-----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, NuLdUXsccrDPvm/QO4CJwtEHRgBPKa1B19WKStMgKPgfqhshLMHc/M8tM8bjlTPl 6HPfJ5SAzsRpHugXYJCPhg== 0000950123-00-002595.txt : 20000324 0000950123-00-002595.hdr.sgml : 20000324 ACCESSION NUMBER: 0000950123-00-002595 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEPSI BOTTLING GROUP INC CENTRAL INDEX KEY: 0001076405 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 134038356 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14893 FILM NUMBER: 576363 BUSINESS ADDRESS: STREET 1: ONE PEPSI WAY CITY: SOMERS STATE: NY ZIP: 10589-2201 BUSINESS PHONE: 9147676000 MAIL ADDRESS: STREET 1: ONE PEPSI WAY CITY: SOMERS STATE: NY ZIP: 10589-2201 10-K 1 THE PEPSI BOTTLING GROUP, INC. 1 NO. 1-14893 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT Pursuant to Section 13 of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 25, 1999 THE PEPSI BOTTLING GROUP, INC. ONE PEPSI WAY SOMERS, NEW YORK 10589 (914) 767-6000 INCORPORATED IN DELAWARE 13-4038356 (JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) ------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock, par value $.01 per share New York Stock Exchange 7% Series B Senior Notes due 2029 New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] THE NUMBER OF SHARES OF THE PEPSI BOTTLING GROUP, INC. CAPITAL STOCK OUTSTANDING AS OF MARCH 10, 2000 WAS 148,370,179. THE AGGREGATE MARKET VALUE OF THE PEPSI BOTTLING GROUP, INC. CAPITAL STOCK HELD BY NON-AFFILIATES OF THE PEPSI BOTTLING GROUP, INC. AS OF MARCH 10, 2000 WAS $1,849,784,156. DOCUMENTS OF WHICH PORTIONS PARTS OF FORM 10-K INTO WHICH PORTION OF ARE INCORPORATED BY REFERENCE DOCUMENTS ARE INCORPORATED ANNUAL REPORT TO SHAREHOLDERS I, II PROXY STATEMENT FOR THE PEPSI BOTTLING GROUP, INC. MAY 24, 2000 ANNUAL MEETING OF SHAREHOLDERS III 2 PART I ITEM 1. BUSINESS INTRODUCTION The Pepsi Bottling Group, Inc. ("PBG") was incorporated in Delaware in January, 1999 as a wholly-owned subsidiary of PepsiCo, Inc. ("PepsiCo") to effect the separation of most of PepsiCo's company-owned bottling businesses. PBG became a publicly traded company on March 31, 1999. At February 22, 2000, PepsiCo's ownership represented 36.9% of the outstanding common stock and 100% of the outstanding Class B common stock together representing 45.0% of the voting power of all classes of PBG's voting stock. PepsiCo also owns 7.1% of the equity of Bottling Group, LLC, PBG's principal operating subsidiary, giving PepsiCo economic ownership of 41.4% of PBG's combined operations. We refer to our publicly traded common stock as "Common Stock" and together with our Class B common stock as our "Capital Stock". When used in this Report, "PBG," "we," "us" and "our" each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC, which we refer to as "Bottling LLC." PRINCIPAL PRODUCTS PBG is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages. Pepsi-Cola beverages sold by us include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, LIPTON BRISK, LIPTON'S ICED TEA, 7UP outside the U.S., PEPSI MAX, PEPSI ONE, SLICE, MUG, AQUAFINA, STARBUCKS FRAPPUCCINO and KAS. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of 41 states, the District of Columbia, eight Canadian provinces, Spain, Greece and Russia. In some of our territories, we also have the right to manufacture, sell and distribute soft drink products of other companies, including DR PEPPER and 7UP in the U.S. Approximately 91% of our volume is sold in North America, which consists of the United States and Canada, and the remaining 9% is sold in Spain, Greece and Russia. We have an extensive distribution system in North America. In Russia, Spain and Greece, we use a combination of direct store distribution and distribute through wholesalers, depending on local marketplace considerations. RAW MATERIALS AND OTHER SUPPLIES PBG purchases its concentrate to manufacture Pepsi-Cola beverages and other soft drink products from PepsiCo and other soft-drink companies. In addition to concentrates, we purchase sweeteners, glass and plastic bottles, cans, closures, syrup containers, other packaging materials and carbon dioxide. We generally purchase our raw materials, other than concentrates, from multiple suppliers. PepsiCo acts as our agent for the purchase of such raw materials. The Pepsi beverage agreements provide that, with respect to the soft drink products of PepsiCo, all authorized containers, closures, cases, cartons and other packages and labels may be purchased only from manufacturers approved by PepsiCo. There are no materials or supplies used by PBG which are currently in short supply. The supply or cost of specific materials could be adversely affected by price changes, strikes, weather conditions, governmental controls or other factors. PATENTS, TRADEMARKS, LICENSES AND FRANCHISES Our portfolio of beverage products includes some of the best recognized trademarks in the world and include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, LIPTON BRISK, LIPTON'S ICED TEA, 7UP outside the U.S., PEPSI MAX, PEPSI ONE, SLICE, MUG, AQUAFINA, STARBUCKS FRAPPUCCINO and 2 3 KAS. The majority of our volume is derived from brands licensed from PepsiCo or PepsiCo joint ventures. In some of our territories, we also have the right to manufacture, sell and distribute soft drink products of other companies, including DR PEPPER and 7UP in the U.S. PBG conducts its business primarily under agreements with PepsiCo. These agreements give us the exclusive right to market, distribute, and produce beverage products of PepsiCo in authorized containers in specified territories. Set forth below is a description of the Pepsi beverage agreements and other bottling agreements to which we are a party. Terms of the Master Bottling Agreement. The master bottling agreement under which we manufacture, package, sell and distribute the cola beverages bearing the PEPSI-COLA and PEPSI trademarks was entered into in March 1999. The master bottling agreement gives us the exclusive and perpetual right to distribute cola beverages for sale in specified territories in authorized containers of the nature currently used by us. The master bottling agreement provides that we will purchase our entire requirements of concentrates for the cola beverages from PepsiCo at prices, and on terms and conditions, determined from time to time by PepsiCo. PepsiCo may determine from time to time what types of containers to authorize for use by us. PepsiCo has no rights under the master bottling agreement with respect to the prices at which we sell our products. Under the master bottling agreement we are obligated to: (1) maintain such plant and equipment, staff, and distribution and vending facilities that are capable of manufacturing, packaging and distributing the cola beverages in sufficient quantities to fully meet the demand for these beverages in our territories; (2) undertake adequate quality control measures prescribed by PepsiCo; (3) push vigorously the sale of the cola beverages in our territories; (4) increase and fully meet the demand for the cola beverages in our territories; (5) use all approved means and spend such funds on advertising and other forms of marketing beverages as may be reasonably required to meet the objective; and (6) maintain such financial capacity as may be reasonably necessary to assure performance under the master bottling agreement by us. The master bottling agreement requires us to meet annually with PepsiCo to discuss plans for the ensuing year and the following two years. At such meetings, we are obligated to present plans that set out in reasonable detail our marketing plan, including the introduction of any new beverage product or any change in the geographic area in which existing beverage products are distributed, our management plan and advertising plan with respect to the cola beverages for the year. We must also present a financial plan showing that we have the financial capacity to perform our duties and obligations under the master bottling agreement for that year, as well as sales, marketing, advertising and capital expenditure plans for the two years following such year. PepsiCo has the right to approve such plans, which approval shall not be unreasonably withheld. In 1999, PepsiCo approved our annual plan. 3 4 If we carry out our annual plan in all material respects, we will be deemed to have satisfied our obligations to push vigorously the sale of the cola beverages and to increase and fully meet the demand for the cola beverages in our territories and to maintain the financial capacity required under the master bottling agreement. Failure to present a plan or carry out approved plans in all material respects would constitute an event of default that, if not cured within 120 days of notice of the failure, would give PepsiCo the right to terminate the master bottling agreement. If we present a plan that PepsiCo does not approve, such failure shall constitute a primary consideration for determining whether we have satisfied our obligations to maintain our financial capacity and to push vigorously the sale of the cola beverages and to increase and fully meet the demand for the cola beverages in our territories. If we fail to carry out our annual plan in all material respects in any segment of our territory, whether defined geographically or by type of market or outlet, and if such failure is not cured within six months of notice of the failure, PepsiCo may reduce the territory covered by the master bottling agreement by eliminating the territory, market or outlet with respect to which such failure has occurred. PepsiCo has no obligation to participate with us in advertising and marketing spending, but it may contribute to such expenditures and undertake independent advertising and marketing activities, as well as cooperative advertising and sales promotion programs that would require our cooperation and support. Although PepsiCo has advised us that it intends to continue to provide cooperative advertising funds, it is not obligated to do so under the master bottling agreement. The master bottling agreement provides that PepsiCo may in its sole discretion reformulate any of the cola beverages or discontinue them, with some limitations, so long as all cola beverages are not discontinued. PepsiCo may also introduce new beverages under the PEPSI-COLA trademarks or any modification thereof. If that occurs, we will be obligated to manufacture, package, distribute and sell such new beverages with the same obligations as then exist with respect to other cola beverages. We are prohibited from producing or handling cola products, other than those of PepsiCo, or products or packages that imitate, infringe or cause confusion with the products, containers or trademarks of PepsiCo. The master bottling agreement also imposes requirements with respect to the use of PepsiCo's trademarks, authorized containers, packaging and labeling. If we acquire control, directly or indirectly, of any bottler of cola beverages, we must cause the acquired bottler to amend its bottling appointments for the cola beverages to conform to the terms of the master bottling agreement. Under the master bottling agreement, PepsiCo has agreed not to withhold approval for any acquisition of rights to manufacture and sell PEPSI trademarked cola beverages within a specific area--currently representing approximately 13.9% of PepsiCo's U.S. bottling system in terms of volume--if we have successfully negotiated the acquisition and, in PepsiCo's reasonable judgment, satisfactorily performed our obligations under the master bottling agreement. We have agreed not to acquire or attempt to acquire any rights to manufacture and sell PEPSI trademarked cola beverages outside of that specific area without PepsiCo's prior written approval. The master bottling agreement is perpetual, but may be terminated by PepsiCo in the event of our default. Events of default include: (1) our insolvency, bankruptcy, dissolution, receivership or the like; 4 5 (2) any disposition of any voting securities of one of our bottling subsidiaries or substantially all of our bottling assets without the consent of PepsiCo; (3) our entry into any business other than the business of manufacturing, selling or distributing non-alcoholic beverages or any business which is directly related and incidental to such beverage business; and (4) any material breach under the contract that remains uncured for 120 days after notice by PepsiCo. An event of default will also occur if any person or affiliated group acquires any contract, option, conversion privilege, or other right to acquire, directly or indirectly, beneficial ownership of more than 15% of any class or series of our voting securities without the consent of PepsiCo. As of February 22, 2000, AXA Financial, Inc., formerly known as The Equitable Companies Incorporated, and its parent, AXA Assurances I.A.R.D. Mutuelle (collectively, "AXA"), held 12.9% of our Common Stock and PepsiCo has consented to AXA acquiring up to 20% of our Common Stock. If the master bottling agreement is terminated, PepsiCo also has the right to terminate its other bottling agreements with us. We are prohibited from assigning, transferring or pledging the master bottling agreement, or any interest therein, whether voluntarily, or by operation of law, including by merger or liquidation, without the prior consent of PepsiCo. The master bottling agreement was entered into by us in the context of our separation from PepsiCo and, therefore, its provisions were not the result of arm's-length negotiations. Consequently, the agreement contains provisions that are less favorable to us than the exclusive bottling appointments for cola beverages currently in effect for independent bottlers in the United States. Terms of the Non-Cola Bottling Agreements. The beverage products covered by the non-cola bottling agreements are beverages licensed to us by PepsiCo, consisting of MOUNTAIN DEW, DIET MOUNTAIN DEW, SLICE, MUG root beer and cream soda and ALL SPORT. The non-cola bottling agreements contain provisions that are similar to those contained in the master bottling agreement with respect to pricing, territorial restrictions, authorized containers, planning, quality control, transfer restrictions, term, and related matters. Our non-cola bottling agreements will terminate if PepsiCo terminates our master bottling agreement. The exclusivity provisions contained in the non-cola bottling agreements would prevent us from manufacturing, selling or distributing beverage products which imitate, infringe upon, or cause confusion with, the beverage products covered by the non-cola bottling agreements. PepsiCo may also elect to discontinue the manufacture, sale or distribution of a non-cola beverage and terminate the applicable non-cola bottling agreement upon six months notice to us. We also have an agreement with PepsiCo granting us the exclusive right to distribute AQUAFINA in our territories. We have the right to manufacture AQUAFINA in certain locations depending on the availability of appropriate equipment. The distribution agreement contains provisions generally similar to those in the master bottling agreement as to use of trademarks, trade names, approved containers and labels and causes for termination. However, the distribution agreement does not prevent us from distributing other bottled waters. The distribution agreement is for a limited term. Prior to the expiration of this term, PepsiCo and PBG will negotiate a renewal agreement. Terms of the Master Syrup Agreement. The master syrup agreement grants us the exclusive right to manufacture, sell and distribute fountain syrup to local customers in our territories. The master 5 6 syrup agreement also grants us the right to act as a manufacturing and delivery agent for national accounts within our territories that specifically request direct delivery, without using a middleman. In addition, PepsiCo may appoint us to manufacture and deliver fountain syrup to national accounts that elect delivery through independent distributors. Under the master syrup agreement, we will have the exclusive right to service fountain equipment for all of the national account customers within our territories. The master syrup agreement provides that the determination of whether an account is local or national is in the sole discretion of PepsiCo. The master syrup agreement contains provisions that are similar to those contained in the master bottling agreement with respect to pricing, territorial restrictions with respect to local customers and national customers electing direct-to-store delivery only, planning, quality control, transfer restrictions and related matters. The master syrup agreement has an initial term of five years and is automatically renewable for additional five year periods unless PepsiCo terminates it for cause. PepsiCo has the right to terminate the master syrup agreement without cause at the conclusion of the initial five year period or at any time during a renewal term upon twenty-four months notice. In the event PepsiCo terminates the master syrup agreement without cause, PepsiCo is required to pay us the fair market value of our rights under such agreement. Our master syrup agreement will terminate if PepsiCo terminates our master bottling agreement. Terms of Other U.S. Bottling Agreements. The bottling agreements between us and other licensors of beverage products, including Cadbury Schweppes plc-- for DR PEPPER, 7UP, SCHWEPPES and CANADA DRY, the Pepsi/Lipton Tea Partnership-- for LIPTON BRISK and LIPTON'S ICED TEA and the North American Coffee Partnership--for STARBUCKS FRAPPUCCINO, contain provisions generally similar to those in the master bottling agreement as to use of trademarks, trade names, approved containers and labels, sales of imitations, and causes for termination. Some of these beverage agreements have limited terms and, in most instances, prohibit us from dealing in similar beverage products. Terms of the Country Specific Bottling Agreements. The country specific bottling agreements contain provisions similar to those contained in the master bottling agreement and the non-cola bottling agreements and, in Canada, the master syrup agreement with respect to authorized containers, planning, quality control, transfer restrictions, causes for termination and related matters. These bottling agreements differ from the master bottling agreement because, except for Canada, they include both fountain syrup and non-fountain beverages. These bottling agreements also differ from the master bottling agreement with respect to term and contain certain provisions that have been modified to reflect the laws and regulations of the applicable country. For example, the bottling agreements in Spain do not contain a restriction on the sale and shipment of Pepsi-Cola beverages into our territory by others in response to unsolicited orders. SEASONALITY Our peak season is the warm summer months beginning with Memorial Day and ending with Labor Day. Approximately 90% of our operating income is typically