Exhibit 10.4
SEPARATION AGREEMENT
SEPARATION AGREEMENT, dated as of February ___, 1999 (as amended,
supplemented or otherwise modified, this "Agreement"), by and between PepsiCo,
Inc., a North Carolina corporation ("PEPSICO" or the "CORPORATION"), and The
Pepsi Bottling Group, Inc., a Delaware corporation ("PBG") and, as of the date
hereof, a wholly-owned subsidiary of PepsiCo.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, PepsiCo's Board of Directors has determined that separation
from the Corporation of a substantial portion of the Corporation's bottling
assets and businesses and majority public ownership of such assets and
businesses is in PepsiCo's best interests;
WHEREAS, PepsiCo is consolidating the assets and operations of a
substantial portion of the bottling businesses owned by it and its subsidiaries
and affiliates (PepsiCo and its subsidiaries and affiliates (other than the PBG
Group as hereinafter defined) are collectively referred to herein as the
"PEPSICO GROUP") into PBG and its subsidiaries (PBG and its direct and indirect
subsidiaries and its affiliates are collectively referred to herein as the "the
PBG GROUP"); and
WHEREAS, PepsiCo intends that PBG issue approximately 63% of its common
stock to the public in an underwritten offering (the "OFFERING") (The date at
which such sales of PBG common stock are settled with the Underwriters shall
hereafter be referred to as the "OFFERING DATE");
NOW, THEREFORE, in consideration of the mutual promises herein, the
Parties (as such term is defined in Section 19 hereof) hereby agree as follows:
Section 1. THE SEPARATION. Prior to the Offering Date, PepsiCo
transferred a substantial portion of its bottling assets (including the stock of
certain subsidiaries) to the PBG Group and the Bottling Group, LLC, a Delaware
limited liability company wholly-owned by the PepsiCo Group ("BOTTLING GROUP,
LLC"). Thereafter, a PepsiCo subsidiary borrowed $2.3 billion, secured by a
PepsiCo guarantee (the "PEPSICO GUARANTEE") and, prior to the Offering Date,
such debt was assumed by Bottling Group, LLC. Also prior to the Offering Date,
PBG will borrow approximately $4.5 billion, with a portion of the proceeds
transferred to PepsiCo in payment of certain intercompany debt obligations and a
portion of the proceeds used to acquire certain domestic and international
bottling operations from ▇▇▇▇▇▇▇ Corporation ("▇▇▇▇▇▇▇") in a separate
transaction (described in Section 12(b) below). Subsequent to the Offering Date,
PBG will use a portion of the proceeds to acquire certain international bottling
operations from PepsiCo. The PBG Group will transfer its bottling assets to
Bottling Group, LLC in exchange for an
approximately 95% interest in such entity (diluting PepsiCo's interest in
Bottling Group, LLC to approximately 5%).
Section 2. THE OFFERING. On the Offering Date, PBG will sell
approximately 63% of its Common Stock, and the proceeds thereof will be applied
against a portion of the approximately $4.5 billion of PBG borrowings set forth
in Paragraph 1 hereof.
Section 3. GOVERNANCE DOCUMENTS. PBG shall take all action necessary
such that, on the Offering Date, the Certificate of Incorporation and Bylaws of
PBG shall be substantially in the forms filed with the Securities and Exchange
Commission as exhibits to the Form S-1 relating to the Offering (as amended,
supplemented or otherwise modified, the "S-1").
Section 4. BOOKS, RECORDS, SERVICES AND ACCESS TO INFORMATION.
(a) PepsiCo shall make available to PBG, during normal business hours
and in a manner which shall not reasonably interfere with PepsiCo's business,
the services set forth on Schedule A hereto to the extent that the same are
reasonably required to assist in effecting an orderly transition following the
Offering.
(b) From and after the Offering Date, PepsiCo shall afford PBG and its
authorized employees and representatives reasonable access (including access to
persons or firms possessing relevant information and records) and reasonable
duplicating rights during normal business hours to, or, at PepsiCo's option,
copies of, all records, books, contracts, instruments, data and other
information (collectively, "INFORMATION") within the PepsiCo Group's possession
relating to any member of the PBG Group, insofar as such access or copies are
reasonably required by PBG.
(c) PBG shall afford to PepsiCo and its authorized employees and
representatives reasonable access (including access to persons or firms
possessing relevant information and records) and reasonable duplicating rights
during normal business hours to, or, at PBG's option, copies of, all Information
within the PBG Group's possession relating to any member of the PepsiCo Group,
insofar as such access or copies are reasonably required by PepsiCo.
