Burger King/Tim Hortons -- summary under Inversions

Overview

Burger King Worldwide and Tim Hortons will effectively combine so that they will be held indirectly by a TSX-listed Ontario partnership (Partnership) of which a TSX and NYSE listed CBCA holding company (Holdings - formerly a B.C. ULC) held by former Tim Hortons and Burger King Worldwide shareholders will be general partner and the remainder of Burger King Worldwide shareholders will be limited partners. In the first set of transactions (mostly under a CBCA arrangement), a Partnership indirect Canadian subsidiary (Amalgamation Sub) will acquire Tim Hortons, resulting in Tim Hortons becoming an indirect subsidiary of both Holdings and Partnership and with cash being paid to Tim Hortons shareholders who elect cash (based on their election and subject to an aggregate cap of U.S.$8B) - and with those U.S. shareholders receiving Holdings shares benefiting from Code s. 351 reorg treatment. In the second principal step (the merger), Merger Sub (an indirect Delaware sub of Partnership) will merge into Burger King Worldwide, with Burger King Worldwide as the survivor, so that Burger King Worldwide becomes an indirect subsidiary of both Holdings and Partnership. On this merger, Burger King Worldwide stockholders can elect to receive exchangeable LP units of Holdings (so as to access Code s. 721 rollover treatment) rather than mostly shares of Holdings. In a preliminary step, Berkshire Hathaway Inc. ("Berkshire") will provide $3B of voting preferred share financing of Holdings together with an equity kicker (the warrant). Based on Holdings holding more than 50% in vote and value of Partnership interests and ex-Burger King Worldwide shareholders owning less than 80% of the Holdings and Partnership equity, as well as on substantial post-merger Canadian business activity, the Code s. 7874 rule should not deem Holdings or Partnership to be a U.S. corporation.

Burger King Worldwide

A NYSE-listed Delaware corporation formed which is the indirect parent of Burger King Corporation, a Florida corporation that franchises and operates fast food hamburger restaurants.

Tim Hortons

A TSX-listed Canadian corporation operating quick service restaurant chains in North America.

Holdings

A B.C. corporation which prior to the reorganization will be continued under the CBCA. After the reorganization, it will become a TSX and NYSE listed holding company headquartered in Canada which through Partnership will hold Burger King Worldwide and Tim Hortons.

Partnership

An Ontario LP (initially formed as a general partnership between Holdings and a wholly-owned subsidiary) which following the reorganization will be held by Holdings (as general partner) and by some of the former Burger King Worldwide shareholders as limited partners.

Amalgamation Sub

A wholly owned subsidiary of Partnership which was incorporated under the CBCA solely to effect the transactions, and which under the arrangement agreement will acquire Tim Hortons.

Merger Sub

An indirect Delaware wholly-owned subsidiary of Partnership which was formed solely to effect the transactions and pursuant to the arrangement agreement will merge with and into Burger King Worldwide, with Burger King Worldwide as the surviving corporation.

3G/3G Capital

3GSpecial Situations Fund II, L.P, which is controlled by a New York private equity firm, holds approximately 69% of the Burger King Worldwide common shares.

Tim Hortons Plan of Arrangement consideration

Each holder of a Tim Hortons common share will be entitled to receive in exchange therefor C$65.50 in cash and 0.8025 newly issued Holdings common shares (the "arrangement mixed consideration") other than shareholders who elect to receive cash of C$88.50 per share (the "arrangement cash consideration") or 3.0879 newly issued Holdings common shares (the "arrangement share consideration") in exchange therefor. However, the overall cash and Holdings common shares available for all Tim Hortons shareholders will be fixed at the aggregate amount of cash and shares that would have been issued if all Tim Hortons common shareholders elected for the arrangement mixed consideration. In addition cash will be paid in lieu of any entitlement to receive a fractional share or unit.