earned during the second and third quarters. Over 75% of cash flow from operations is typically generated in the third and fourth quarters. COMPETITION The carbonated soft drink market and the non-carbonated beverage market are highly competitive. Our competitors in these markets include bottlers and distributors of nationally 6 7 advertised and marketed products, bottlers and distributors of regionally advertised and marketed products, as well as bottlers of private label soft drinks sold in chain stores. We compete primarily on the basis of advertising and marketing programs to create brand awareness, price and price promotions, retail space management, customer service, consumer points of access, new products, packaging innovations and distribution methods. We believe that brand recognition, availability and consumer and customer goodwill are primary factors affecting our competitive position. GOVERNMENTAL REGULATION APPLICABLE TO PBG Our operations and properties are subject to regulation by various federal, state and local governmental entities and agencies as well as foreign government entities. As a producer of food products, we are subject to production, packaging, quality, labeling and distribution standards in each of the countries where we have operations, including, in the United States, those of the federal Food, Drug and Cosmetic Act. The operations of our production and distribution facilities are subject to various federal, state and local environmental laws. These laws and regulations include, in the United States, the Occupational Safety and Health Act, the Unfair Labor Standards Act, the Clean Air Act, the Clean Water Act and laws relating to the maintenance of fuel storage tanks. We believe that our current legal and environmental compliance programs adequately address such concerns and that we are in substantial compliance with applicable laws and regulations. We do not anticipate making any material expenditures in connection with environmental remediation and compliance. However, compliance with, or any violation of, current and future laws or regulations could require material expenditures by us or otherwise have a material adverse effect on our business, financial condition and results of operations. Bottle and Can Legislation In all but a few of our United States and Canadian markets, we offer our bottle and can beverage products in non-returnable containers. Legislation has been enacted in certain states and Canadian provinces where we operate that generally prohibits the sale of certain beverages unless a deposit is charged for the container. These include Connecticut, Delaware, Maine, Massachusetts, Michigan, New York, Oregon, California, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Quebec. Maine, Massachusetts and Michigan have statutes that require us to pay all or a portion of unclaimed container deposits to the state and California imposes a levy on beverage containers to fund a waste recovery system. In addition to the Canadian deposit legislation described above, Ontario, Canada currently has a regulation requiring that 30% of all soft drinks sold in Ontario be bottled in refillable containers. This regulation is currently being reviewed by the Ministry of the Environment. The European Commission has issued a packaging and packing waste directive which is in the process of being incorporated into the national legislation of the member states. This will result in targets being set for the recovery and recycling of household, commercial and industrial packaging waste and impose substantial responsibilities upon bottlers and retailers for implementation. We are not aware of similar material legislation being proposed or enacted in any other areas served by us. We are unable to predict, however, whether such legislation will be enacted or what impact its enactment would have on our business, financial condition or results of operations. 7 8 Soft Drink Excise Tax Legislation Specific soft drink excise taxes have been in place in certain states for several years. The states in which we operate that currently impose such a tax are West Virginia, Arkansas, North Carolina, South Carolina, Tennessee and, with respect to fountain syrup only, Washington. Although soft drink excise tax legislation is currently in place in North Carolina and South Carolina, new legislation has been enacted that phases out such taxes by the end of the year 2000 in North Carolina and 2002 in South Carolina. Value-added taxes on soft drinks vary in our territories located in Canada, Spain, Greece and Russia, but are consistent with the value-added tax rate for other consumer products. We are not aware of any material soft drink taxes that have been enacted in any other market served by us. We are unable to predict, however, whether such legislation will be enacted or what impact its enactment would have on our business, financial condition or results of operations. Trade Regulation As a manufacturer, seller and distributor of bottled and canned soft drink products of PepsiCo and other soft drink manufacturers in exclusive territories in the United States and internationally, we are subject to antitrust laws. Under the Soft Drink Interbrand Competition Act, soft drink bottlers operating in the United States, such as us, may have an exclusive right to manufacture, distribute and sell a soft drink product in a geographic territory if the soft drink product is in substantial and effective competition with other products of the same class in the same market or markets. We believe that there is such substantial and effective competition in each of the exclusive geographic territories in which we operate. California Carcinogen and Reproductive Toxin Legislation A California law requires that any person who exposes another to a carcinogen or a reproductive toxin must provide a warning to that effect. Because the law does not define quantitative thresholds below which a warning is not required, virtually all manufacturers of food products are confronted with the possibility of having to provide warnings due to the presence of trace amounts of defined substances. Regulations implementing the law exempt manufacturers from providing the required warning if it can be demonstrated that the defined substances occur naturally in the product or are present in municipal water used to manufacture the product. We have assessed the impact of the law and its implementing regulations on our beverage products and have concluded that none of our products currently require a warning under the law. We cannot predict whether or to what extent food industry efforts to minimize the law's impact on food products will succeed. We also cannot predict what impact, either in terms of direct costs or diminished sales imposition of the law may have. EMPLOYEES As of December 25, 1999, we employed approximately 38,700 full-time workers, of whom approximately 35,000 were employed in North America. Approximately 10,500 of our full-time workers in North America are union members. We consider relations with our employees to be good and have not experienced significant interruptions of operations due to labor disagreements. 8 9 FINANCIAL INFORMATION ON INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS For financial information on industry segments and operations in geographic areas, see Note 15 to PBG's Consolidated Financial Statements, found on page 48 of our Annual Report to Shareholders for the year ended December 25, 1999, which is incorporated herein by reference and is included as Exhibit 13 hereto. ITEM 2. PROPERTIES We operate 67 soft drink production facilities worldwide, of which 60 are owned and 7 are leased. Of PBG's 320 distribution facilities, 258 are owned and 62 are leased. We believe that our bottling, canning and syrup filling lines and our distribution facilities are sufficient to meet present needs. We also own or lease and operate approximately 18,000 vehicles, including delivery trucks, delivery and transport tractors and trailers and other trucks and vans used in the sale and distribution of our soft drink products. We also own more than 1 million soft drink dispensing and vending machines. With a few exceptions, leases of plants in North America are on a long-term basis, expiring at various times, with options to renew for additional periods. Most international plants are leased for varying and usually shorter periods, with or without renewal options. We believe that our properties are in good operating condition and are adequate to serve our current operational needs. ITEM 3. LEGAL PROCEEDINGS From time to time we are a party to various litigation matters incidental to the conduct of our business. There is no pending or, to PBG's best knowledge, threatened legal proceeding to which we are a party that, in the opinion of management, is likely to have a material adverse effect on our future financial results. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is information pertaining to the executive officers of PBG as of February 22, 2000: CRAIG E. WEATHERUP, 54, is currently the Chairman of our Board and our Chief Executive Officer. Mr. Weatherup served on the Board of Directors of PepsiCo from 1996 until March 1999. Prior to becoming our Chairman and Chief Executive Officer, he served as Chairman and Chief Executive Officer of the Pepsi-Cola Company since July 1996. He was appointed President of the Pepsi-Cola Company in 1988, President and Chief Executive Office of Pepsi-Cola North America in 1991, and served as PepsiCo's president in 1996. Mr. Weatherup is also a director of Federated Department Stores, Inc. and Starbucks Corporation. JOHN T. CAHILL, 42, is our Executive Vice President, Chief Financial Officer and a member of our Board of Directors. He was Executive Vice President and Chief Financial Officer of the Pepsi-Cola Company from April 1998 until November 1998. Prior to that, Mr. Cahill was Senior Vice President and Treasurer of PepsiCo, having been appointed to that position in April 1997. In 1996 he became Senior Vice President and Chief Financial Officer of Pepsi-Cola North America. Mr. Cahill joined PepsiCo in 1989 and held several other senior financial positions through 1996. 9 10 PETER A. BRIDGMAN, 47, is our Senior Vice President and Controller. Mr. Bridgman was Vice President and Controller of the Pepsi-Cola Company from 1992 to 1999, and had previously been Controller and Finance Director at Pepsi-Cola International. ERIC J. FOSS, 41, is our Senior Vice President, U.S. Sales and Field Operations, a position he assumed in October 1999 after serving as our Senior Vice President, Sales and Field Marketing since March 1999. From 1994 to 1996 Mr. Foss was General Manager of Pepsi-Cola North America's Great West Business Unit. Mr. Foss joined Pepsi-Cola in 1982, and has held a variety of other field and headquarters-based sales, marketing and general management positions, including General Manager for the Central Europe Region for Pepsi-Cola International. PAMELA C. MCGUIRE, 52, has been our Senior Vice President, General Counsel and Secretary since November 1998. Ms. McGuire joined PepsiCo in 1977 and served as Vice President and Division Counsel of Pepsi-Cola from 1989 to March 1998, when she was named Vice President and Associate General Counsel of the Pepsi-Cola Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Stock Trading Symbol - PBG. Stock Exchange Listings - PBG's Common Stock is listed on The New York Stock Exchange. Our Class B common stock is not publicly traded. Shareholders - At March 10, 2000, there were approximately 36,000 registered and beneficial shareholders of Common Stock. PepsiCo is the holder of all of the outstanding shares of Class B common stock. Dividend Policy - Quarterly cash dividends are usually declared in January, March, July and November and paid at the end of March, June, September and at the beginning of January. The dividend record dates for 2000 are expected to be March 10, June 9, September 8 and December 8. Cash Dividends Declared Per Share on Capital Stock: Quarter 1999 1 NA 2 $.02 3 $.02 4 $.02 ---- Total $.06 10 11 Stock Prices - The high, low and closing prices for a share of PBG Common Stock on the New York Stock Exchange, as reported by Bloomberg Service, for the last three fiscal quarters of 1999 were as follows (in dollars):
1999 High Low Close ---- ---- --- ----- First Quarter NA NA NA Second Quarter 24 1/8 20 22 Third Quarter 24 1/2 18 15/16 19 7/8 Fourth Quarter 19 3/16 15 13/16 16 1/8
On December 22, 1999, PBG sold 234,000 shares of its Common Stock for $3.75 million to a defined contribution trust, which will hold such shares for the benefit of certain senior executives in connection with a one-time supplemental executive incentive compensation award under PBG's Executive Incentive Compensation Plan. This sale of Common Stock was effected through a private placement in accordance with Section 4(2) of the Securities Act of 1933, as amended. ITEM 6. SELECTED FINANCIAL DATA "Selected Financial and Operating Data" for the years 1995 through 1999, on page 54 of our Annual Report to Shareholders for the year ended December 25, 1999 is incorporated into this report by reference and is included as Exhibit 13 hereto. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. "Management's Financial Review" on pages 25 through 36 of PBG's Annual Report to Shareholders for the year ended December 25, 1999 is incorporated into this report by reference and is included as Exhibit 13 hereto. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. "Management's Financial Review -- Market Risks and Cautionary Statements" on pages 35 and 36 of our Annual Report to Shareholders for the year ended December 25, 1999 is incorporated herein by reference and is included as Exhibit 13 hereto. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of PBG and its subsidiaries are incorporated herein by reference to our Annual Report to Shareholders for the year ended December 25, 1999, included as Exhibit 13 hereto, at the pages indicated: Consolidated Statements of Operations - Fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997 (page 29) Consolidated Statements of Cash Flows - Fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997 (page 32) Consolidated Balance Sheets - December 25, 1999 and December 26, 1998 (page 33) 11 12 Consolidated Statements of Changes in Shareholders' Equity - Fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997 (page 37) Notes to Consolidated Financial Statements (pages 38-51) Report of Independent Auditors (page 53) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PBG The name, age and background of each of the PBG's directors nominated for election are contained under the caption "Election of Directors" in PBG's Proxy Statement for its 2000 Annual Meeting of Shareholders and are incorporated herein by reference. Pursuant to Item 401(b) of Regulation S-K, the executive officers of PBG are reported in Part I of this Report. Executive officers are elected by PBG's Board of Directors, and their terms of office continue until the next annual meeting of the Board or until their successors are elected and have qualified. There are no family relationships among our executive officers. ITEM 11. EXECUTIVE COMPENSATION Information on compensation of PBG's directors and executive officers is contained in PBG's Proxy Statement for its 2000 Annual Meeting of Shareholders under the captions "Directors' Compensation" and "Executive Compensation", respectively, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information on the number of shares of PBG Common Stock beneficially owned by each director and by all directors and officers as a group is contained under the captions "Ownership of Common Stock by Directors and Executive Officers" and "Stock Ownership of Certain Beneficial Owners" in PBG's Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to certain transactions between PBG, PepsiCo and their affiliates and certain other persons is set forth under the caption "Certain Relationships and Related Transactions" in PBG's 2000 Proxy Statement, and is incorporated herein by reference. 12 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Financial Statements. The following consolidated financial statements of PBG and its subsidiaries, included in our Annual Report to Shareholders for the year ended December 25, 1999, are incorporated by reference into Part II, Item 8 of this report: Consolidated Statements of Operations - Fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997. Consolidated Statements of Cash Flows - Fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997. Consolidated Balance Sheets - December 25, 1999 and December 26, 1998. Consolidated Statements of Changes in Shareholders' Equity - Fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997. Notes to Consolidated Financial Statements. Report of Independent Auditors. 2. Financial Statement Schedule. The following financial statement schedule of PBG and its subsidiaries is included in this report on the page indicated:
Page ----- Independent Auditors' Report on Schedule and Consent.........................F-2 Schedule II - Valuation and Qualifying Accounts for the fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997..........................................................F-3
3. Exhibits See Index to Exhibits on pages E-1 - E-3. (b) Reports on Form 8-K None. 13 14 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, The Pepsi Bottling Group, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 3, 2000 The Pepsi Bottling Group, Inc. By: /s/ Craig E. Weatherup Craig E. Weatherup Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of The Pepsi Bottling Group, Inc. and in the capacities and on the date indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Craig E. Weatherup Chairman of the Board and March 3, 2000 Craig E. Weatherup Chief Executive Officer /s/ John T. Cahill Executive Vice President, Chief March 3, 2000 John T. Cahill Financial Officer and Director /s/ Peter A. Bridgman Senior Vice President and March 3, 2000 Peter A. Bridgman Controller (Principal Accounting Officer) /s/ Linda G. Alvarado Director March 3, 2000 Linda G. Alvarado /s/ Barry H. Beracha Director March 3, 2000 Barry H. Beracha /s/ Thomas W. Jones Director March 3, 2000 Thomas W. Jones /s/ Thomas H. Kean Director March 2, 2000 Thomas H. Kean /s/ Susan D. Kronick Director March 3, 2000 Susan D. Kronick /s/ Robert F. Sharpe, Jr. Director March 3, 2000 Robert F. Sharpe, Jr. /s/ Karl M. von der Heyden Director March 3, 2000 Karl M. von der Heyden S-1 15 INDEX TO FINANCIAL STATEMENT SCHEDULE PAGE Independent Auditors' Report on Schedule and Consent..................... F-2 Schedule II - Valuation and Qualifying Accounts for the fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997................................................ F-3 F-1 16 INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT The Board of Directors and Shareholders The Pepsi Bottling Group, Inc.: Under date of January 25, 2000, we reported on the Consolidated Balance Sheets of The Pepsi Bottling Group, Inc., (the Company) as of December 25, 1999 and December 26, 1998, and the related Consolidated Statements of Operations, Cash Flows and Changes in Shareholders' Equity for each of the fiscal years in the three-year period ended December 25, 1999, which are incorporated by reference in this Form 10-K. In connection with our audits of the aforementioned Consolidated Financial Statements, we also audited the related financial statement schedule included in this Form 10-K. This financial statement schedule is the responsibility of Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic Consolidated Financial Statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to incorporation by reference in the registration statements (Nos. 333-79357, 333-79369, 333-79375, 333-79365, 333-80647) on Form S-8 of The Pepsi Bottling Group, Inc. of our report, dated January 25, 2000, relating to the Consolidated Financial Statements of The Pepsi Bottling Group, Inc. as of December 25, 1999, and for each of the fiscal years in the three-year period ended December 25, 1999, and related schedule, which is incorporated by reference in the December 25, 1999 Annual Report on Form 10-K of The Pepsi Bottling Group, Inc. /s/ KPMG LLP New York, New York March 21, 2000 F-2 17 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS THE PEPSI BOTTLING GROUP, INC. IN MILLIONS