(d) Information may be required under this Section 4, without
limitation, for audit, accounting, claims, litigation and tax purposes, as well
as for purposes of fulfilling disclosure and reporting obligations. In lieu of
retaining any specific Information, either Party may, in writing, offer to
deliver such Information to the other. If such offer is not accepted within
ninety (90) days, the Information so offered shall be retained or destroyed in
accordance with PepsiCo's Record Retention Policy. If such offer is accepted,
the Party accepting delivery shall pay the reasonable out-of-pocket costs of the
delivery. Each Party shall maintain the Information in accordance with the
manner it treats similar material relating to its ongoing business.
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(e) At all times from and after the Offering Date, each Party will use
its reasonable best efforts to make available to the other, upon written
request, its officers, directors, employees and agents as witnesses to the
extent that the same may reasonably be required in connection with any legal,
administrative or other proceedings in which the requesting Party may from time
to time be involved.
(f) Except as otherwise specifically provided for herein, a Party
providing Information, or witnesses to the other hereunder shall be entitled to
receive from the recipient, upon the presentation of appropriate invoices
therefor, payments for such amounts relating to supplies, disbursements, and
such other costs and out-of-pocket expenses as are reasonably incurred in
providing such Information, or witnesses; PROVIDED THAT to the extent such
amounts, disbursement costs and expenses constitute Separation Expenses (as
defined in Section 20 of this Agreement), they shall be borne by PepsiCo.
Invoices shall be due and payable within thirty (30) days of receipt.
(g) PepsiCo shall arrange for the transportation of existing corporate
records in its possession relating to the PBG Group, including original
corporate minute books, stock ledgers and certificates, and corporate seals of
each corporation included in the PBG Group, and all active agreements, deeds to
real property, active litigation files and filings with foreign governments, if
any, to PBG's address set forth in Section 25 hereof.
Section 5. CONFIDENTIALITY. Each member of the PepsiCo Group and each
member of the PBG Group shall hold, and cause each of their respective officers,
employees, agents, consultants and advisors to hold, in strict confidence, all
non-public Information concerning the other Party furnished it by such other
Party or its representatives pursuant to this Agreement, unless compelled to
disclose such Information by judicial or administrative process or, in the
opinion of counsel, by other requirements of law (in which case such Party shall
promptly notify the other Party so that the other Party may seek a protective or
other appropriate remedy); and each Party shall not release or disclose such
Information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors who shall be bound by the
provisions of this Section 5. Each Party shall be deemed to have satisfied its
obligations hereunder with respect to confidential Information supplied by the
other Party if it exercises the same care as it does with respect to preserving
the confidentiality of its own similar information.
Section 6. INDEMNIFICATION.
(a) Notwithstanding any other provision of this Agreement, no member of
the PBG Group (other than Bottling Group, LLC) shall indemnify PepsiCo for, hold
PepsiCo harmless from, or otherwise bear the economic burden of any loss
incurred by PepsiCo under the PepsiCo Guarantee. Subject to the preceding
sentence, effective on the Offering Date, except as otherwise provided in the
agreements attached hereto, PBG agrees to indemnify and hold harmless each
member of the PepsiCo Group and each of their respective officers, directors,
employees and agents from and against any and all
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losses, liabilities, claims, suits, damages, costs and expenses (including,
without limitation, reasonable attorneys' fees and any and all expenses
reasonably incurred in investigating, preparing or defending against any pending
or seriously threatened litigation or claim) (collectively, "LOSSES") arising
out of or related in any manner to any item set forth on Schedule B hereto.
Similarly, effective on the Offering Date, except as otherwise provided in the
attachments hereto, PepsiCo agrees to indemnify and hold harmless each member of
the PBG Group and each of their respective officers, directors, employees and
agents from and against any and all Losses arising out of or related in any
manner to any item set forth on Schedule C hereto.
(b) If any action is brought or any claim is made against a Party or
person in respect of which indemnity may be sought pursuant to subsection 6(a)
above (the "INDEMNITEE"), the Indemnitee shall, within twenty (20) days after
the receipt of information indicating that an action or claim is likely, notify
in writing the Party from whom indemnification is sought (the "INDEMNITOR") of
the institution of the action or the making of the claim, and the Indemnitor
shall have the right, and at the request of the Indemnitee, shall have the
obligation, to assume the defense of the action or claim, including the
employment of counsel. If the Indemnitor assumes the defense of the action or
claim, the Indemnitor shall be entitled to settle the action or claim on behalf
of the Indemnitee without the prior written consent of the Indemnitee, unless
such settlement would materially affect the ongoing business of the Indemnitee.