Tim Hortons Preliminary Steps and Plan of Arrangement

1. the shareholders rights plan of Tim Hortons will be terminated;
2. Berkshire will purchase for U.S.$3 billion (a) U.S.$3 billion, Class A 9% cumulative compounding perpetual voting preferred shares of Holdings ("preferred shares") and (b) a warrant to purchase common shares (the "warrant"), which will represent 1.75% of the fully diluted common shares of Holdings as of the completion of the transactions, at an exercise price per Holdings common share of $0.01;
3. transactions will result in the Berkshire subscription proceeds being contributed to Amalgamation Sub;
4. each Tim Hortons common share held by a dissenting shareholder will be transferred to Amalgamation Sub by the holder thereof;
5. Tim Hortons deferred stock units will be cash settled and performance stock units and restricted stock units will be settled through issuances of Tim Hortons common shares;
6. each outstanding Tim Hortons common share (not held by Amalgamation Sub) will be transferred to Amalgamation Sub in exchange for, (i) the arrangement cash consideration, (ii) the arrangement mixed consideration or (iii) the arrangement shares consideration, as elected (with the arrangement mixed consideration being applicable if no election is made) subject to applicable proration and fractional share settlement in cash – with the consideration to Holdings for delivering, on behalf of Amalgamation Sub, Holdings common shares directly to Tim Hortons shareholders, being the issuance to it of Amalgamation Sub common shares (the "AS delivered common shares");
7. each Tim Hortons option (and its tandem stock appreciation right) other than the options surrendered in 5 above will be exchanged for a Holdings option (with a tandem stock appreciation right) to acquire Holdings common shares;
8. transfer agreements will result in all AS delivered common shares (see 6) being contributed to an indirect wholly-owned Delaware LLC subsidiary of Holdings;
9. Holdings, Partnership and the Trustee will execute the voting trust agreement, Holdings will issue the special voting share to the Trustee and the stated capital of the Tim Hortons common shares will be reduced to $1.00; and
10. at 5:00 p.m., Toronto time, on the first business day following the date of the arrangement, Amalgamation Sub and Tim Hortons will amalgamate to form a new amalgamated company (also, the "Amalgamation Sub"), so that the separate legal existence of Amalgamation Sub will cease without Amalgamation Sub being liquidated or wound up, and Amalgamation Sub and Tim Hortons will continue as one company.

Burger King Worldwide merger

On the merger:

1. Merger Sub will be merged with and into Burger King Worldwide, with Burger King Worldwide as the "Surviving Company;"
2. each share of Merger Sub held by Holdings and Partnership will be converted into one share of the Surviving Company and Surviving Company will further issue its shares to Holdings and to Partnership in consideration of Holdings' issuing the Holdings consideration in (c) below and Partnership issuing the exchangeable consideration in (d) below [see also 2001-0068223];
3. except as noted in (d) below, each common share of Burger King Worldwide will be converted into the right to receive 0.99 newly issued Holdings common shares and 0.01 newly issued exchangeable units of Partnership (the "Holdings consideration") (plus cash in lieu of any fractional share); and
4. if the BKW stockholder has made an "exchangeable election" in respect of the BKW share, it instead will be converted into the right to receive one exchangeable unit of Partnership (the "exchangeable consideration"); however, the maximum number of Partnership exchangeable units to be issued will be limited to ensure that Holdings' interest in Partnership is at least 50.1% of the fair market value of all equity interests in Partnership – so that proration may apply.

Exchangeable units

Each exchangeable unit of Partnership will be entitled to distributions from Partnership equal to any dividends or distributions that are declared on a common share of Holdings. From and after the one-year anniversary of the closing date of the transactions, each holder of an exchangeable unit will have the right to require Partnership to exchange all or any portion of such holder's exchangeable units for, at the election of Holdings, in its capacity as General Partner of Partnership, (1) cash (in an amount determined in accordance with the terms of the partnership agreement) or (2) common shares of Holdings, at a ratio of one common share of Holdings for each one exchangeable unit.

Voting trust agreement

Pursuant to the "voting trust agreement" among Partnership, Holdings and a trustee as agreed between Burger King Worldwide and Holdings (the "Trustee"), the Trustee will hold a special voting share in Holdings that entitles the Trustee to a number of votes equal to the number of exchangeable units of Partnership outstanding. The exchangeable unitholders can direct the Trustee, as their proxy, to vote on their behalf with respect to substantially all matters to be voted upon by Holdings common shareholders.

Conditions of closing

Do not include a condition re no change to U.S. inversion rules. If requested by Burger King Worldwide, Tim Hortons US shall have been liquidated through distribution of The TDL Group Co.

Debt financing

Burger King Worldwide and Holdings have entered into the "debt commitment letter", pursuant to which JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association have agreed to provide:

• a senior secured term loan facility in an aggregate principal amount of $6,750 million;
• a senior secured revolving credit facility in an aggregate principal amount of $500 million; and
• a senior secured second lien bridge facility in an aggregate principal amount of up to $2,250 million (less the gross proceeds of any senior secured second-lien notes).

Post-merger structure

Holdings will own common units of Partnership equal to the number of outstanding Holdings common shares and preferred units of Partnership equal to the number of outstanding Holdings preferred shares. After taking into account the voting power attributed to the preferred shares of Berkshire, former Tim Hortons shareholders will own shares of Holdings representing an estimated 21% of the voting power and former Burger King Worldwide stockholders will own Holdings shares or Partnership exchangeable units representing approximately 69% of the voting power (and 3G Capital will beneficially own 51% of the Holdings common shares on a fully diluted and exchanged basis, representing an aggregate of 48% of the voting power of Holdings.) Three of the 11 board members of Holdings will be designated by Tim Hortons prior to closing and the other eight will be current Burger King Worldwide directors.