ADDITIONS ----------------------------------- Balance At Charged To Charged To Other Beginning Cost And Accounts (a) Balance At End DESCRIPTION Of Period Expenses Deductions (b) Of Period ----------- ---------- ---------- ---------------- ---------- --------------- FISCAL YEAR ENDED DECEMBER 25, 1999 Allowance for losses on trade accounts receivable........... $46 $ 6 $ 3 $ 7 $48 DECEMBER 26, 1998 Allowance for losses on trade accounts receivable........... $45 $13 $-- $12 $46 DECEMBER 27, 1997 Allowance for losses on trade accounts receivable............... $65 $ 6 $ 2 $28 $45
- ------------------------ (a) Represents recoveries of amounts previously written off. (b) Charge off of uncollectable accounts. F-3 18 INDEX TO EXHIBITS ITEM 14(a)(3) EXHIBIT 3.1 Articles of Incorporation of The Pepsi Bottling Group, Inc., which is incorporated herein by reference from Exhibit 3.1 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291) 3.2 By-Laws of The Pepsi Bottling Group, Inc., which are incorporated herein by reference from Exhibit 3.2 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 3.3 Amendment to Articles of Incorporation of The Pepsi Bottling Group, Inc., which is incorporated herein by reference from Exhibit 3.3 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.1 Form of common stock certificate, which is incorporated herein by reference from Exhibit 4 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.2 Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, relating to $1,000,000,000 5 3/8% Senior Notes due 2004 and $1,300,000,000 5 5/8% Senior Notes due 2009 incorporated herein by reference to Exhibit 10.9 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.3 First Supplemental Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., Bottling Group, LLC, PepsiCo, Inc. and The Chase Manhattan Bank, as trustee, supplementing the Indenture dated as of February 8, 1999 among Pepsi Bottling Holdings, Inc., PepsiCo, Inc. and The Chase Manhattan Bank, as trustee is incorporated herein by reference to Exhibit 10.10 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.4 Indenture, dated as of March 8, 1999, by and among The Pepsi Bottling Group, Inc., as obligor, Bottling Group, LLC, as guarantor, and The Chase Manhattan Bank, as trustee, relating to $1,000,000,000 7% Series B Senior Notes due 2029 which is incorporated herein by reference to Exhibit 10.14 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 4.5 U.S. $250,000,000 364 Day Credit Agreement, dated as of April 22, 1999 among The Pepsi Bottling Group, Inc., Bottling Group, LLC, The Chase Manhattan Bank, Bank of America National Trust and Savings Association, Citibank, N.A., Credit Suisse First Boston, UBS AG, Lehman Commercial Paper Inc., Royal Bank of Canada, Banco Bilbao Vizcaya, Deutsche Bank AG New York Branch and/or Cayman Islands Branch, Fleet National Bank, Hong Kong & Shanghai E-1 19 Banking Corp., The Bank of New York, The Northern Trust Company, The Chase Manhattan Bank, as Agent, Chase Securities Inc. as Arranger and Nationsbanc Montgomery Securities LLC and Solomon Smith Barney Inc. as Co-Syndication Agents. 4.6 U.S. $250,000,000 5 Year Credit Agreement, dated as of April 22, 1999 among The Pepsi Bottling Group, Inc., Bottling Group, LLC, The Chase Manhattan Bank, Bank of America National Trust and Savings Association, Citibank, N.A., Credit Suisse First Boston, UBS AG, Lehman Commercial Paper Inc., Royal Bank of Canada, Banco Bilbao Vizcaya, Deutsche Bank AG New York Branch and/or Cayman Islands Branch, Fleet National Bank, Hong Kong & Shanghai Banking Corp., The Bank of New York, The Northern Trust Company, The Chase Manhattan Bank, as Agent, Chase Securities Inc. as Arranger and Nationsbanc Montgomery Securities LLC and Solomon Smith Barney Inc. as Co-Syndication Agents. 10.1 Form of Master Bottling Agreement, which is incorporated herein by reference from Exhibit 10.1 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291) 10.2 Form of Master Syrup Agreement, which is incorporated herein by reference from Exhibit 10.2 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291) 10.3 Form of Non-Cola Bottling Agreement, which is incorporated herein by reference from Exhibit 10.3 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291) 10.4 Form of Separation Agreement, which is incorporated herein by reference from Exhibit 10.4 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291) 10.5 Form of Shared Services Agreement, which is incorporated herein by reference from Exhibit 10.5 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291) 10.6 Form of Tax Separation Agreement, which is incorporated herein by reference from Exhibit 10.6 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 10.7 Form of Employee Programs Agreement, which is incorporated herein by reference from Exhibit 10.7 to PBG's Registration Statement on Form S-1 (Registration No. 333-70291). 10.8 PBG Executive Income Deferral Plan. 10.9 PBG 1999 Long-Term Incentive Plan. 10.10 PBG Directors' Stock Plan. 10.11 PBG Stock Incentive Plan. 12 Statement re Computation of Ratios E-2 20 13 The Pepsi Bottling Group, Inc. 1999 Annual Report to Shareholders (Pages 25 through 54) 21 Subsidiaries of PBG. 24 Copy of Power of Attorney. 27 Financial Data Schedule for PBG for the fiscal year ended December 25, 1999. E-3 EX-4.5 2 364 DAY CREDIT AGREEMENT 1 EXHIBIT 4.5 CONFORMED COPY U.S. $250,000,000 364 DAY CREDIT AGREEMENT Dated as of April 22, 1999 among THE PEPSI BOTTLING GROUP, INC. BOTTLING GROUP, LLC THE LENDERS NAMED HEREIN THE CHASE MANHATTAN BANK, as Agent, CHASE SECURITIES INC., as Arranger and NATIONSBANC MONTGOMERY SECURITIES LLC AND SALOMON SMITH BARNEY INC. as Co-Syndication Agents 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01 Certain Defined Terms...............................................1 SECTION 1.02 Computation of Time Periods........................................12 SECTION 1.03 Accounting Terms...................................................12 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01 The Revolving Credit Advances......................................13 SECTION 2.02 Making the Revolving Credit Advances...............................13 SECTION 2.03 The Competitive Bid Advances.......................................15 SECTION 2.04 Fees...............................................................18 SECTION 2.05 Termination, Reduction or Increase of the Commitments..............19 SECTION 2.06 Repayment of Revolving Credit Advances; Evidence of Indebtedness; Extension of Termination Date...............22 SECTION 2.07 Interest on Revolving Credit Advances..............................23 SECTION 2.08 Interest Rate Determination........................................24 SECTION 2.09 Optional Conversion of Revolving Credit Advances...................25 SECTION 2.10 Optional Prepayments of Revolving Credit Advances..................25 SECTION 2.11 Increased Costs....................................................26 SECTION 2.12 Illegality.........................................................27 SECTION 2.13 Payments and Computations..........................................27 SECTION 2.14 Taxes..............................................................28 SECTION 2.15 Sharing of Payments, Etc...........................................31 SECTION 2.16 Use of Proceeds....................................................31 SECTION 2.17 Borrowings by Borrowing Subsidiaries; Substitution of Borrower.....31 SECTION 2.18 Mitigation Obligations.............................................33 ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01 Conditions Precedent to Effectiveness of Sections 2.01 and 2.03....33 SECTION 3.02 Conditions Precedent to Each Revolving Credit Borrowing............35 SECTION 3.03 Conditions Precedent to Each Competitive Bid Borrowing.............35 SECTION 3.04 Determinations Under Section 3.01..................................36
i 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Representations and Warranties of the Loan Parties.................36 ARTICLE V COVENANTS SECTION 5.01 Affirmative Covenants..............................................38 SECTION 5.02 Negative Covenants.................................................39 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01 Events of Default..................................................42 ARTICLE VII THE AGENT............................................................................44 ARTICLE VIII MISCELLANEOUS SECTION 8.01 Amendments, Etc....................................................46 SECTION 8.02 Notices, Etc.......................................................46 SECTION 8.03 No Waiver; Remedies................................................47 SECTION 8.04 Costs and Expenses.................................................47 SECTION 8.05 Right of Set-off...................................................48 SECTION 8.06 Binding Effect.....................................................49 SECTION 8.07 Assignments and Participations.....................................49 SECTION 8.08 Confidentiality....................................................51 SECTION 8.09 Governing Law......................................................52 SECTION 8.10 Execution in Counterparts..........................................52 SECTION 8.11 Jurisdiction, Etc..................................................52 SECTION 8.12 WAIVER OF JURY TRIAL...............................................52 ARTICLE IX COMPANY GUARANTEE SECTION 9.01 Guarantee..........................................................53 SECTION 9.02 Obligations Unconditional..........................................53 SECTION 9.03 Reinstatement......................................................54 SECTION 9.04 Subrogation........................................................54 SECTION 9.05 Remedies...........................................................54
ii 4 SECTION 9.06 Continuing Guarantee...............................................54 ARTICLE X SUBSIDIARY GUARANTEE SECTION 10.01 Subsidiary Guarantee...............................................54 SECTION 10.02 Limitation of Guarantor's Liability................................56 SCHEDULE I SCHEDULE 2 APPLICABLE MARGIN EXHIBIT A-1 FORM OF NOTICE OF REVOLVING CREDIT BORROWING EXHIBIT A-2 FORM OF NOTICE OF COMPETITIVE BID BORROWING EXHIBIT A-3 FORM OF EXTENSION AGREEMENT EXHIBIT B FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT C FORM OF OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR EXHIBIT D FORM OF DESIGNATION LETTER EXHIBIT E FORM OF SUBSTITUTION LETTER EXHIBIT F FORM OF TERMINATION LETTER
iii 5 CREDIT AGREEMENT Dated as of April 22, 1999 THE PEPSI BOTTLING GROUP, INC., a Delaware corporation (the "Company"), BOTTLING GROUP, LLC, a Delaware limited liability company (the "Guarantor"), the banks, financial institutions and other institutional lenders (the "Initial Lenders") listed on the signature pages hereof, and THE CHASE MANHATTAN BANK ("Chase"), as administrative agent (in such capacity, the "Agent") for the Lenders (as hereinafter defined), agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Advance" means a Revolving Credit Advance or a Competitive Bid Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "Agent's Account " means the account of the Agent maintained by the Agent at Chase with its office at 270 Park Avenue, New York, New York 10017. "Alternate Covenant Date" means any day on which the Index Debt of Pepsi shall be rated less than A- by S&P or less than A3 by Moody's. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of the Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Agent as Applicable Lending Office with respect to such Competitive Bid Advance. "Applicable Margin" means with respect to any Eurodollar Rate Advance or with respect to the facility fees payable hereunder, as the case may be, for any day, the applicable rate 6 per annum set forth in Schedule 2; provided, that, for purposes of calculating the Applicable Margin, (i) if either Moody's or S&P shall not have in effect a rating for the Company, then the Applicable Margin shall be determined based on the highest applicable facility fee or LIBOR Margin in Schedule 2, (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Company shall fall within different categories, the Applicable Margin shall be based on the higher of the two ratings unless one of the two ratings is two or more categories lower than the other, in which case the Applicable Margin shall be determined by reference to the category next below that of the higher of the two ratings; and (iii) if the ratings established or deemed to have been established by Moody's and S&P for the Company shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Agent and the Lenders. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit B hereto. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Chase in New York, New York, from time to time, as Chase's base rate; and (b) 1/2 of one percent per annum above the Federal Funds Rate. "Base Rate Advance" means a Revolving Credit Advance that bears interest as provided in Section 2.07(a). "Borrowers" means, at any time, collectively, the Company unless the Substitution Date has occurred pursuant to Section 2.17, each Borrowing Subsidiary and, on and after the Substitution Date has occurred pursuant to Section 2.17, the Guarantor. "Borrowing" means a Revolving Credit Borrowing or a Competitive Bid Borrowing. 2 7 "Borrowing Subsidiary" means any Subsidiary of the Company, as to which a Designation Letter has been delivered to the Agent and as to which a Termination Letter has not been delivered to the Agent in accordance with Section 2.17. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Change of Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) other than Pepsi, of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (i) nominated by the board of directors of the Company nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Company by any Person or group other than Pepsi. "Commitment" has the meaning specified in Section 2.01. "Competitive Bid Advance" means an advance by a Lender to a Borrower as part of a Competitive Bid Borrowing resulting from the auction bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance. "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the auction bidding procedure described in Section 2.03. "Competitive Bid Reduction" has the meaning specified in Section 2.01. "Confidential Information" means information that the Company furnishes to the Agent or any Lender in a writing designated as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes rightfully available to the Agent or such Lender from a source other than the Company. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount with respect to Debt (including the Advances), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not 3 8 limited to, goodwill) and organization costs, (e) any extraordinary expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business), and (f) any other non-cash charges, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) any extraordinary income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (b) any other non-cash income, all as determined on a Consolidated basis; in each case exclusive of the cumulative effect of foreign currency gains or losses. For the purposes of calculating Consolidated EBITDA for any period pursuant to any determination of the Consolidated Leverage Ratio, if during such period the Company or any Subsidiary, including the Guarantor, shall have made an acquisition or incurred or assumed (without duplication of any Debt incurred to refinance such assumed Debt) any Debt, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such acquisition occurred and such Debt had been incurred or assumed or refinanced on the first day of such period. "Consolidated Leverage Ratio" means, as at the last day of any Fiscal Quarter, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for the four consecutive fiscal quarters then ended (taken as one accounting period). "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and its Restricted Subsidiaries, including the Guarantor, determined on a consolidated basis in accordance with GAAP, before deduction of any minority interests in the Guarantor and excluding the cumulative effect of any foreign currency gains or losses. "Consolidated Net Tangible Assets" means the total assets of the Company and its Restricted Subsidiaries (less applicable depreciation, amortization, and other valuation reserves), except to the extent resulting from write-ups of capital assets (other than writeups in connection with accounting for acquisitions, in accordance with GAAP), less all current liabilities (excluding intercompany liabilities) and all intangible assets of the Company and its Restricted Subsidiaries, all as set forth on the most recent Consolidated balance sheet of the Company and its Restricted Subsidiaries, prepared in accordance with GAAP, but before deduction of any minority interests in the Guarantor and exclusive of any foreign currency translation adjustments. "Consolidated Net Worth" means, as of any date of determination, all items which in conformity with GAAP would be included under shareholders' equity on a Consolidated balance sheet of the Company and its Subsidiaries, including the Guarantor, at such date plus amounts representing mandatorily redeemable preferred securities issued by Subsidiaries of the Company, including the Guarantor, but before deduction of any minority interests in the Guarantor and exclusive of any foreign currency translation adjustments. 