(c) The Indemnitee shall have the right to employ its own counsel, but
the fees and expenses of that counsel shall be the responsibility of the
Indemnitee unless (i) the employment of that counsel shall have been authorized
in writing by the Indemnitor in connection with the defense of the action or
claim; (ii) the Indemnitor shall not have employed counsel to have charge of the
defense of such action or claim; or (iii) the Indemnitee shall have reasonably
concluded that there may be defenses available to it which are different from or
additional to those available to the Indemnitor (in which case the Indemnitor
shall not have the right to direct any different defense of the action or claim
on behalf of the Indemnitee). The Indemnitee shall, in any event, be kept fully
informed of the defense of any such action or claim. Except as expressly
provided above, in the event that the Indemnitor shall not previously have
assumed the defense of an action or claim, at such time as the Indemnitor does
assume the defense of the action or claim, the Indemnitor shall not thereafter
be liable to any Indemnitee for legal or other expenses subsequently incurred by
the Indemnitee in investigating, preparing or defending against such action or
claim.
(d) Anything in this Section 6 to the contrary notwithstanding, the
Indemnitor shall not be liable for indemnification with respect to any
settlement of any claim or action effected without its written consent;
PROVIDED, HOWEVER, that if after due notice the Indemnitor refuses to defend a
claim or action, the Indemnitee shall have the right to defend and/or settle
such claim or action, and the Indemnitee shall not be precluded from making a
claim against the Indemnitor for reasonable expenses and liabilities resulting
from such defense and/or settlement in accordance with this Section 6.
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(e) Notwithstanding the foregoing provisions of this Section 6, there
may be particular actions or claims which reasonably could result in both
Parties being liable to the other under the indemnification provisions of this
Agreement. In such events, the Parties shall endeavor, acting reasonably and in
good faith, to agree upon a manner of conducting the defense and settlement of
the action or claim with a view to minimizing the legal expenses and associated
costs that might otherwise be incurred by the Parties, such as, by way of
illustration only, agreeing to use the same legal counsel.
(f) The indemnification provisions of this Section 6 shall not inure to
the benefit of any third party. By way of illustration only, an insurer who
would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto, or, solely by virtue of the indemnification
provisions hereof, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurer or any other third party shall
be entitled to a "windfall" (i.e., a benefit they would not be entitled to
receive in the absence of the indemnification provisions) by virtue of these
indemnification provisions.
Section 7. TAXES. PepsiCo and PBG have entered into a Tax Separation
Agreement, substantially in the form attached hereto as Attachment 1 (as
amended, supplemented or otherwise modified, the "TAX AGREEMENT"), regarding
their respective rights and obligations with respect to taxes of the PBG Group
for all periods through the Offering Date and certain other tax-related matters.
In the event of a conflict between the terms of the Tax Agreement and the terms
of this Agreement, the terms of the Tax Agreement shall govern.
Section 8. EMPLOYEE BENEFITS. PepsiCo and PBG have entered into an
Employee Programs Agreement, substantially in the form attached hereto as
Attachment 2 (as amended, supplemented or otherwise modified, the "EMPLOYEE
PROGRAMS Agreement"), which allocates assets, liabilities and responsibilities
between them with respect to certain employee compensation and benefit plans and
programs and certain other related matters. In the event of a conflict between
the Employee Programs Agreement and the terms of this Agreement, the terms of
the Employee Programs Agreement shall govern.
Section 9. SERVICES. PepsiCo and PBG have entered into a Shared
Services Agreement "SHARED SERVICES Agreement"), setting forth the arrangements
between the Parties with respect to services and support. In the event of a
conflict between the Shared Services Agreement and the terms of this Agreement,
the terms of the Shared Services Agreement shall govern.
Section 10. LEASE ASSIGNMENT. PepsiCo and PBG have entered into an
Assignment of Lease, substantially in the form attached hereto as Attachment 3
(as amended, supplemented or otherwise modified, the "Assignment"), relating to
an Agreement of Lease between Redux Realty, Inc. and PepsiCo, Inc. for the
office complex
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in ▇▇▇▇▇▇, New York, (the "LEASE") pursuant to which PepsiCo has assigned its
rights and delegated its duties under the Lease to PBG.
