Common Stock, or any other equity security of the Company or any security convertible into or exchangeable for any equity security of the Company until the earlier of (A) 60 days after the effective date of such registration statement and (B) such time as all of the Registrable Shares covered by such registration statement have been distributed, other than (x) as part of such underwritten offering, (y) pursuant to a registration statement on Form S-8 or Form S-4 under the Securities Act or any successor or similar form or (z) in one or more private transactions that would not interfere with the method of distribution contemplated by such registration statement. (e) In the case of any registration under Section 5.1 pursuant to an underwritten offering, or in the case of a registration under Section 5.2 if the Company has entered into an underwriting agreement in connection therewith, all shares of Common Stock to be included in such registration shall be subject to the applicable underwriting agreement and no Person may participate in such registration unless such Person agrees to sell such Person's securities on the basis provided therein and completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) which must be executed in connection therewith, and provides such other information to the Company or the underwriter as may be reasonably requested to register such Person's Common Stock. Section 5.5 Registration Expenses. The members of the Shareholder Group shall bear all agent fees and commissions, underwriting discounts and commissions, and fees and disbursements of their counsel and accountants, in connection with any registration of any Registrable Shares pursuant to Section 5.1 or 5.2. The Company shall bear all other fees and expenses in connection with any registration statement pursuant to Section 5.1 or 5.2, including all registra- 19 tion and filing fees, all printing costs, and all fees and expenses of counsel and accountants for the Company. Section 5.6 Indemnification; Contribution. (a) The Company shall, and it hereby agrees to, indemnify and hold harmless each member of the Shareholder Group and its respective directors, officers, employees and controlling Persons, if any, and each underwriter, its partners, directors, officers, employees and controlling Persons, if any, in any offering or sale of the Registrable Shares, against any losses, claims, damages or liabilities, actions or proceedings (whether commenced or threatened) in respect thereof and expenses (including reasonable fees of counsel) (collectively, "Claims") to which each such indemnified party may become subject, insofar as such Claims (including any amounts paid in settlement effected with the consent of the Company as provided herein), or actions or proceedings in respect thereof, arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement, or any preliminary or final prospectus contained therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and the Company shall, and it hereby agrees to, reimburse periodically Parent or any such underwriter for any legal or other out-of-pocket expenses reasonably incurred by them in connection with investigating or defending any such Claims; provided, however, that the Company shall not be liable to any such Person in any such case to the extent that any such Claims arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary or final prospectus, or amendment or supplement thereto, in reliance upon and in conformity with information furnished to the Company by the Shareholder Group or any underwriter or representative of the Shareholder Group expressly for use therein, or by the Shareholder Group's failure to furnish the Company, upon request, with the information with respect to the Shareholder Group, or any underwriter or representative of the Shareholder Group, or the Shareholder Group's intended method of distribution, that is the subject of the untrue statement or omission or if the Company shall sustain the burden of proving that the Shareholder Group or such underwriter sold securities to the Person alleging such Claims without sending or giving, at or prior to the written confirmation of such sale, a copy of the applicable prospectus (excluding any documents incorporated by reference therein) or of the applicable prospectus, as then amended or supplemented (excluding any documents incorporated by reference therein), if the Company had previously furnished copies thereof to the Shareholder Group or such underwriter, and such prospectus corrected such untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement. (b) The members of the Shareholder Group shall, and hereby agree, severally and not jointly, to (i) indemnify and hold harmless the Company, its directors, officers, employees and controlling Persons, if any, and each underwriter, its partners, officers, directors, employees and controlling Persons, if any, in any offering or sale of Registrable Shares, against any Claims to which each such indemnified party may become subject, insofar as such Claims (including any amounts paid in settlement as provided herein), or actions or proceedings in respect thereof, arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary or final prospectus contained therein, or any amendment or supplement thereto, or any document incorporated by reference 20 