4 9 "Consolidated Total Debt" means, at any date (i) the aggregate principal amount of all Debt of the Company and its Subsidiaries, including the Guarantor minus (ii) the aggregate amount (not in excess of $500,000,000) of all cash and cash equivalents of the Company and its Subsidiaries, in each case at such date and determined on a Consolidated basis in accordance with GAAP. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Convert", "Conversion" and "Converted" each refers to a conversion of Revolving Credit Advances of one Type into Revolving Credit Advances of the other Type pursuant to Section 2.08 or 2.09. "Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations (other than trade accounts payable arising in the ordinary course of business) of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all Debt of others referred to in clauses (a) through (c) above or clause (g) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through (i) an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss, or (ii) a standby letter of credit and (g) all Debt referred to in clauses (a) through (f) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Debt to Capitalization Ratio" means at any time the ratio of (x) Consolidated Total Debt to (y) the sum of (i) Consolidated Total Debt plus (ii) Consolidated Net Worth. 5 10 "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Designation Letter" has the meaning specified in Section 2.17(a). "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule 1 hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Company and the Agent. "Effective Date" has the meaning specified in Section 3.01. "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender; (iii) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $15,000,000,000 and a combined capital and surplus of at least $1,000,000,000; (iv) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $15,000,000,000 and a combined capital and surplus of at least $1,000,000,000; (v) a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow or of the Cayman Islands, or a political subdivision of any such country, and having total assets in excess of $l5,000,000,000 and a combined capital and surplus of at least $1,000,000,000 so long as such bank is acting through a branch or agency located in the United States or in the country in which it is organized or another country that is described in this clause (v); (vi) the central bank of any country that is a member of the Organization for Economic Cooperation and Development; provided, however, that each Person described in clauses (ii) through (vi) shall have a short term public debt rating of not less than A by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or shall be approved by the Company; and (vii) any other Person approved by the Company, such approval not to be unreasonably withheld or delayed; provided, however, that neither the Company nor an Affiliate of the Company shall qualify as an Eligible Assignee. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance relating to the environment, health, safety or Hazardous Materials. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule 1 hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is 6 11 specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Company and the Agent. "Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing, an interest rate per annum appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of 11:00 A.M. (London time) on the date two Business Days prior to the first day of such Interest Period as the rate for Dollar deposits having a term comparable to such Interest Period, or in the event such offered rate is not available from said Page 3750, the average (rounded to the nearer whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of such Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period. If the Eurodollar Rate does not appear on said Page 3750 (or any successor page), the Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "Eurodollar Rate Advance" means a Revolving Credit Advance that bears interest as provided in Section 2.07(b). "Events of Default" has the meaning specified in Section 6.01. "Extension Agreement" means an Extension Agreement substantially in the form contained in Exhibit A-3 hereto. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means a period of 13 or (or 14) weeks treated by the Company as a fiscal quarter. 7 12 "Fiscal Year" means the period of 52 (or 53) weeks ending on the last Saturday of any calendar year and treated by the Company as its fiscal year. "5-Year Facility" means the 5 Year Credit Agreement dated as of the date hereof among each of the parties hereto. "Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i). "GAAP" means generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited Consolidated financial statements of the Borrower and its Subsidiaries delivered to the Lenders. "Granting Lender" has the meaning specified in Section 8.07(e). "Guaranteed Party" has the meaning specified in Section 9.01. "Hazardous Materials" means petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, radon gas and any other chemicals, materials or substances designated, classified or regulated as being "hazardous" or "toxic", or words of similar import, under any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance. "Index Debt" of any Person means senior, unsecured, long term indebtedness for borrowed money of such Person that is not guaranteed by any other Person (other than, in the case of the Company, the Guarantor) or subject to any other credit enhancement. "Information Memorandum" means the information memorandum dated March 1999 used by the Agent in connection with the syndication of the Commitments. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Company pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Company pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three, six or, to the extent available from all the Lenders, nine [or twelve] months, as the Company may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: 8 13 (i) the Company may not select any Interest Period that ends after the Termination Date; (ii) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Revolving Credit Borrowing shall be of the same duration; (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iv) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Lenders" means the Initial Lenders and each Person that shall become a party hereto pursuant to Sections 2.05(c) or 8.07. "LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor. "Loan Documents" means, collectively, this Agreement, each promissory note issued thereunder, each Designation Letter and each Termination Letter. "Loan Party" has the meaning specified in Section 4.01. "Master Bottling Agreement" means the Master Bottling Agreement dated March 30, 1999, between the Company and Pepsi or any successor or replacement agreement that confers substantially the same benefits on the Company as the Master Bottling Agreement conferred on the date hereof. 9 14 "Material Adverse Change" means any material adverse change in the financial condition, operations or properties of the Company or the Company and its Subsidiaries (including the Guarantor) taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the financial condition, operations or properties of the Company and its Subsidiaries (including the Guarantor) taken as a whole, (b) the rights and remedies of the Agent or any Lender under this Agreement or any promissary note or (c) the ability of the Company to perform its obligations under this Agreement or any promissary note. "Material Subsidiary" means each Subsidiary of the Company which is a "significant subsidiary" as that term is defined in Rule 1-02(w) of the Regulation S-X under the Securities Act of 1933, as such rule is in effect as of the date hereof. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "New Lender" means, for purposes of Section 2.05(c), an Eligible Assignee (which may be a Lender) selected by the Company with (in the case of a New Lender that is not already a Lender) prior consultation with the Agent. "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.13(a). "Notice of Revolving Credit Borrowing" has the meaning specified in Section 2.02(a). "Pepsi" means PepsiCo, Inc., a North Carolina corporation. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "Principal Property" means any single manufacturing or processing plant, office building, or warehouse owned or leased by the Company or a Restricted Subsidiary other than a plant, warehouse, office building, or portion thereof which, in the opinion of the Company's Board of Directors, is not of material importance to the business conducted by the Company and its Restricted Subsidiaries as an entirety. "Rating" means the rating of the Company's Index Debt by S&P or Moody's, as the case may be. "Reference Banks" means Chase, Citibank N.A. and Bank of America (and any successors thereof). 10 15 "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Register" has the meaning specified in Section 8.07(d). "Required Lenders" means at any time Lenders owed more than 50% of the then aggregate unpaid principal amount of the Revolving Credit Advances (excluding Competitive Bid Advances) owing to Lenders, or, if no such principal amount is then outstanding, Lenders having more than 50% of the aggregate amount of the Commitments. "Restricted Subsidiary" means at any time any Subsidiary of the Company except a Subsidiary which is at the time an Unrestricted Subsidiary. "Revolving Credit Advance" means an advance by a Lender to a Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of Revolving Credit Advance). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by each of the Lenders pursuant to Section 2.01. "S&P" means Standard & Poors Rating Services or any successor thereto. "Short Term Facilities" means (i) the $750,000,000 Series A Senior Notes due 2000 issued pursuant to the Indenture dated as of February 25, 1999 between Pepsi and The Chase Manhattan Bank, as Trustee, as modified by the First Supplemental Indenture dated as of February 26, 1999 among the Company, the Guarantor, Pepsi and The Chase Manhattan Bank, as Trustee, and (ii) the $2,500,000,000 Series B Senior Notes due 2000 issued pursuant to the Indenture dated as of March 5, 1999 among the Company, the Guarantor and The Chase Manhattan Bank, as Trustee. "SPC" has the meaning specified in Section 8.07(e). "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. 11 16 "Substitution Date" has the meaning specified in Section 2.17(c). "Substitution Letter" has the meaning specified in Section 2.17(c). "Termination Date" means April 20, 2000 or, if earlier, the date of termination in whole of the Commitments pursuant to Section 2.05(a) or 6.01 or, in the case of any Lender whose Commitment is extended pursuant to Section 2.06(b), the date to which such Commitment is extended; provided in each case that if any such date is not a Business Day, the relevant Termination Date of such Lender shall be the immediately preceding Business Day. "Termination Letter" has the meaning specified in Section 2.17(b). "364 Day Facility" means the 364 Day Credit Agreement dated as of the date hereof among each of the parties hereto. "Type" has the meaning specified in the definition of "Revolving Credit Advance." "Unrestricted Subsidiary" means any Subsidiary of the Company (not at the time designated a Restricted Subsidiary) other than the Guarantor (i) the major part of whose business consists of finance, banking, credit, leasing, insurance, financial services, or other similar operations, or any continuation thereof, (ii) substantially all the assets of which consist of the capital stock of one or more such Subsidiaries, or (iii) designated as such by the Company's Board of Directors. Any Subsidiary designated as a Restricted Subsidiary may be designated as an Unrestricted Subsidiary. "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar actions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. SECTION 1.02 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03 Accounting Terms. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP; provided that, if the Company notifies the Agent that the Company wishes to amend any provisions hereof to eliminate the effect of any change in GAAP (or if the Agent notifies the Company that the Required Lenders wish to amend any provision hereof for such purpose), then such provision shall be applied on the basis of GAAP in effect immediately 12 17 before the relevant change in GAAP became effective, until either such notice is withdrawn or such provision is amended in a manner satisfactory to the Company and the Required Lenders. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01 The Revolving Credit Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Credit Advances to the Company and any Borrowing Subsidiary from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on the signature pages hereof or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.05(a) or increased pursuant to Section 2.05(c) (such Lender's "Commitment"), provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the Competitive Bid Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be allocated among the Lenders ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments being a "Competitive Bid Reduction"). Each Revolving Credit Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof (or, if less, (i) an aggregate amount equal to the amount by which the aggregate amount of a proposed Competitive Bid Borrowing requested by the Company exceeds the aggregate amount of Competitive Bid Advances offered to be made by the Lenders and accepted by the Company in respect of such Competitive Bid Borrowing, if such Competitive Bid Borrowing is made on the same date as such Revolving Credit Borrowing or (ii) the aggregate amount of the unused Commitments, after giving effect to any Competitive Bid Reductions then in effect) and shall consist of Revolving Credit Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, each Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.10 and reborrow under this Section 2.01. SECTION 2.02 Making the Revolving Credit Advances. (a) Each Revolving Credit Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, or the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base Rate Advances, by the Company (on its own behalf and on behalf of any Borrowing Subsidiary) to the Agent, which shall give to each Lender prompt notice thereof by telecopier or telex. Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be by telecopier or telex, confirmed promptly 13 18 in writing, in substantially the form of Exhibit A-1 hereto, specifying therein the requested (i) date of such Revolving Credit Borrowing, (ii) Type of Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, (iv) in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Revolving Credit Advance and (v) the name of the relevant Borrower (which shall be the Company or a Borrowing Subsidiary). Each Lender shall, before 11:00 A.M. (New York City time), in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, or before 1:00 P.M. (New York City time), in the case of a Revolving Credit Borrowing consisting of Base Rate Advances, on the date of such Revolving Credit Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's ratable portion of such Revolving Credit Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such same day funds available to the relevant Borrower at such Borrower's account at the Agent's address referred to in Section 8.02. (b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Company may not select Eurodollar Rate Advances for any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit Borrowing is less than $10,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 and (ii) the Eurodollar Rate Advances may not be outstanding as part of more than six separate Revolving Credit Borrowings. (c) Each Notice of Revolving Credit Borrowing shall be irrevocable and binding on the relevant Borrower. In the case of any Revolving Credit Borrowing that the related Notice of Revolving Credit Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Company shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Revolving Credit Advance to be made by such Lender as part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a result of such failure, is not made on such date. (d) Unless the Agent shall have received notice from a Lender prior to the date of any Revolving Credit Borrowing that such Lender will not make available to the Agent such Lender's ratable portion of such Revolving Credit Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Revolving Credit Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the relevant Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and such Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date 14 19 such amount is made available to such Borrower until the date such amount is repaid to the Agent, at (i) in the case of a Borrower, the interest rate applicable at the time to Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Revolving Credit Advance as part of such Revolving Credit Borrowing for purposes of this Agreement and shall be made available in same day funds to the relevant Borrower's account at the Agent's address referred to in Section 8.02. (e) The failure of any Lender to make the Revolving Credit Advance to be made by it as part of any Revolving Credit Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Revolving Credit Advance on the date of such Revolving Credit Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Credit Advance to be made by such other Lender on the date of any Revolving Credit Borrowing. SECTION 2.03 The Competitive Bid Advances. (a) Each Lender severally agrees that each Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 7 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders (computed without regard to any Competitive Bid Reduction). (i) The Company (on its own behalf and on behalf of any Borrowing Subsidiary) may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Agent, by telecopier or telex, confirmed promptly in writing, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit A-2 hereto, specifying therein (u) the date of such proposed Competitive Bid Borrowing, (v) the aggregate amount of such proposed Competitive Bid Borrowing, (w) the maturity date for repayment of each Competitive Bid Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the Termination Date), (x) the interest payment date or dates relating thereto, (y) the name of the Borrower, and (z) any other terms to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed Competitive Bid Borrowing, if the Company shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if the Company shall instead specify in the Notice of Competitive Bid Borrowing another basis to be used by the Lenders in determining the rates of interest to be offered by them (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). The Agent shall in turn promptly notify 15 20 each Lender of each request for a Competitive Bid Borrowing received by it from the Company by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the relevant Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Agent (which shall give prompt notice thereof to the Company), before 10:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Company of such offer before 9:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. (iii) The Company shall, in turn, before 11:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 1:00 P.