Section 11. REGISTRATION RIGHTS. PepsiCo and PBG have entered into a
Registration Rights Agreement substantially in the form attached hereto as
Attachment 4, pursuant to which PepsiCo may require PBG, with certain
exceptions, to register under the Securities Act of 1933, as amended, shares of
PBG's common stock owned by PepsiCo, and to include such shares in any future
registration of PBG common stock.
Section 12. TRANSFER OF ENTITIES, OPERATIONS, ASSETS AND LIABILITIES.
(a) Prior to the Offering Date, PepsiCo and PBG shall use reasonable
efforts to cause the entities, operations, assets (other than trademarks and
other intellectual property and any rights appurtenant thereto) and
corresponding liabilities relating to the bottling territories and businesses
set forth on Schedule D hereto (the "BOTTLING BUSINESSES") to be included as
part of the PBG Group. Except as otherwise provided in this Agreement, the Tax
Agreement, the Employee Programs Agreement, the Shared Services Agreement, the
Assignment and the Insurance Agreement (as hereinafter defined), including,
without limitation, the Schedules and Attachments attached hereto and to each
such Agreement, PepsiCo shall bear the reasonable costs of effecting such
conveyances.
(b) PepsiCo shall bear all costs relating to the transfer of bottling
entities, operations, assets and corresponding liabilities by the PBG Group or
the PepsiCo Group to ▇▇▇▇▇▇▇, pursuant to a Contribution and Merger Agreement
among ▇▇▇▇▇▇▇, PepsiCo and a PepsiCo subsidiary, dated January 25, 1999, upon
the receipt of appropriate invoices therefor. PepsiCo will reimburse PBG for any
such costs within 30 days of receipt of such invoices.
(c) PepsiCo shall bear all costs relating to the transfer of bottling
entities, operations, assets and corresponding liabilities by the PBG Group or
the PepsiCo Group to any other PepsiCo anchor or master bottler, pursuant to an
agreement with the PepsiCo Group, upon the receipt of appropriate invoices
therefor. PepsiCo will reimburse PBG for any such costs within 30 days of
receipt of such invoices.
(d) Except as expressly provided herein (including, without limitation,
in the first sentence of Section 6(a)), PBG agrees to assume and pay all
contracts, obligations and liabilities of each member of the PepsiCo Group
associated in any way with the Bottling Businesses, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, including, without
limitation, all obligations of any member of the PepsiCo Group acting as a
guarantor of obligations associated in any way with any of the Bottling
Businesses (other than with respect to the PepsiCo Guarantee), and all
obligations under leases and other executory contracts and liabilities, whether
arising as a result of the transactions contemplated hereby, existing on the
date hereof, or based on facts or actions arising on or prior to the Offering
Date, whether or not such obligations
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shall have been disclosed herein, and whether or not reflected on the opening
balance sheet of the PBG Group prepared pursuant to Section 16 hereof (the
"OPENING BALANCE SHEET").
(e) In the event that the transfer of all such assets and liabilities
of the Bottling Businesses is not accomplished by the Offering Date, the Parties
agree that PBG shall have DE FACTO control and equitable ownership of such
entities, operations and assets, and DE FACTO responsibility for the obligations
and liabilities intended to be transferred to the PBG Group; PROVIDED, HOWEVER,
that if any uncompleted steps financially affect either PepsiCo or PBG, the
Parties agree to use their respective best efforts to equitably resolve any such
financial impact.
(f) In the event that any trademark or other intellectual property
asset or any right appurtenant thereto relating to the Bottling Businesses is
transferred to PBG, PBG agrees to take such action as may be necessary or
appropriate to cause such trademark or other intellectual property asset or any
right appurtenant thereto to be properly assigned to PepsiCo or its designee.
PepsiCo shall bear the reasonable costs of effecting such assignment.
(g) Notwithstanding any other provision of this Agreement, if a member
of the PBG Group (including Bottling Group, LLC) is liable on a debt as to
which, or as to any portion of which, there is a guarantee or similar obligation
of any member of the PepsiCo Group, including, without limitation, the
approximately $2.3 billion debt referred to in Section 1 hereof, then, unless
PepsiCo has given its prior written consent, PBG will not, and will cause each
member of the PBG Group (including Bottling Group, LLC) not to, take any action
relating to such debt or the PepsiCo Group guarantee, including (i) the
repayment, refinancing or modification of the terms of such debt, or (ii)
modification of the terms, or cancellation, of such guarantee or similar
obligation.