therein, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by the Shareholder Group expressly for use therein, and (ii) reimburse the Company for any legal or other out-of-pocket expenses reasonably incurred by the Company in connection with investigating or defending any such Claim. (c) Promptly after receipt by an indemnified party under Section 5.6(a) or Section 5.6(b) of written notice of the commencement of any action or proceeding for which indemnification under Section 5.6(a) or Section 5.6(b) may be requested, such indemnified party shall notify such indemnifying party in writing of the commencement of such action or proceeding; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party in respect of such action or proceeding hereunder unless the indemnifying party was materially prejudiced by such failure of the indemnified party to give such notice, and in no event shall such omission relieve the indemnifying party from any other liability it may have to such indemnified party. In case any such action or proceeding shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall determine, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal or any other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that (i) if the indemnifying party fails to take reasonable steps necessary to defend diligently the action or proceeding within 20 days after receiving notice from such indemnified party that the indemnified party believes it has failed to do so; (ii) if such indemnified party who is a defendant in any action or proceeding which is also brought against the indemnifying party reasonably shall have concluded that there may be one or more legal defenses available to such indemnified party which are not available to the indemnifying party; or (iii) if representation of both parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct, then, in any such case, the indemnified party shall have the right to assume or continue its own defense as set forth above (but with no more than one firm of counsel for all indemnified parties in each jurisdiction) and the indemnifying party shall be liable for any expenses therefor (including, without limitation, any such reasonable counsel's fees). If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel for each indemnified party with respect to such claim. The indemnifying party will not be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld or delayed. No indemnifying party shall, without the prior written consent of the indemnified party, compromise or consent to entry of any judgment or enter into any settlement agreement with respect to any action or proceeding in respect of which indemnification is sought under Section 5.6(a) or Section 5.6(b) (whether or not the indemnified party is an actual or potential party thereto), unless such compromise, consent or settlement includes an unconditional release of the indemnified party from all liability in respect of such claim or litigation, does not subject the indemnified party to any material injunc- 21 tive relief or other material equitable remedy and does not include a statement or admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) The members of the Shareholder Group and the Company agree that if, for any reason, the indemnification provisions contemplated by Sections 5.6(a) or 5.6(b) hereof are unavailable to or are insufficient to hold harmless an indemnified party in respect of any Claims referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such Claims in such proportion as is appropriate to reflect the relative fault of, the indemnifying party, on the one hand, and the indemnified party, on the other hand, with respect to such offering of securities. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. If, however, the allocation in the second preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative faults, but also the relative benefits of the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 5.6(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the preceding sentences of this Section 5.6(d). The amount paid or payable by an indemnified party as a result of the Claims referred to above shall be deemed to include (subject to the limitations set forth in Section 5.6(c) hereof) any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action, proceeding or claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Section 5.7 Purchase Right. (a) Notwithstanding anything to the contrary contained in this Agreement, within five Business Days after receipt by the Company of a Demand Request from Parent, the Company may elect, by delivery of written notice (the "Purchase Notice") to Parent, on behalf of the Shareholder Group, to purchase all or any of the Demand Shares specified therein (the number of shares elected to be purchased, the "Purchase Shares") at a price per share equal to the Market Value on the date of the Demand Request. Any purchase of the Demand Shares shall be allocated pro rata among the members of the Shareholder Group according to each member's portion of the Demand Shares. Any Demand Shares that are not purchased pursuant to this Section 5.7, either because the Company has elected not to purchase any Demand Shares (or fails to make the required election within the relevant time period) or because the Company elects to purchase some but not all of the Demand Shares, shall be subject to the registration obligations of the Company under this Article V. In the event that the Company elects to purchase some but not all of the Demand Shares, Parent, on behalf of the Shareholder Group, may withdraw the Demand Request with respect to the remaining shares, which shall not constitute a Demand Request for the purposes of determining the number of Demand Requests to which the Shareholder Group is entitled under Section 5.1(a). 