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: (x) cancel such Competitive Bid Borrowing by giving the Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, by giving notice to the Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Company by the Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Agent notice to that effect. If the 16 21 Company accepts any offers made by Lenders pursuant to paragraph (ii) above, such offers shall be accepted in the order of the lowest to highest interest rates or, if two or more Lenders offer to make Competitive Bid Advances at the same interest rate, such offers, if any, shall be accepted in proportion to the amount offered by each such Lender at such interest rate notwithstanding any minimum specified by such Lender in its notice given pursuant to Section 2.03(a)(ii). The Company may not accept offers in excess of the amount specified in accordance with paragraph (i)(v) above. (iv) If the Company notifies the Agent that such Competitive Bid Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the Company accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Company, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Agent of such funds, the Agent will make such same day funds available to the relevant Borrower at such Borrower's account at the Agent's address referred to in Section 8.02. Promptly after each Competitive Bid Borrowing the Agent will notify each Lender of the amount of the Competitive Bid Borrowing, the consequent Competitive Bid Reduction and the dates upon which such Competitive Bid Reduction commenced and will terminate. (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Company shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.03, each Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to 17 22 subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing. (d) Each Borrower shall repay to the Agent for the account of each Lender that has made a Competitive Bid Advance to such Borrower, on the maturity date of such Competitive Bid Advance (such maturity date being that specified by the Company for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and provided in the promissory note, if any, evidencing such Competitive Bid Advance), the then unpaid principal amount of such Competitive Bid Advance. No Borrower shall have any right to prepay any principal amount of any Competitive Bid Advance unless (x) such Borrower obtains the prior written consent of the Lender which made such Competitive Bid Advance, or (y), such prepayment is made on the terms, specified by the Company for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and set forth in the promissory note, if any, evidencing such Competitive Bid Advance. (e) Each Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance to such Borrower from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, as provided in the promissory note, if any, evidencing such Competitive Bid Advance. (f) At its option, the Company (on its own behalf and on behalf of any Borrower) may request a Competitive Bid Borrowing directly from the Lenders; provided that it follows the procedures set forth in this Section 2.03 and promptly delivers, by telecopier or telex, a copy of the Notice of Competitive Bid Borrowing and notice in writing of the results of such request to the Agent. (g) The indebtedness of each Borrower resulting from each Competitive Bid Advance made to such Borrower as part of a Competitive Bid Borrowing shall, if requested by the applicable Lender, be evidenced by a separate promissory note of such Borrower payable to the order of the Lender making such Competitive Bid Advance. SECTION 2.04 Fees. (a) Facility Fee. The Company agrees to pay to the Agent for the account of each Lender a facility fee on the aggregate amount of such Lender's Commitment irrespective of usage from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each 18 23 other Lender until the Termination Date (on a daily basis) at the Applicable Margin, payable in arrears quarterly on the last day of each March, June, September and December, commencing June 30, 1999, and ending on the Termination Date. (b) Agent's Fees. The Company shall pay to the Agent for its own account such fees as may from time to time be agreed between the Company and the Agent. (c) Usage Fees. The Company shall pay to the Agent for the account of each Lender, a usage fee of 10 basis points per annum on the amount of such Lender's Commitment for each day on which the outstanding amount of the Advances exceeds 33 1/3% of the aggregate Commitments from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date (on a daily basis) payable in arrears quarterly on the last day of each March, June, September and December commencing June 30, 1999 and ending on the Termination Date. SECTION 2.05 Termination, Reduction or Increase of the Commitments. (a) The Company shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and provided further that (x) the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount that is less than the aggregate principal amount of the Competitive Bid Advances then outstanding, and (y) once terminated, a portion of a Commitment shall not be reinstated except pursuant to Section 2.05(c). (b) If any Lender shall make a demand under Section 2.11 or 2.14 or if the obligation of any Lender to make Eurodollar Rate Advances shall have been suspended pursuant to Section 2.12, the Company shall have the right, upon at least ten Business Days' notice, to terminate in full the Commitment of such Lender or to demand that such Lender assign to one or more Persons all of its rights and obligations under this Agreement in accordance with Section 8.07. If the Company shall elect to terminate in full the Commitment of any Lender pursuant to this Section 2.05(b), the Company shall pay to such Lender, on the effective date of such Commitment termination, an amount equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, whereupon such Lender shall cease to be a party hereto. (c) (i) Not more than once in any calendar year, the Company may propose to increase the aggregate amount of the Commitments by an aggregate amount of $25,000,000 or an integral multiple of $1,000,000 in excess thereof (a "Proposed Aggregate Commitment Increase") in the manner set forth below, provided that: 19 24 (1) no Default shall have occurred and be continuing either as of the date on which the Company shall notify the Agent of its request to increase the aggregate amount of the Commitments or as of the related Increase Date (as hereinafter defined); and (2) after giving effect to any such increase, the aggregate amount of the Commitments shall not exceed $500,000,000. (ii) The Company may request an increase in the aggregate amount of the Commitments by delivering to the Agent a notice (an "Increase Notice"; the date of delivery thereof to the Agent being the "Increase Notice Date") specifying (1) the Proposed Aggregate Commitment Increase, (2) the proposed date (the "Increase Date") on which the Commitments would be so increased (which Increase Date may not be fewer than 30 nor more than 60 days after the Increase Notice Date) and (3) the New Lenders, if any, to whom the Company desires to offer the opportunity to commit to all or a portion of the Proposed Aggregate Commitment Increase. The Agent shall in turn promptly notify each Lender of the Company's request by sending each Lender a copy of such notice. (iii) Not later than the date five days after the Increase Notice Date, the Agent shall notify each New Lender, if any, identified in the related Increase Notice of the opportunity to commit to all or any portion of the Proposed Aggregate Commitment Increase. Each such New Lender may irrevocably commit to all or a portion of the Proposed Aggregate Commitment Increase (such New Lender's "Proposed New Commitment") by notifying the Agent (which shall give prompt notice thereof to the Company) before 11:00 A.M. (New York City time) on the date that is 10 days after the Increase Notice Date; provided that: (1) the Proposed New Commitment of each New Lender shall be in an amount not less than $25,000,000; and (2) each New Lender that submits a Proposed New Commitment shall enter into an agreement in form and substance satisfactory to the Company and the Agent pursuant to which such New Lender shall undertake a Commitment (and, if any such New Lender is already a Lender, its Commitment shall be in addition to such Lender's Commitment hereunder on such date), and shall pay to the Agent a processing and recordation fee of $3,500. (iv) If the aggregate Proposed New Commitments of all of the New Lenders shall be less than the Proposed Aggregate Commitment Increase, then (unless the Company otherwise requests) the Agent shall, on or prior to the date that is 15 days after the Increase Notice Date, notify each Lender of the opportunity to so commit to all or any portion of the Proposed Aggregate Commitment Increase not committed to by New Lenders pursuant to Section 2.05(c)(iii). Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to commit to all or a portion of such remainder (such Lender's "Proposed Increased Commitment") by notifying the 20 25 Agent (which shall give prompt notice thereof to the Company) no later than 11:00 A.M. (New York City time) on the date five days before the Increase Date. (v) If the aggregate amount of Proposed New Commitments and Proposed Increased Commitments (such aggregate amount, the "Total Committed Increase") equals or exceeds $25,000,000, then, subject to the conditions set forth in Section 2.05(c)(i): (1) effective on and as of the Increase Date, the aggregate amount of the Commitments shall be increased by the lesser of the proposed aggregate Committed Increase and the Total Committed Increase and shall be allocated among the New Lenders and the Lenders as provided in Section 2.05(c)(vi); and (2) on the Increase Date, if any Revolving Loans are then outstanding, the Company shall borrow Revolving Loans from all or certain of the Lenders and/or (subject to compliance by the Company with Section 8.04(c)) prepay Revolving Loans of all or certain of the Lenders such that, after giving effect thereto, the Revolving Loans (including, without limitation, the Types and Interest Periods thereof) shall be held by the Lenders (including for such purposes New Lenders) ratably in accordance with their respective Commitments. If the Total Committed Increase is less than $25,000,000, then the aggregate amount of the Commitments shall not be changed pursuant to this Section 2.05(c). (vi) The Total Committed Increase shall be allocated among New Lenders having Proposed New Commitments and Lenders having Proposed Increased Commitments as follows: (1) If the Total Committed Increase shall be at least $25,000,000 and less than or equal to the Proposed Aggregate Commitment Increase, then (x) the initial Commitment of each New Lender shall be such New Lender's Proposed New Commitment and (y) the Commitment of each Lender shall be increased by such Lender's Proposed Increased Commitment. (2) If the Total Committed Increase shall be greater than the Proposed Aggregate Commitment Increase, then the Total Committed Increase shall be allocated: (x) first to New Lenders (to the extent of their respective Proposed New Commitments) in such a manner as the Company shall agree; and (y) then to Lenders on a pro rata basis based on the ratio of each Lender's Proposed Increased Commitment (if any) to the aggregate amount of the Proposed Increased Commitments of all of the Lenders. 21 26 (vii) No increase in the Commitments contemplated hereby shall become effective until the Agent shall have received (x) promissory notes in respect of the Revolving Loans payable to each New Lender and each other Lender whose Commitment is being increased that, in either case, shall have requested such promissory notes at least two Business Days prior to the Increase Date, and (y) evidence satisfactory to the Agent (including an update of the opinion of counsel provided pursuant to Section 3.01 (g)(iv)) that such increases in the Commitments, and borrowings thereunder, have been duly authorized. SECTION 2.06 Repayment of Revolving Credit Advances; Evidence of Indebtedness; Extension of Termination Date. (a) The Company and each Borrower shall repay to the Agent for the ratable account of the Lenders on the Termination Date the aggregate principal amount of the Revolving Credit Advances then outstanding. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Advance made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Agent shall maintain accounts in which it shall record (i) the amount of each Advance made hereunder, the Type thereof and the Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) the amount of any sum received by the Agent hereunder for the account of the Lenders and each Lender's share thereof. The entries made in the accounts maintained pursuant to this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of any Borrower to repay the Advances in accordance with the terms of this Agreement. Any Lender may request that Advances made by it be evidenced by a promissory note. In such event, the applicable Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Agent. Thereafter, the Advances evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 8.07) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). (c) The Company may by written notice to the Agent, not more than 45 nor less than 30 days prior to the first anniversary of the date hereof (such anniversary date following such notice, the "Extension Date"), request that the Termination Date then in effect be extended for a further period of 364 days. Such request shall be irrevocable and binding upon the Company. The Agent shall promptly notify each Lender of such request. If a Lender agrees, in its individual and sole discretion, to so extend its Commitment (an "Extending Lender"), it will notify the Agent, in writing, of its decision to do so not more than 30 nor less than 20 days before 22 27 such anniversary date. The Commitment of any Lender that fails to accept (or fails to respond to) the Company's request for extension of the Termination Date (a "Declining Lender") shall be terminated on the Termination Date theretofore in effect (without regard to extension by other Lenders). The Extending Lenders, or any of them, shall then have the right to increase their respective Commitments by an aggregate amount up to the amount of all Declining Lenders' Commitments, and, to the extent of any shortfall, the Company shall have the right to require any Declining Lender to assign in full its rights and obligations under this Agreement to an Eligible Assignee designated by the Company that agrees to accept all of such rights and obligations (a "Replacement Lender"), provided that (i) such increase and/or such assignment is otherwise in compliance with Section 8.07, (ii) such Declining Lender receives payment in full of an amount equal to the principal amount of all Advances owing to such Declining Lender, together with accrued interest thereon to the date of such assignment and all other amounts payable to such Declining Lender under this Agreement and (iii) any such increase shall be effective on the Extension Date and any such assignment shall be effective on the date specified by the Company and agreed to by the Replacement Lender and the Agent. If (i) Extending Lenders and/or Replacement Lenders provide Commitments in an aggregate amount equal to 51% of the aggregate amount of the Commitments outstanding immediately prior to the Extension Date in effect at the time the Company requests such extension, and (ii) no Default shall have occurred and be continuing immediately prior to the Extension Date, the Termination Date shall be extended by 364 days (except that, if the date on which the Termination Date is to be extended is not a Business Day, such Termination Date as so extended shall be the next preceding Business Day) from the effective date set forth in an Extension Agreement, in substantially the form in Exhibit A-3 hereto, which has been duly completed and signed by the Company, the Agent and the Extending Lenders and Replacement Lenders party thereto. Such Extension Agreement shall be executed and delivered no earlier than 30 days prior to the Extension Date and the effective date shall be no earlier than 29 days prior to the Termination Date then in effect. No extension of the Commitments pursuant to this Section 2.06(c) shall be legally binding on any party hereto unless and until such party executes and delivers a counterpart of such Extension Agreement. SECTION 2.07 Interest on Revolving Credit Advances. Each Borrower shall pay interest on the unpaid principal amount of each Revolving Credit Advance made to such Borrower owing to each Lender from the date of such Revolving Credit Advance until such principal amount shall be paid in full, at the following rates per annum: (a) Base Rate Advances. During such periods as such Revolving Credit Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full. 23 28 (b) Eurodollar Rate Advances. During such periods as such Revolving Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Revolving Credit Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Revolving Credit Advance plus (y) the Applicable Margin, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. SECTION 2.08 Interest Rate Determination. (a) If the Eurodollar Rate does not appear on Page 3750 of the Telerate Service (or any successor page), each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate. If the Eurodollar Rate does not appear on said Page 3750 (or any successor page), and if any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Agent shall give prompt notice to the Company and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.07, and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.07(b). (b) If, due to a major disruption in the interbank funding market with respect to any Eurodollar Rate Advances, the Required Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. (c) If the Company shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify the Company and the Lenders and the Company will be deemed to have selected an Interest Period of one month. (d) If the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances on the last day of the Interest Period applicable thereto. 