(h) This Section 12 shall not inure to the benefit of any third party.
Section 13. LETTERS OF CREDIT, GUARANTEES AND CONTINGENT LIABILITIES.
(a) PBG shall use its best efforts to cause the beneficiaries of all of
the PepsiCo Group's letters of credit, guarantees (other than the PepsiCo
Guarantee) and other contingent liabilities relating to any of the Bottling
Businesses (including, without limitation, commercial letters of credit,
financing guarantees, performance guarantees, lease guarantees, comfort letters,
insurance and workers' compensation liabilities, and the letters of credit,
guarantees and other contingent liabilities identified on Schedule E hereto)
(collectively, the "BOTTLING CONTINGENT LIABILITIES") which will not have
expired on or prior to the Offering Date, to release and terminate all such
Bottling Contingent Liabilities on or prior to August 1, 1999 and, where
necessary or appropriate, to accept substitute letters of credit, guarantees or
contingent liabilities issued for the account of PBG or to post sufficient cash
collateral on behalf of PBG. PepsiCo shall assist PBG in obtaining such releases
and substitutions. PBG hereby agrees to provide to PepsiCo,
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prior to August 15, 1999, a schedule (the "PBG CONTINGENT LIABILITY SCHEDULE")
listing all of the letters of credit, guarantees and other contingent
liabilities relating to any of the Bottling Businesses which have not been
released, terminated, or replaced with a Qualified Letter of Credit (as such
term is hereinafter defined). From and after the Offering Date, PBG will pay a
fee based upon the maximum exposure related to any Beverage Contingent
Liabilities which were not released, terminated or replaced prior to the
Offering Date. With respect to leases, the term "maximum exposure" shall mean
the sum of future nominal lease payments. Such fee will be equal to the LIBOR
margin, plus utilization and commitment fees for a borrowing under PBG's senior
credit facility as in effect from time to time and will be expressed as a
percentage of the value of the underlying exposure. Such fee shall be payable
monthly in advance until such time as each such Bottling Contingent Liability
has been released, terminated or replaced by a Qualified Letter of Credit. For
purposes of this Agreement, a Bottling Contingent Liability shall be deemed to
be released or terminated only whenthe relevant document evidencing such
Bottling Contingent Liability has been canceled and returned to PepsiCo.
Notwithstanding the foregoing, PBG shall at all times indemnify and hold
harmless each member of the PepsiCo Group from and against all losses,
liabilities and obligations incurred with respect to such Bottling Contingent
Liabilities. Without limiting the foregoing, PBG shall, upon demand, reimburse
PepsiCo within fifteen days for any amounts actually paid by any member of the
PepsiCo Group with respect to any such Beverage Contingent Liabilities.
(b) For purposes of this Agreement, the term "QUALIFIED LETTER OF
CREDIT" shall mean an irrevocable, transferable letter of credit issued to
PepsiCo or its relevant subsidiary or affiliate by a bank that is an A Credit
(as such term is hereinafter defined), substantially in the form attached as
Schedule F hereto, with a term extending to the last possible expiration date of
the Bottling Contingent Liabilities covered thereby and with a maximum drawing
amount that shall equal the full amount of all remaining obligations and
foreseeable claims under the Bottling Contingent Liabilities covered thereby
(assuming the exercise of all extension options with respect to the underlying
obligations). In the event of any change in the law regarding letters of credit
generally that affects the language in a Qualified Letter of Credit, PBG shall,
at the request of PepsiCo, provide a new Qualified Letter of Credit containing
modifying language as approved by PepsiCo. The language contained in the form of
letter of credit attached as Schedule F hereto shall be deemed to be approved by
PepsiCo. For purposes of this Agreement, the term "A CREDIT" shall mean a
corporation or banking association whose long-term debt obligations are rated A+
or A1 or better by Standard & Poor's or by ▇▇▇▇▇'▇, respectively, or their
successors in interest that are "nationally recognized statistical rating
organizations."
(c) PBG agrees that no member of the PBG Group shall modify, amend or
extend (including, without limitation, pursuant to any existing option to
extend) any of the leases or other obligations of the PBG Group which have been
guaranteed by a member of the PepsiCo Group so as to increase or in any way
enlarge the duration of any of the obligations or liabilities of any member of
the PepsiCo Group pursuant to those
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guarantees without first obtaining the prior written approval of PepsiCo, which
approval may be withheld by PepsiCo in its sole discretion.