Canadian tax consequences

Share/unit exchanges. The exchanges of Tim Hortons shares for Holdings shares, and of Burger King Worldwide shares for Holdings shares or Partnership exchangeable units, will occur on a taxable basis, as will a redemption of exchangeable units.

SIFT tax

Although Partnership (which is assumed will be recognized as a partnership for Canadian taxation purposes) will be a SIFT partnership, its only anticipated source of income is dividends from a Canadian subsidiary, so that it is not expected to be subject to SIFT tax.

Non-resident taxation

Any such dividends will be subject to Part XIII tax based on Partnership's non-resident ownership. A non-resident partner of Partnership will not be subject to Part XIII tax on its share of income of Partnership if (as appears likely and with the assistance of s. 115.2) it is not carrying on business.

U.S. tax consequences

Inversion rules. Partnership (by virtue of trading on the TSX) should be treated as a publicly traded partnership for purposes of Code s. 7874 and as a member of Holdings' expanded affiliated group by virtue of Holdings holding more than 50% in vote and value of Partnership interests. Holdings and Partnership should be treated as indirectly acquiring all of the assets of Burger King Worldwide and the stockholders of Burger King Worldwide should own less than 80% of the Holdings common shares and Partnership units. Accordingly, Holdings and Partnership are expected to be treated as foreign entities for U.S. federal income tax purposes because the transactions should meet the 80% test under Code s. 7874. In addition, the Holdings and Partnership expanded affiliated group, including, after the closing of the mergers, Burger King Worldwide and Tim Hortons and each of their respective greater-than-50% owned subsidiaries, should be treated as having substantial business activities in Canada (Holdings' and Partnership's country of formation.) The balance of the disclosure assumes that Holdings and Partnership will be treated as Canadian corporations for Code s. 7874 purposes. Furthermore, although former BKW stockholders should be treated as owning at least 60% by vote and value of the aggregate Holdings stock, as Holdings and Partnership are expected to meet the substantial business activities test referred to above, restrictions on the use of BKW tax attributes under s. 7874 are not expected to apply.

S. 351 exchange for Tim Hortons shareholders

The arrangement, taken together with the merger, is intended to qualify as an exchange under Code s. 351. If this is correct, a U.S. holder will recognize gain equal to the lesser of: (i) the amount, if any, by which the sum of the cash and fair market value of the Holdings shares received by it exceeds the adjusted tax basis in its Tim Hortons shares; and (ii) the cash received by it. However, a U.S. holder of Tim Hortons common shares who is a "five percent transferee shareholder" of Holdings after the transactions will qualify for such treatment only if it timely files a gain recognition agreement with the IRS.

Merger exchange for Partnership units

The merger is intended to qualify as a transfer of Burger King Worldwide stock in whole or in part (as to at least 1%) in exchange for Partnership units, so that the receipt of Partnership exchangeable units pursuant to the merger qualifies as an exchange under Code s. 721. Furthermore, Partnership exchangeable units are expected to be treated as an interest in Partnership rather than as Holdings stock given that Partnership units cannot be exchanged during the first year and an exchange request can be satisfied in cash. On this basis, the receipt of Partnership units is not expected to give rise to gain except based on the (likely nominal) value of the Holdings voting shares also received.

Merger exchange for Holdings shares

When, as here, the transaction involves the transfer of stock of a U.S. corporation to a foreign corporation, s. 367 can apply to all U.S. holders rather than solely 5% transferee shareholders. Furthermore, the Burger King Worldwide stockholders will receive more than 50% of the Holdings common shares (taking into account option attribution rules for Partnership exchangeable units for purposes of s. 367). Consequently, they will be required to recognize gain (but not loss) on their exchange of Burger King Worldwide stock for Holdings common shares in the merger equaling any excess of the fair market value of Holdings common shares received over the U.S. holder's adjusted tax basis in the exchanged Burger King Worldwide stock. Such gain must be determined separately for separate blocks of stock.

Post-merger treatment of Partnership and Partnership units

Partnership's taxation as a partnership - that is not a publicly traded partnership taxable as a corporation (provided s. 7874 does not apply) - will depend on its ability to meet through operating results, the "qualifying income exception" under s. 7704. (if it fails to satisfy the qualifying income exception, it generally will be treated as transferring all its assets to a newly-formed corporation.) In light of the intended financing structure, Partnership may derive income that constitutes "unrelated business taxable income," or "UBTI." Partnership currently intends to make the s. 754 election. In order to maintain the fungibility of Partnership units, Partnership will seek to achieve the uniformity of U.S. tax treatment for all purchasers of Partnership units which are acquired at the same time and price (irrespective of the identity of the particular seller of Partnership units or the time when Partnership units are issued by Partnership), through the application of certain tax accounting principles that are believed to be reasonable.