22 (b) Any purchase of Demand Shares by the Company pursuant to this Section 5.7 shall be on a mutually determined closing date which shall not be more than 20 Business Days after the Purchase Notice is given. On the closing date, the members of the Shareholder Group shall deliver the shares of Common Stock being sold and documentation satisfactory to the Company evidencing the transfer of such Common Stock. The purchase price shall be paid by wire transfer of immediately available funds to an account or accounts specified by Parent by notice given no less than two Business Days prior to the closing date. (c) The Company may assign any of its purchase rights under this Section 5.7 to any Subsidiary of the Company without the consent of the Shareholder Group, provided, however, that no such assignment shall relieve the Company of any of its obligations thereunder. ARTICLE VI PUT RIGHT Section 6.1 Put Right. Gramet shall have the right (the "Put Right"), which right shall not be transferable, to require the Company to purchase from Gramet, and upon such election the Company shall purchase from Gramet, the Put Shares for a purchase price of $42.14 per share (the "Put Price"). The Put Right shall be exercisable by written notice (the "Exercise Notice") delivered by Gramet to the Company prior to the close of business, London time, on November 6, 2001. The closing of the purchase and sale of the Put Shares (the "Put Closing") shall take place on the date (which shall be a Business Day) specified in the Exercise Notice, but in any event no earlier than the second Business Day following the date of delivery of the Exercise Notice and no later than the close of business in Minneapolis, Minnesota on November 8, 2001. Upon delivery thereof to the Company, the Put Notice and the exercise of the Put Right thereunder shall be irrevocable. At the Put Closing, (i) Gramet shall deliver to the Company the stock certificate for the Put Shares, with all appropriate stock powers and requisite tax stamps attached, properly signed, in form suitable for the transfer of such shares to the Company, and such other documents or instruments as the Company shall reasonably request and (ii) the Company shall deliver to Gramet the purchase price for the Put Shares, by wire transfer in immediately available funds to the account of Gramet specified in the Exercise Note, and such other documents or instruments as Gramet shall reasonably request. The number of Put Shares and the Put Price shall be appropriately adjusted in the event the Company effects any stock split, stock dividend or combination of the Common Stock. ARTICLE VII EFFECTIVENESS AND TERMINATION Section 7.1 Effectiveness. This Agreement shall take effect immediately upon the Closing and shall remain in effect until it is terminated pursuant to Section 7.2 hereof. Section 7.2 Termination. Other than the termination provisions applicable to particular Sections of this Agreement that are specifically provided elsewhere in this Agreement, this Agreement shall terminate upon the earliest to occur of the following: 23 (a) The twentieth anniversary of the Closing; or (b) Mutual written agreement of the Company and Parent, on behalf of the Shareholder Group, at any time to terminate this Agreement. ARTICLE VIII MISCELLANEOUS Section 8.1 Injunctive Relief. Each party hereto acknowledges that it would be impossible to determine the amount of damages that would result from any breach of any of the provisions of this Agreement and that the remedy at law for any breach, or threatened breach, of any of such provisions would likely be inadequate and, accordingly, agrees that each other party shall, in addition to any other rights or remedies which it may have, be entitled to seek such equitable and injunctive relief as may be available from any court of competent jurisdiction to compel specific performance of, or restrain any party from violating, any of such provisions. In connection with any action or proceeding for injunctive relief, each party hereto hereby waives the claim or defense that a remedy at law alone is adequate and agrees, to the maximum extent permitted by law, to have each provision of this Agreement specifically enforced against it, without the necessity of posting bond or other security against it, and consents to the entry of injunctive relief against it enjoining or restraining any breach or threatened breach of such provisions of this Agreement. Section 8.2 Successors and Assigns. This Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the Company and by Parent and the members of the Shareholder Group and their respective successors and permitted assigns, and no such term or provision is for the benefit of, or intended to create any obligations to, any other Person, except as otherwise specifically provided in this Agreement. Except as expressly provided in Sections 4.1(f), 4.2(c) and 5.7(c), neither this Agreement nor any rights or obligations hereunder shall be assignable without the consent of the other party. Section 8.3 Amendments; Waiver. This Agreement may be amended only by an agreement in writing executed by the parties hereto. Either party may waive in whole or in part any benefit or right provided to it under this Agreement, such waiver being effective only if contained in a writing executed by the waiving party. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon breach thereof shall constitute a waiver of any such breach or of any other covenant, duty, agreement or condition, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. Section 8.4 Notices. Except as otherwise provided in this Agreement, all notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, when delivered personally or by courier, three days after being deposited in the U.S. mail (registered or certified mail, postage prepaid, return receipt requested), or when received by facsimile transmission if promptly confirmed by telephone, as follows: 24 If to any member of the Shareholder Group: Diageo plc 8 Henrietta Place London England W1M9AG Attention: Group General Counsel Fax: 011-44207-927-4864 with a copy to: Sullivan & Cromwell 125 Broad Street New York, NY 10004 Attention: Francis J. Aquila, Esq. Fax: (212) 558-3588 If to the Company: General Mills, Inc. Number One General Mills Boulevard Minneapolis, Minnesota 55426 Attention: General Counsel Fax: (763) 764-3302 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, NY 10019 Attention: Steven A. Rosenblum, Esq. Fax: (212) 403-2000 or to such other address, facsimile number or telephone as either party may, from time to time, designate in a written notice given in a like manner. Section 8.5 Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to principles of conflicts of law. Section 8.6 Headings. The descriptive headings of the several sections in this Agreement are for convenience only and do not constitute a part of this Agreement and shall not be deemed to limit or affect in any way the meaning or interpretation of this Agreement. Section 8.7 Integration. This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of 25 the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. Section 8.8 Severability. If any term or provision of this Agreement or any application thereof shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. Section 8.9 Shareholder Group Representative. Parent shall act on behalf of the Shareholder Group to receive notices and take any other actions hereunder. Section 8.10 Consent to Jurisdiction. In connection with any suit, claim, action or proceeding arising out of this Agreement, the parties each hereby consent to the in personam jurisdiction of the United States federal courts and state courts located in the State of Delaware; Parent and the Company each agree that service in the manner set forth in Section 8.4 hereof shall be valid and sufficient for all purposes; and the parties each agree to, and irrevocably waive any objection based on forum non conveniens or venue to, appear in any United States federal court or state court located in the State of Delaware. Section 8.11 Counterparts. This Agreement may be executed by the parties hereto in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 8.12 UK Double Tax Relief Information. The Company agrees to provide such information to Diageo, at Diageo's sole expense, as is requested in writing with reasonable specificity by Diageo and is reasonably necessary to permit Diageo to secure UK double tax relief with respect to dividends paid on the Common Stock; provided, however that any information that the Company concludes in good faith is confidential shall instead be provided at the offices of the Company during regular business hours to KPMG (or such other accountants as Diageo and the Company shall mutually agree) under conditions that maintain the confidentiality of that information to the satisfaction of the Company. 26 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective authorized officers as of the date set forth at the head of this Agreement. GENERAL MILLS, INC. By: /s/ D. I. Malina ------------------------------------------- Name: D.I. Malina Title: Vice President Corporate Development DIAGEO PLC By: /s/ Paul S. Walsh ------------------------------------------- Name: Paul S. Walsh Title: Group Chief Executive GRAMET HOLDINGS CORP. By: /s/ John Stewart ------------------------------------------- Name: John Stewart Title: President 27 EX-99.(E) 7 exh-e.txt JOINT FILING AGREEMENT EXHIBIT (e) JOINT FILING AGREEMENT Pursuant to Rule 13(d)-1(f) promulgated under the Securities Exchange Act of 1934, the undersigned hereby agree to the joint filing of this Statement on Schedule 13D, including any amendments thereto. This Joint Filing Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute on and the same instrument. Date: November 13, 2001 DIAGEO PLC By: /s/ Roger Myddelton ------------------------------------------- Name: Roger Myddelton Title: Company Secretary SELVIAC NEDERLAND B.V. By: /s/ M.C.T.M. Gerichhausen ------------------------------------------- Name: M.C.T.M. Gerichhausen Title: Director SELVIAC NEDERLAND B.V. By: /s/ C.M. Day ------------------------------------------- Name: C.M. Day Title: Director -----END PRIVACY-ENHANCED MESSAGE-----