Section 14. INSURANCE AND RISK MANAGEMENT SERVICES.
(a) All policies of liability, fire, workers' compensation and other
forms of insurance maintained by the PepsiCo Group insuring the products,
properties, assets and/or operations of the Bottling Businesses shall continue
in full force and effect up to and through the Offering Date, and except as set
forth on Schedule G hereto, shall be terminated effective 11:59:59 p.m. on the
Offering Date. Any refunds of prepaid premiums with respect to such terminated
insurance shall be for PepsiCo's account. Any retrospective adjustments to
casualty premiums with respect to such terminated insurance shall be for PBG's
account. PepsiCo shall be responsible for obtaining initial insurance coverage
for PBG from and after the Offering Date in such amounts as are agreed upon by
the Parties. PBG shall be liable for payment of all premiums with respect to
such initial insurance coverage and all subsequent coverage which PBG thereafter
elects to obtain. For purposes of this Section, insurance coverage includes, but
is not limited to, ERISA fidelity bonds and/or fiduciary insurance.
(b) With respect to any insurance programs relating to the PBG Group
(including, without limitation, any casualty insurance programs such as public
and products liability insurance, insured or self-insured workers' compensation
insurance and automobile liability insurance), PBG shall be liable for payment
of all claims arising out of incidents, known or unknown, reported or
unreported, which occur prior to, on or after the Offering Date. Any reserves
under these insurance programs relating to the PBG Group for periods ending
prior to, on or after the Offering Date shall be for the account of PBG. Such
reserves shall be included as liabilities of PBG, and any charge or credit to
the reserves shall be for PBG's account.
(c) PepsiCo and Hillbrook Insurance Company, Inc. ("Hillbrook") have
entered into an Insurance and Risk Management Services Agreement (the "IRM
AGREEMENT"), which provides for the transfer of certain casualty insurance
liabilities to Hillbrook and requires Hillbrook to provide risk management
services to the PepsiCo Group's U.S. operations. PepsiCo, Hillbrook and PBG have
entered into an Insurance Agreement, substantially in the form attached hereto
as Attachment 5 (as amended, supplemented or otherwise modified, the "INSURANCE
AGREEMENT"), pursuant to which PepsiCo has assigned its rights under the IRM
Agreement with respect to the Bottling Businesses to PBG. In the event of a
conflict between the Insurance Agreement and the terms of this Agreement, the
terms of the Insurance Agreement shall govern.
Section 15. BANKING AND OTHER ARRANGEMENTS. The responsibility for bank
accounts used exclusively by the PBG Group shall be transferred from PepsiCo to
PBG on or prior to the Offering Date. Normal procedures will be followed for
receipts and disbursements funding prior to the Offering Date.
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Section 16. PROCEDURES FOR CLOSING AND DELIVERY OF BOOKS AND BALANCE
SHEET AND PAYMENT OF CERTAIN AMOUNTS TO PEPSICO. Financial statements of PBG as
of the Offering Date, which shall be summaries of the combined accounting
ledgers of the PBG Group as of the close of the _____ accounting period of the
1999 fiscal year, and which shall include an Opening Balance Sheet, shall be
prepared by PepsiCo within 30 days after the Offering Date and reviewed and
agreed to by PBG within 15 days after such financial statements are prepared.
PepsiCo shall bear all expenses in connection with the preparation and review of
such financial statements. PepsiCo and PBG agree that the principles for
determining the Opening Balance Sheet are as follows:
(a) TOTAL ASSETS shall be determined through the normal reporting
process using U.S. generally accepted accounting principles ("GAAP") as applied
on a basis substantially consistent with the basis used in the preparation of
the financial statements of PBG presented in the S-1 and standard PepsiCo
definitions and accounting practice, consistently applied.
(b) NON-INTEREST BEARING LIABILITIES shall be determined through the
normal reporting process using GAAP as applied on a basis substantially
consistent with the basis used in the preparation of the financial statements of
PBG presented in the S-1 and standard PepsiCo definitions and accounting
practice, consistently applied. Accrued tax liabilities shall be treated in
accordance with the provisions of the Tax Agreement.
(c) NET ASSETS is the sum of total assets less non-interest bearing
liabilities. Net Assets shall be determined in accordance with the following
capitalization procedure:
(i) SHORT AND LONG-TERM DEBT shall be determined through the
normal reporting process using GAAP as applied on a basis
substantially consistent with the basis used in the preparation of the
financial statements of PBG presented in the S-1 and standard PepsiCo
definitions and accounting practice, consistently applied. The Opening
Balance Sheet will reflect approximately $3.3 billion of debt
obligations incurred by PBG and Bottling Group, LLC prior to the
Offering Date.
(ii) STOCKHOLDERS' EQUITY of PBG will equal the difference
between the total Net Assets less the Short and Long-Term Debt on
PBG's Opening Balance Sheet as of the Offering Date.
Section 17. OPERATION UNTIL CLOSING. PBG agrees, on behalf of itself
and each member of the PBG Group that, through the Offering Date, the Bottling
Businesses shall be operated in the ordinary course of business, consistent with
past practice.
Section 18. DE-IDENTIFICATION. As soon as practicable after the
Offering Date, and in no event later than 120 days after such Date, PBG shall
eliminate all exterior and interior signage and other identification in its
possession or control, and cease using any
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letterhead, which identifies PBG or any other entity within the PBG Group as a
subsidiary of PepsiCo.
Section 19. PARTIES. As used in this Agreement, the term "PARTIES"
shall include the PepsiCo Group and its successors, and the PBG Group and its
successors. Each of PepsiCo and PBG agrees that it shall cause each of its
subsidiaries and affiliates to comply fully with the terms of this Agreement.
Section 20. EXPENSES. Except as otherwise provided in this Agreement
(including, without limitation, the Schedules and Attachments hereto), all
expenses in connection with the Offering and separation (the "Separation
Expenses") shall be borne by PepsiCo and all expenses in connection with the
ongoing operations and/or businesses of the PBG Group shall be borne by PBG. PBG
hereby agrees that the expenses set forth on Schedule H hereto are the only
expenses which constitute Separation Expenses for purposes of this Agreement.
Section 21. TAX GROSS-UP. If any amount paid by any member of the
PepsiCo Group or the PBG Group, as the case may be, pursuant to this Agreement
results in any increased Tax liability or reduction of any Tax Asset of the PBG
Group or the PepsiCo Group, respectively, then PepsiCo or PBG, as appropriate,
shall indemnify the other Party and hold it harmless from and against any
interest or penalty attributable to such increased Tax liability or the
reduction of such Tax Asset and shall pay to the other Party, in addition to
amounts otherwise owed, the After-Tax Amount. If any amount paid by any member
of the PepsiCo Group or the PBG Group, as the case may be, pursuant to this
Agreement makes allowable to a member of the PBG Group or a member of the
PepsiCo Group, respectively, a Tax Benefit which would not, but for such
payment, be allowable, then any payment made pursuant to this Agreement shall be
reduced by the present value of such Tax Benefit, calculated in accordance with
Section 5(d) of the Tax Agreement. Capitalized terms used in this Section 19 but
not otherwise defined in this Agreement shall have the meanings assigned to such
terms in the Tax Agreement.
Section 22. SURVIVAL. All of the provisions of this Agreement shall
survive the Offering Date.
Section 23. OTHER PROVISIONS. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, may not be
assigned by either Party without the written consent of the other, and shall
bind and inure to the benefit of the Parties hereto and their respective
successors and permitted assignees. This Agreement may not be amended,
supplemented or otherwise modified except by an agreement in writing signed by
PepsiCo and PBG. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
Section 24. DISPUTE RESOLUTION. The parties shall attempt in good faith
to resolve any dispute arising out of or relating to this Agreement ("Dispute")
promptly by
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negotiation between executives with authority to settle the Dispute. If the
Dispute has not been resolved by negotiation within 45 (forty-five) calendar
days of the disputing party's notice of the Dispute, or if the parties'
executives failed to meet within 20 (twenty) calendar days of the notice, the
parties shall endeavor to settle the Dispute by mediation under the then current
Center for Public Resource's Model Mediation Procedure for Business Disputes.
Notwithstanding the foregoing, if a Dispute arises in which time is of the
essence, either party may institute legal action. Each party will continue to
perform this Agreement pending the final resolution of the Dispute.
Section 25. NOTICES. Any notice, demand, claim or other communication
under this Agreement shall be in writing and shall be deemed to have been given
(i) upon the delivery thereof if delivered personally (including, without
limitation, by courier), (ii) three days after being sent by certified mail,
return receipt requested, postage prepaid, or (iii) upon receipt of confirmation
of a telecopy transmission, in each case to the Parties at the following
addresses (or at such other address as a Party may specify by notice to the
other):
If to PepsiCo:
PepsiCo, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
If to PBG:
The Pepsi Bottling Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
PepsiCo, Inc.
By
--------------------------------
[Name]
[Title]
The Pepsi Bottling Group, Inc.
By
--------------------------------
[Name]
[Title]
13
SCHEDULE B
PBG INDEMNIFICATION OBLIGATIONS
Items with respect to which PBG will indemnify the PepsiCo Group in
accordance with Section 6 of this Separation Agreement:
(1) All Losses arising out of or related in any manner to any of the
Bottling Businesses and the PBG Group, as such businesses have been conducted in
the past, are currently conducted or may in the future be conducted, whether or
not such Losses are asserted prior to the Offering Date and whether or not such
Losses are based upon PepsiCo or any of its subsidiaries or affiliates being a
direct party to a transaction or agreement.
(2) All Losses arising out of or related in any manner to any letters
of credit, guarantees or contingent liabilities relating to (i) any of the
Bottling Businesses, or (ii) any obligations of any member of the PBG Group
(including, without limitation, commercial letters of credit, financing
guarantees, performance guarantees, lease guarantees, comfort letters, and
insurance and workers' compensation liabilities), whether or not such Losses are
asserted prior to the Offering Date.
(3) All Losses arising out of or in any way related to the Agreement of
Lease between Redux Realty, Inc. and PepsiCo, all of the rights and duties under
such Agreement having been transferred by PepsiCo to PBG pursuant to an
Assignment of Lease dated February ___, 1999.
(4) All Losses arising out of or in any way related to the pension
transition services described on Schedule A hereto.
(5) All Losses arising out of or related in any manner to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
registration statement on Form S-1 (No. 333-70291) relating to the Offering or
any amendment thereto (the "REGISTRATION STATEMENT"), including the Rule 430A
Information, or any preliminary or final prospectus (or any amendment or
supplement thereto), other than Losses arising from or related in any manner to
untrue statements or omissions or alleged untrue statements or omissions
relating to PepsiCo, Inc. For purposes of this Agreement, the term "Rule 430A
Information" shall mean the information included in any prospectus that was
omitted from the Registration Statement at the time it became effective but that
is deemed to be part of such Registration Statement at the time it became
effective pursuant to paragraph (b) of Rule 430A of the Securities Act of 1933,
as amended.
SCHEDULE C
PEPSICO INDEMNIFICATION OBLIGATIONS
Items with respect to which PepsiCo will indemnify the PBG Group in
accordance with Section 5 of this Separation Agreement:
(1) All Losses arising out of or related in any manner to the PepsiCo,
Pepsi-Cola, Frito-Lay or Tropicana businesses, as such businesses have been
conducted in the past, are currently conducted or may in the future be
conducted, whether or not such Losses are asserted prior to the Offering Date
and whether or not such Losses are based upon PepsiCo or any of its subsidiaries
or affiliates being a direct party to a transaction or agreement.
(2) All Losses arising out of or related in any manner to any
contingent liabilities relating to (i) the Pepsi-Cola, Frito-Lay or Tropicana
businesses, or (ii) any obligations of any member of the PepsiCo Group, whether
or not such Losses are asserted prior to the Offering Date.
(3) All Losses arising out of or related in any manner to OCEAN SPRAY
CRANBERRIES, INC. V. PEPSICO, INC., including, without limitation appeals,
further litigation, arbitration or claims relating to such case or the claims
asserted therein.
(4) All Losses arising out of or related in any manner to HOSPITAL
CORPORATION INTERNATIONAL LIMITED AND AMERICAN MEDICAL CENTERS, INC. V. PEPSICO,
INC., including, without limitation, appeals, further litigation or claims
relating to such case or the claims asserted therein.
(5) One-half of all Losses arising out of or related in any manner to
HAMAR V. PEPSICO, INC., including, without limitation, appeals, further
litigation or claims relating to such case or the claims asserted therein.
(6) One-half of all Losses arising out of or related in any manner to
▇▇▇▇▇▇ ▇. PEPSICO, INC., including, without limitation, appeals, further
litigation or claims relating to such case or the claims asserted therein.
(7) All Losses arising out of or related in any manner to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, or any preliminary or final prospectus (or any amendment or
supplement thereto), relating to PepsiCo, Inc.