24 29 (e) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. (f) If the Eurodollar Rate does not appear on Page 3750 of the Telerate Service (or any successor page) and fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, (i) the Agent shall forthwith notify the Company and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances, (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and (iii) the obligation of the Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. SECTION 2.09 Optional Conversion of Revolving Credit Advances. The Company may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all Revolving Credit Advances of one Type comprising the same Borrowing into Revolving Credit Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b) and no Conversion of any Revolving Credit Advances shall result in more separate Revolving Credit Borrowings than permitted under Section 2.02(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Revolving Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Company. SECTION 2.10 Optional Prepayments of Revolving Credit Advances. The Company may, upon notice not later than 11:00 A.M. (New York City time) on the date of such payment, in the case of Base Rate Advances, and two Business Days' notice, in the case of Eurodollar Rate Advances, to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Company shall, prepay the outstanding principal amount of the Revolving Credit Advances comprising part of the same Revolving Credit Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment 25 30 on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the Company shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(d). SECTION 2.11 Increased Costs. (a) If, due to either (i) the introduction of or any change in any law or regulation or in the interpretation or administration of any law or regulation by any governmental authority charged with the interpretation or administration thereof or (ii) the compliance with any guideline or request from any central bank or other governmental authority that would be complied with generally by similarly situated banks acting reasonably (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances by an amount deemed by such Lender to be material, then the Company shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Company and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding the foregoing, no Lender shall be entitled to request compensation under this paragraph with respect to any Competitive Bid Advance if the change giving rise to such request was applicable to such Lender at the time of submission of such Lender's offer to make such Competitive Bid Advance. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental or regulatory authority which becomes effective after the date hereof, there shall be any increase in the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender and the amount of such capital is increased by or based upon the existence of such Lender's Advances or commitment to lend hereunder and other commitments of this type by an amount deemed by such Lender to be material, then, upon demand by such Lender (with a copy of such demand to the Agent), the Company shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Advances or commitment to lend hereunder. A certificate as to such amounts submitted to the Company and the Agent by such Lender shall be conclusive and binding for all purposes as to the calculations therein, absent manifest error. Such certificate shall be in reasonable detail and shall certify that the claim for additional amounts referred to therein is generally consistent with such Lender's treatment of similarly situated customers of such Lender whose transactions with such Lender are similarly affected by the change in circumstances giving rise to such payment, but such Lender shall not be required to disclose any confidential or proprietary information therein. 26 31 SECTION 2.12 Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent (and provide to the Company an opinion of counsel to the effect) that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as the case may be, of such Lender will automatically, upon such demand, Convert into a Base Rate Advance or an Advance that bears interest at the rate set forth in Section 2.07(a), as the case may be, and (ii) the obligation of such Lender to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Company and such Lender that the circumstances causing such suspension no longer exist and such Lender shall make the Base Rate Advances in the amount and on the dates that it would have been requested to make Eurodollar Rate Advances had no such suspension been in effect. SECTION 2.13 Payments and Computations. (a) Each Borrower shall make each payment hereunder not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at the Agent's Account in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees or usage fees ratably (other than amounts payable pursuant to Section 2.03, 2.04(b), 2.05(b), 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on the Base Rate and of facility fees and of usage fees shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or facility fees or usage fees are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. 27 32 (c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fee or usage fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Agent shall have received notice from the Company prior to the date on which any payment is due to the Lenders hereunder that a Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.14 Taxes. (a) Each Lender is exempt from any withholding imposed under the laws of the United States in respect of any fees, interest or other payments to which it is entitled pursuant to this Agreement or any promissory notes issued hereunder (the "Income") because (i) the Lender is organized under the laws of the United States; (ii) the Income is effectively connected with the conduct of a trade or business within the United States within the meaning of Section 871 of the Internal Revenue Code of 1986, as amended or any successor thereto (the "Code"); or (iii) the Income is eligible for an exemption by reason of a tax treaty. The Agent is exempt from any withholding tax imposed under the laws of the United States in respect of the Income because the Agent is organized under the laws of the United States. (b) Each Lender organized under the laws of a jurisdiction outside the United States (each, a "Foreign Lender") shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender, and on the date of the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Foreign Lender and from time to time thereafter if requested in writing by the Company or the Agent, provide the Agent and the relevant Borrower with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Foreign Lender is exempt or entitled to a reduced rate of United States withholding tax on any Income that is the subject of such forms. If the form provided by a Foreign Lender at the time such Foreign Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, or in excess of the rate applicable to the Foreign Lender assignor on the date of the Assignment and Acceptance pursuant to which it became a Foreign 28 33 Lender, in the case of each other Foreign Lender, withholding tax at such rate shall be considered excluded from Taxes as defined in Section 2.14(c). (c) Based on Section 2.14(a) and (b), any and all payments by any Borrower hereunder or under any promissory notes issued hereunder shall be made free and clear of and without deduction for any present United States federal income withholding taxes imposed on a Foreign Lender under the Code (such withholding taxes being hereinafter referred to as "Taxes"). (d) If, as a result of the enactment, promulgation, execution or ratification of, or any change in or amendment to, any United States law or any tax treaty (or in the application or official interpretation of any law or any tax treaty) that occurs on or after the date a Foreign Lender first becomes a party to this Agreement (a "Change in Law"), a Foreign Lender cannot comply with Section 2.14(b) or, if despite such compliance, any Borrower shall be required to deduct any Taxes from or in respect of any Income, then: (i) the sum payable to such Foreign Lender shall be increased as may be necessary so that after making all required deductions for such Taxes (including deductions applicable to additional sums payable under this Section 2.14) such Foreign Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Notwithstanding the foregoing, each Borrower shall be entitled to pay any Taxes in any lawful manner so as to reduce any deductions and such Foreign Lender shall to the extent it is reasonably able provide any documentation or file any forms as may be required by the Internal Revenue Service or any other foreign governmental agency. In addition, if any Foreign Lender or the Agent (in lieu of such Foreign Lender), as the case may be, is required to pay directly any Taxes as a result of a Change in Law because a Borrower cannot or does not legally or timely do so, the Company shall indemnify such Foreign Lender or Agent for payment of such Taxes, without duplication of, or increase in, the amount of Taxes otherwise due to the Foreign Lender. (e) In addition, the Company agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (excluding any income or franchise taxes, business taxes or capital taxes of any nature) that arise from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). If a Lender is required to pay directly Other Taxes because a Borrower cannot or does not legally or timely do so, the Company shall indemnify such Lender for such payment of Other Taxes. (f) Within 30 days after the date of any payment of Taxes or foreign withholding taxes, the Company shall furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. Prior to making any payment hereunder by or on behalf of any Borrower through an account or branch outside the United States or on behalf of any Borrower by a payor that is not a United States person (a "Foreign Payment"), such Borrower shall determine that no foreign withholding taxes are payable in 29 34 respect thereof, and at its expense, shall furnish, or shall cause such payor to furnish, to the Agent, at such address, a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to the Agent, in either case stating that such Foreign Payment is exempt from or not subject to foreign withholding taxes. Each Lender shall cooperate with each Borrower's efforts described in this subsection by providing to the extent reasonably within its means any forms requested by such Borrower substantiating an exemption from foreign withholding taxes required by any governmental agency. For purposes of this subsection (f), the terms "United States" and "United States person" shall have the meaning specified in Section 7701 of the Code. If, as a result of the enactment, promulgation, execution or ratification of, or any change in or amendment to, any applicable foreign law or any tax treaty (or in the application or official interpretation of any law or any tax treaty) that occurs on or after the date a tax opinion is rendered pursuant to the terms of this subsection, and which renders such tax opinion incorrect as to the absence of any foreign withholding tax (a "Foreign Change in Law"), any Borrower shall be required to deduct any foreign withholding taxes from or in respect of any Income, then: (i) the sum payable to the applicable Lender shall be increased as may be necessary so that after making all required deductions for foreign withholding taxes (including deductions applicable to additional sums payable under this Section 2.14) such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Notwithstanding the foregoing, each Borrower shall be entitled to pay any foreign withholding taxes in any lawful manner so as to reduce any deductions and such Lender shall to the extent it is reasonably able provide any documentation or file any forms as may be required by the Internal Revenue Service or any other foreign governmental agency. In addition, if any Lender is required to pay directly any foreign withholding tax in respect of any Foreign Payments made pursuant to this Agreement because a Borrower cannot or does not legally or timely do so, the Company shall indemnify such Lender for payment of such tax. (g) For any period with respect to which a Lender has failed to comply with the requirements of subsection (b) or (f) relating to certain forms intended to reduce withholding taxes (other than if such failure is due to a Change in Law or a Foreign Change in Law), such Lender shall not be entitled to indemnification under subsection (d) or (f). (h) Upon a Change in Law or the imposition of any foreign withholding tax in respect of Foreign Payments, a Lender shall, upon the written request of and at the expense of the Company, use reasonable efforts to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such taxes that may thereafter accrue and would not, in the reasonable judgment of such Lender, cause the imposition on such Lender of any material legal or regulatory burdens. (i) Without prejudice to the survival of any other agreement of any Borrower hereunder, the agreements and obligations of the Company contained in this Section 2.14 shall 30 35 survive the payment in full of principal and interest hereunder until the applicable statute of limitations relating to the payment of any Taxes under Section 2.14(d) has expired. (j) Any request by any Lender for payment of any amount under this Section 2.14 shall be accompanied by a certification that such Lender's claim for said amount is generally consistent with such Lender's treatment of similarly situated customers of such Lender whose transactions with such Lender are similarly affected by the change in circumstances giving rise to such payment, but such Lender shall not be required to disclose any confidential or proprietary information therein. SECTION 2.15 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Revolving Credit Advances owing to it (other than pursuant to Section 2.05(b), 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Revolving Credit Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Revolving Credit Advances owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. SECTION 2.16 Use of Proceeds. The proceeds of the Advances shall be available (and the Company agrees that such proceeds shall be used) for general corporate purposes of the Company and its Subsidiaries, including commercial paper backstop. SECTION 2.17 Borrowings by Borrowing Subsidiaries; Substitution of Borrower. (a) The Company may, at any time or from time to time, designate one or more Subsidiaries (including the Guarantor) as Borrowers hereunder by furnishing to the Agent a letter (a "Designation Letter") in duplicate, in substantially the form of Exhibit D, duly completed and executed by the Company and such Subsidiary. Upon any such designation of a Subsidiary, such Subsidiary shall be a Borrowing Subsidiary and a Borrower entitled to borrow Revolving Credit Advances and Competitive Bid Advances on and subject to the terms and conditions of this Agreement. 31 36 (b) If all principal of and interest on all Advances made to any Borrowing Subsidiary have been paid in full, the Company may terminate the status of such Borrowing Subsidiary as a Borrower hereunder by furnishing to the Agent a letter (a "Termination Letter") in substantially the form of Exhibit F, duly completed and executed by the Company. Any Termination Letter furnished hereunder shall be effective upon receipt by the Agent, which shall promptly notify the Lenders, whereupon the Lenders shall, upon payment in full of all amounts owing by such Borrower hereunder, promptly deliver to the Company (through the Agent) the promissory notes, if any, of such former Borrower. Notwithstanding the foregoing, the delivery of a Termination Letter with respect to any Borrower shall not terminate (i) any obligation of such Borrower that remains unpaid at the time of such delivery (including without limitation any obligation arising thereafter in respect of such Borrower under Section 2.11 or 2.14) or (ii) the obligations of the Company under Article IX with respect to any such unpaid obligations; provided, that if the status of such Borrowing Subsidiary has been terminated as aforesaid because the Company has sold or transferred its interest in such Subsidiary, and the Company so certifies to the Agent at the time of delivery of such Termination Letter, and subject to payment of said principal and interest, (i) such Subsidiary shall, automatically upon the effectiveness of the delivery of such Termination Letter and certification, cease to have any obligation under this Agreement and (ii) the Company shall automatically be deemed to have unconditionally assumed, as primary obligor, and hereby agrees to pay and perform, all of such obligations. (c) In addition to the foregoing, the Company may, at any time when there are no Advances outstanding hereunder and upon not less than 10 Business Days' notice, irrevocably elect to terminate its right to be a Borrower hereunder as of the date (which shall be a Business Day) specified in such Substitution Letter (the "Substitution Date") and designate the Guarantor as a Borrower hereunder by furnishing to the Agent (x) a letter (a "Substitution Letter"), in substantially the form of Exhibit E duly completed and executed by the Company and the Guarantor, (y) a certificate signed by a duly authorized officer of the Company, and a certificate signed by a duly authorized officer of the Guarantor, each dated the Substitution Date, stating that: (i) the representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the Substitution Date, as though made on and as of such date, and (ii) No event has occurred and is continuing, or would result from such designation, that constitutes a Default; and (z) the Agent shall have received such other corporate documents, resolutions and legal opinions relating to the foregoing as it, or any Lender through the Agent, may reasonably request. 32 37 SECTION 2.18 Mitigation Obligations. If any Lender requests compensation under Section 2.11, or if the obligation of any Lender to make or continue Advances as, or Convert Advances into, Eurodollar Rate Advances is suspended pursuant to Section 2.12, then, upon the written request of the Company, such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designations or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.11 or would cause such Lender not to be subject to such suspension, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not, in the reasonable judgment of such Lender, cause imposition on such Lender of any material legal or regulatory burdens or otherwise be disadvantageous to such Lender. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01 Conditions Precedent to Effectiveness of Sections 2.01 and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied: (a) As of the Effective Date, there shall have occurred no Material Adverse Change since December 26, 1998 that has not been publicly disclosed. (b) As of the Effective Date, there shall exist no action, suit, investigation, litigation or proceeding affecting the Company, or any of its Subsidiaries (including the Guarantor) pending or, to the knowledge of the Company's or the Guarantor's executive officers, threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) could reasonably be likely to affect the legality, validity or enforceability of this Agreement or the consummation of the transactions contemplated hereby. (c) As of the Effective Date, nothing shall have come to the attention of the Lenders during the course of their due diligence investigation to lead them to believe that the Information Memorandum was or has become misleading, incorrect or incomplete in any material respect. (d) As of the Effective Date, all governmental and third party consents and approvals necessary in connection with the transactions contemplated hereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect. 33 38 (e) As of the Effective Date, the Company shall have paid all accrued fees and expenses of the Agent and the Lenders (including the accrued fees and expenses of counsel to the Agent, to the extent invoiced at least one Business Day prior to the Effective Date). (f) On the Effective Date, the following statements shall be true and the Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Company dated the Effective Date, stating that: (i) The representations and warranties contained in Section 4.01 are correct in all material aspects on and as of the Effective Date, and (ii) No event has occurred and is continuing that constitutes a Default. (g) The Agent shall have received on or before the Effective Date the following, each dated such day, in form and substance satisfactory to the Agent and (except for any notes requested by the Lenders) in sufficient copies for each Lender: (i) To the extent any Lender shall have requested, at least one Business day prior to the Effective Date that its Revolving Credit Advances be evidenced by a promissory note, a note payable to the order of such Lender. (ii) Certified copies of the resolutions of the Board of Directors of the Company and of the Guarantor approving this Agreement, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement. (iii) A certificate of the Secretary or an Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to sign this Agreement and the other documents to be delivered hereunder. (iv) A certificate of the Secretary or an Assistant Secretary of the Guarantor certifying the names and true signatures of the officers of the Guarantor authorized to sign this Agreement and the other documents to be delivered hereunder. (v) An opinion of Pamela O'Brien, General Counsel of each of the Company and the Guarantor, substantially in the form of Exhibit C hereto and as to such other matters as any Lender through the Agent may reasonably request. (vi) A favorable opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, counsel for the Agent. (vii) The Agent shall have received such other approvals, opinions or documents as any Lender through the Agent may reasonably request. 34 39 (h) On or prior to the Effective Date, the Company shall have completed the initial public offering of its common stock and shall have received net proceeds thereof in a minimum amount of $2,300,000,000. SECTION 3.02 Conditions Precedent to Each Revolving Credit Borrowing. The obligation of each Lender to make a Revolving Credit Advance on the occasion of each Revolving Credit Borrowing shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Revolving Credit Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Revolving Credit Borrowing and the acceptance by any Borrower of the proceeds of such Revolving Credit Borrowing shall constitute a representation and warranty by the Company and such Borrower that on the date of such Borrowing such statements are true): (i) The representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the date of such Revolving Credit Borrowing, before and after giving effect to such Revolving Credit Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, and (ii) No event has occurred and is continuing, or would result from such Revolving Credit Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and (b) in the case of the first Borrowing by a Borrowing Subsidiary, the Agent shall have received such corporate documents, resolutions and legal opinions relating to such Borrowing Subsidiary as the Agent may reasonably require. SECTION 3.03 Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as part of such Competitive Bid Borrowing is subject to the conditions precedent that (i) the Agent shall have received the written confirmatory Notice of Competitive Bid Borrowing with respect thereto, and (ii) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by any Borrower of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by the Company and such Borrower that on the date of such Competitive Bid Borrowing such statements are true): (a) The representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the date of such Competitive Bid Borrowing, before and after giving effect to such Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and 35 40 (b) No event has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom, that constitutes a Default. SECTION 3.04 Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the proposed Effective Date, as notified by the Company to the Lenders, specifying its objection thereto. The Agent shall promptly notify the Lenders of the occurrence of the Effective Date. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Representations and Warranties of the Loan Parties. Each of the Company and the Guarantor (each, a "Loan Party") represents and warrants as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and the Guarantor is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The execution, delivery and performance by each Loan Party of this Agreement and the consummation of the transactions contemplated hereby, are within such Loan Party's powers, have been duly authorized by all necessary corporate or other action, and do not contravene (i) its charter, by-laws or other organizational documents or (ii) any law or contractual restriction binding on or materially affecting such Loan Party. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by either Loan Party of this Agreement. (d) This Agreement has been duly executed and delivered by each Loan Party. This Agreement is the legal, valid and binding obligation of each Loan Party enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and equitable principles of general applicability. 36 41 (e) The combined balance sheet of the Company as at December 26, 1998, and the related combined statements of operations and cash flows of the Company for the fiscal year then ended, accompanied by an opinion of KPMG Peat Marwick, independent public accountants, fairly present the financial condition of the Company as at such date and the results of the operations of the Company for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied. Since December 26, 1998, there has been no Material Adverse Change that has not been publicly disclosed. (f) There is no pending or threatened action, suit, investigation, litigation or proceeding affecting either Loan Party before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be likely to affect the legality, validity or enforceability of this Agreement or any promissory note issued under this Agreement, if any, or the consummation of the transactions contemplated hereby. (g) It is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, in either case in a manner that would cause the Advances or any Lender to be in violation of Regulation U. (h) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets (either of any Borrower only or of the Company and its Subsidiaries or the Guarantor and its Subsidiaries, in each case on a Consolidated Basis) subject to the provisions of Section 5.02(a) or (b)(ii) or subject to any restriction contained in any agreement or instrument between it and any Lender or any Affiliate of any Lender relating to Debt and within the scope of Section 6.01 (d) will be margin stock. (i) Neither Loan Party is an "investment company", a company "controlled by", or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances nor the application of the proceeds or repayment thereof by any Borrower will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (j) Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Company's and the Subsidiaries', including the Guarantor's, computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Company's or such Subsidiaries' systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed within such period of time as is required to avoid the occurrence of a Material Adverse Effect as a result of the failure to complete such reprogramming. The cost to the Company and such Sub- 37 42 sidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company and such Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Material Adverse Effect. ARTICLE V COVENANTS SECTION 5.01 Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, each Loan Party will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws, except where failure so to comply would not, and would not be reasonably likely to, have a Material Adverse Effect. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither Loan Party nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors and such Lien would be reasonably likely to have a Material Adverse Effect. (c) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that each Loan Party and its Material Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(b) and provided further that neither Loan Party nor any of its Material Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of such Loan Party or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Loan Party or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to such Loan Party, such Subsidiary or the Lenders. (d) Reporting Requirements. Furnish to the Lenders: (i) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Company, the Consolidated balance 38 43 sheet of the Company and its Subsidiaries as of the end of such quarter and Consolidated statements of operations and cash flows of the Company and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer of the Company as having been prepared in accordance with GAAP, it being agreed that delivery of the Company's Quarterly Report on Form 10-Q will satisfy this requirement; (ii) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Company, a copy of the annual audit report for such year for the Company and its Subsidiaries, containing the Consolidated balance sheet of the Company and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of operations and cash flows of the Company and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion by KPMG Peat Marwick or other independent public accountants of nationally recognized standing, it being agreed that delivery of the Company's Annual Report on Form 10-K will satisfy this requirement; (iii) as soon as possible and in any event within five days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer of the Company setting forth details of such Default and the action that the Company has taken and proposes to take with respect thereto; and (iv) promptly after the sending or filing thereof, copies of all annual reports and proxy solicitations that the Company sends to any of its securityholders, and copies of all reports on Form 8-K that the Company or any Subsidiary files with the Securities and Exchange Commission. (e) Repayment of Short Term Facilities. Repay all Debt outstanding under the Short Term Facilities on or before May 29, 1999. SECTION 5.02 Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, neither Loan Party will: (a) Secured Debt. Create or suffer to exist, or permit any of its Restricted Subsidiaries to create or suffer to exist, any Debt secured by a Lien on any Principal Property or on any shares of stock of or Debt of any Restricted Subsidiary unless such Loan Party or such Restricted Subsidiary secures or causes such Restricted Subsidiary to secure the Advances and all other amounts payable under this Agreement equally and ratably with such secured Debt, so long as such secured Debt shall be so secured, unless after giving effect thereto the aggregate amount of all such Debt so secured does not exceed 15% of Consolidated Net Tangible Assets, provided that the foregoing restriction does not apply to Debt secured by: (i) Liens existing prior to the date hereof; 39 44 (ii) Liens on property of, or on shares of stock of or Debt of, any corporation existing at the time such corporation becomes a Restricted Subsidiary; (iii) Liens in favor of a Loan Party or any Restricted Subsidiary; (iv) Liens in favor of any governmental bodies to secure progress or advance payments; (v) Liens on property, shares of stock or Debt existing at the time of acquisition thereof (including acquisition through merger or consolidation) or liens securing Debt incurred to finance all or any part of the purchase price or cost of construction of property (or additions, substantial repairs, alterations or substantial improvements thereto), provided that such Lien and the Debt secured thereby are incurred within 365 days of the later of acquisition or completion of construction (or addition, repair, alteration or improvement) and full operation thereof; and (vi) any extension, renewal or refunding of Debt referred to in the foregoing clauses (i) to (v), inclusive. (b) Mergers, Etc. (i) Merge or consolidate with or into any corporation or (ii) sell, lease, transfer or otherwise dispose of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, unless the Company or the Guarantor would be the acquiring or surviving party in such transaction and no Event of Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom. (c) Subsidiary Debt. Permit any Restricted Subsidiary to create, incur, assume or permit to exist any Debt, except: (i) Debt of the Guarantor and Borrowing Subsidiaries, if any, created hereunder and under the 5-Year Facility; (ii) Debt existing on the Effective Date; (iii) Debt of the Guarantor constituting guaranties of Debt of the Company; (iv) Debt of any Subsidiary to any Loan Party or any other Subsidiary; (v) Debt of any Person that becomes a Subsidiary after the date hereof; provided that such Debt exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary; (vi) any refinancing, refunding or replacement of any Debt permitted under clause (ii) through (v) above; and 40 45 (vii) other Debt in an aggregate principal amount not exceeding 15% of Consolidated Net Tangible Assets at any time outstanding; provided, that the foregoing provisions of this Section 5.02(c) shall cease to apply to the Guarantor from and after the occurrence of the Substitution Date as provided in Section 2.17. (d) Restrictive Agreements. Neither Loan Party will enter into, incur or permit to exist any agreement or other arrangement that prohibits or restricts the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to, or otherwise transfer assets to the Company; provided that the foregoing shall not apply to (i) restrictions and conditions imposed by law or by this Agreement or the 5-Year Facility, (ii) customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iii) restrictions or conditions imposed by any agreement relating to secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt, (iv) customary provisions in leases and other contracts restricting the assignment thereof, (v) any agreement in effect on the Effective Date, as any such agreement is in effect on such date, (vi) any agreement binding upon such Subsidiary prior to the date on which such Subsidiary was acquired by the Company and outstanding on such date, (vii) customary net worth and other financial maintenance covenants in an agreement relating to Debt or other obligations incurred in compliance with this Agreement, and (viii) any agreement refinancing, renewing or replacing any agreement or Debt referred to in (i) through (vii) above, provided that the relevant provisions are no more restrictive than those in the agreement or Debt being refinanced, renewed or replaced. (e) Ownership. In the case of the Company, cease to own, legally and beneficially, 75% or more of the membership interests in the Guarantor. SECTION 5.03 Financial Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Company will not: (a) Debt to Capitalization Ratio. Permit the Debt to Capitalization Ratio as at the last day of any Fiscal Quarter that is not an Alternate Covenant Date to exceed 0.75 to 1.0. (b) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as at the last day of any Fiscal Quarter that is an Alternate Covenant Date to exceed 5.0 to 1.0. 41 46 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01 Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Any Borrower shall fail to pay any principal of, or interest on, any Advance or to make any other payment under this Agreement, in each case within five days after the same becomes due and payable; or (b) Any representation or warranty made by any Loan Party herein or by any Borrower (or any of its officers) in connection with this Agreement (including without limitation by any Borrowing Subsidiary pursuant to any Designation Letter) shall prove to have been incorrect in any material respect when made; or (c) (i) Any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), 5.02 or 5.03, or (ii) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to either Loan Party by the Agent or any Lender; or (d) Either Loan Party or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal or notional amount of at least $50,000,000 in the aggregate (but excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate the maturity of such Debt or permit (with or without the giving of notice, the lapse of time or both) the holder or holders of such Debt or any trustee or agent on its or their behalf to cause any such Debt to become due prior to its scheduled maturity; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or 42 47 (e) Either Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such Loan Party of any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $50,000,000 shall be rendered against either Loan Party or any of its Material Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not be an Event of Default under this Section 6.01(f) if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least "A" by A.M. Best Company, has been notified of, and has not disputed the claim made for payment of, the amount of such judgment or order; or (g) Any event, action or condition with respect to an employee benefit plan of the Company subject to Title IV of ERISA results in any penalty or action pursuant to ERISA that has a material adverse effect on the business or financial condition of either Loan Party and its Subsidiaries, taken as a whole; or (h) The Master Bottling Agreement ceases to be valid and binding and in full force and effect; or Pepsi denies that it has any liability or obligation under the Master Bottling Agreement and Pepsi ceases performance thereunder; or (i) A Change of Control shall occur; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Company, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Company, declare the 43 48 Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party or any Borrowing Subsidiary under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, protest or any notice of any kind, all of which are hereby expressly waived by each Loan Party. ARTICLE VII THE AGENT Each of the Lenders hereby irrevocably appoints the Agent as its agent and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Loan Parties or any Subsidiary or other Affiliate thereof as if it were not the Agent hereunder. The Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.01), and (c) except as expressly set forth herein, the Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Loan Parties or any if their Subsidiaries that is communicated to or obtained by the bank serving as Agent or any of its Affiliates in any capacity. The Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.01) or in the absence of its own gross negligence or wilful misconduct. The Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Agent by a Loan Party or a Lender, and the Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this 44 49 Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article III or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent. The Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Agent may consult with legal counsel (who may be counsel for any Loan Party), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Agent. The Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent. Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, the Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor agent approved by the Company, which approval will not be unreasonably withheld or delayed; provided that such approval shall not be required if an Event of Default has occurred and is continuing. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States or any State thereof, having a combined capital and surplus of at least $50,000,000 with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointments as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Company to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Agent's resignation hereunder, the provisions of this Article and Section 8.04 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. 45 50 Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. ARTICLE VIII MISCELLANEOUS SECTION 8.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) except pursuant to Section 2.05(b), 2.05(c), 2.15 or 2.17, increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (b) reduce the principal of, or interest on, the Revolving Credit Advances or any fees or other amounts payable hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, the Revolving Credit Advances or any fees or other amounts payable hereunder, (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Revolving Credit Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (e) release the guarantee as set forth in Section 9.01 or 10.01, or (f) amend this Section 8.01; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement. SECTION 8.02 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed or delivered, if to the Company, any Borrower or the Guarantor, to the Company at its address at One Pepsi Way, Somers, New York 10589, Attention: General Counsel, Telecopier No. (914) 767-1161, with a copy to Secretary, Telecopier No. (914) 767-1161; if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Agent, at The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York, 10081, Attention of Nina Wang (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Karen Sharf (Telecopy No. (212) 270-5120); or, as to the Company, any Borrower, the Guarantor or the Agent, at such other address as shall be designated by such party in a written 46 51 notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. All such notices and communications shall, when mailed, telecopied, telegraphed or telexed, be effective when deposited in the mails, telecopied, delivered to the telegraph company or confirmed by telex answer back, respectively, except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. SECTION 8.03 No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04 Costs and Expenses. (a) The Company agrees to pay on demand all costs and expenses of the Agent as set forth in the fee letter between the Company and the Agent dated March 4, 1999. The Company further agrees to pay on demand all reasonable costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the Agent and each Lender in connection with the enforcement of rights under this Section 8.04(a). (b) The Company agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with this Agreement, any promissory note issued hereunder, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances, whether or not such investigation, litigation or proceeding is brought by any Borrower, the Guarantor, their directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. (c) To the extent that the Company fails to pay any amount required to be paid by it to the Agent under paragraph (a) or (b) of this Section 8.04, each Lender severally agrees to pay to the Agent such Lenders' Applicable Percentage (determined as of the time that 47 52 the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Agent in its capacity as such. (d) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by any Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Company shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (e) Without prejudice to the survival of any other agreement of any Borrower hereunder, the agreements and obligations of the Company contained in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder. SECTION 8.05 Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or the account of any Loan Party or any Borrower against any and all of the obligations of such Loan Party or such Borrower now or hereafter existing under this Agreement, whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Company after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender and its Affiliates may have. SECTION 8.06 Binding Effect. This Agreement shall become effective (other than Sections 2.01 and 2.03, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Loan Parties and the Agent and when the Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Loan Parties, each Subsidiary Borrower (if any), the Agent and each Lender and their respective 48 53 successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07 Assignments and Participations. (a) Each Lender may, upon ten days' notice to the Agent and with the consent of the Company (which shall not be unreasonably withheld) and, if demanded by the Company (following a demand by such Lender pursuant to Section 2.11 or Section 2.14 or a suspension of such Lender's obligation to make or continue Advances as, or convert Advances into, Eurodollar Rate Advances pursuant to Section 2.12) upon at least ten days' notice to such Lender and the Agent, will assign to one or more Persons all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Revolving Credit Advances owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement (other than any right to make Competitive Bid Advances or Competitive Bid Advances owing to it), (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than the lesser of (x) $25,000,000 and (y) the smallest initial Commitment of any Initial Lender, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment made as a result of a demand by the Company pursuant to this Section 8.07(a) shall be arranged by the Company after consultation with the Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Company pursuant to this Section 8.07(a) unless and until such Lender shall have received one or more payments from either the Company or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement and (vi) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register (as defined in clause (d) below), an Assignment and Acceptance, together with a processing and recordation fee of $3,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or 49 54 the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company. (d) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and, with respect to Lenders, the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and each Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Loan Parties or any Lender at any reasonable time and from time to time upon reasonable prior notice. 50 55 (e) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (a "SPC"), identified as such in writing from time to time by the Granting Lender to the Agent and the Company, the option to provide to the Company all or any part of any Advance that such Granting Lender would otherwise be obligated to make to the Company pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Advance, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Lender shall be obligated to make such Advance pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Advance were made by such Granting Lender. Each party hereto agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 8.07(e), any SPC may (i) with notice to, but without the prior written consent of, the Company and the Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Advances to the Granting Lender or to any financial institutions (consented to by the Company and the Agent) providing liquidity and/or credit support to or for the account of any SPC to support the funding or maintenance of Advances and (ii) disclose on a confidential basis any non-public information relating to its Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. (f) Each Lender may, upon notice to the Agent and the Company, sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any promissory note issued or assigned to it hereunder, (iv) the Borrowers, the Guarantor, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement, or any consent to any departure by any Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. 51 56 (g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant any information relating to any Loan Party or any Borrower furnished to such Lender by or on behalf of any Loan Party or any Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Loan Parties or the Borrowers received by it from such Lender. (h) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement or any promissory note issued to such Lender hereunder (including, without limitation, the Advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 8.08 Confidentiality. Neither the Agent nor any Lender shall disclose any Confidential Information to any Person without the consent of the Company, other than (a) to the Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties or the Borrowers received by it from such Lender and (d) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking. SECTION 8.09 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.11 Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal 52 57 court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court sitting in New York City. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.12 WAIVER OF JURY TRIAL. EACH BORROWER, THE GUARANTOR, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. ARTICLE IX COMPANY GUARANTEE SECTION 9.01 Company Guarantee. Subject to the provisions of this Article IX, the Company unconditionally and irrevocably guarantees to each Lender and the Agent and their respective successors and assigns, that: (i) the principal of, premium, if any, and interest on the Advances to each Borrowing Subsidiary and, following the Substitution Date, the Guarantor (each a "Guaranteed Party") and any promissory notes issued by any Guaranteed Party hereunder will be duly and punctually paid in full when due, whether at maturity, by acceleration, by redemption or otherwise, and interest on overdue principal, and premium, if any, and (to the extent permitted by law) interest on any interest, if any, on the Advances and all other obligations of the Guaranteed Parties to the Lenders or the Agent hereunder (including fees and expenses) will be promptly paid in full, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or renewal of any of the Advances to any Guaranteed Party or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Guaranteed Parties to the Lenders or the Agent, for whatever reason, the Company will be obligated to pay, or to perform or to cause the performance of, the same immediately. An Event of Default under this Agreement shall constitute an event of 53 58 default under this Guarantee, and shall entitle the Lenders to accelerate the obligations of the Company under this Guarantee in the same manner and to the same extent as the obligations of the Guaranteed Parties. The Company hereby agrees that its obligations under this Guarantee shall be unconditional, irrespective of the validity, regularity or enforceability of this Agreement, any Designation Letter or the Substitution Letter, the absence of any action to enforce the same, any waiver or consent by any Lender or the Agent of this Agreement any Designation Letter or the Substitution Letter, with respect to any thereof, the entry of any judgment against any Guaranteed Party, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Company. The Company hereby waives and relinquishes: (a) any right to require the Agent, the Lenders or any Guaranteed Party (each, a "Benefitted Party") to proceed against any Guaranteed Party or any other Person or to proceed against or exhaust any security held by a Benefitted Party at any time or to pursue any other remedy in any secured party's power before proceeding against the Company; (b) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other Person or Persons or the failure of a Benefitted Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person or Persons; (c) demand, protest and notice of any kind (except as expressly required by this Agreement), including but not limited to notice of the existence, creation or incurring of any new or additional Debt or obligation or of any action or non-action on the part of the Company, any Benefitted Party, any creditor of the Company or any Guaranteed Party or on the part of any other Person whomsoever in connection with any obligations the performance of which are guaranteed under this Guarantee; (d) any defense based upon an election of remedies by a Benefitted Party, including but not limited to an election to proceed against the Company or any other Guaranteed Party for reimbursement; (e) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (f) any defense arising because of a Benefitted Party's election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code; and (g) any defense based on any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code. The Company hereby covenants that this Guarantee will not be discharged except by payment in full of all principal, premium, if any, and interest on the Advances made to each Guaranteed Party and all other costs provided for under this Agreement in respect thereof. This is a Guarantee of payment and not of collectibility. If any Lender or the Agent is required by any court or otherwise to return to either the Company or any Guaranteed Party, or any trustee or similar official acting in relation to either the Company or any Guaranteed Party, any amount paid by the Company or any Guaranteed Party to the Agent or such Lender, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Company agrees that it will not be entitled to any right of subrogation in relation to the Lenders or the Agent in respect of any obligations guaranteed under this Guarantee until payment in full of all obligations guaranteed hereby. The Company agrees that, as between it, on the one hand, and the Lenders and the Agent, on the other hand, (x) the 54 59 maturity of the obligations guaranteed under this Guarantee may be accelerated as provided in Article VI hereof for the purposes hereof, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by such Company for the purpose of this Guarantee. ARTICLE X SUBSIDIARY GUARANTEE SECTION 10.01 Subsidiary Guarantee. Subject to the provisions of this Article X, the Guarantor unconditionally and irrevocably guarantees to each Lender and the Agent and their respective successors and assigns, that: (i) the principal of, premium, if any, and interest on the Advances and any promissory note issued hereunder will be duly and punctually paid in full when due, whether at maturity, by acceleration, by redemption or otherwise, and interest on overdue principal, and premium, if any, and (to the extent permitted by law) interest on any interest, if any, on the Advances, any promissory note issued hereunder and all other obligations of the Company to the Lenders or the Agent hereunder (including fees and expenses) will be promptly paid in full, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or renewal of any of the Advances or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Lenders or the Agent, for whatever reason, the Guarantor will be obligated to pay, or to perform or to cause the performance of, the same immediately. An Event of Default under this Agreement shall constitute an event of default under this Guarantee, and shall entitle the Lenders to accelerate the obligations of the Guarantor under this Guarantee in the same manner and to the same extent as the obligations of the Company. The Guarantor hereby agrees that its obligations under this Guarantee shall be unconditional, irrespective of the validity, regularity or enforceability of this Agreement, the absence of any action to enforce the same, any waiver or consent by any Lender or the Agent of this Agreement with respect to any thereof, the entry of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives and relinquishes: (a) any right to require the Agent, the Lenders or the Company (each, a "Benefitted Party") to proceed against the Company or any other Person or to proceed against or exhaust any security held by a Benefitted Party at any time or to pursue any other remedy in any secured party's power before proceeding against the Guarantor; (b) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other Person or Persons or the failure of a Benefitted Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person or Persons; (c) demand, protest and notice of any kind (except as ex- 55 60 pressly required by this Agreement), including but not limited to notice of the existence, creation or incurring of any new or additional Debt or obligation or of any action or non-action on the part of the Guarantor, the Company, any Benefitted Party, any creditor of the Guarantor, the Company or on the part of any other Person whomsoever in connection with any obligations the performance of which are guaranteed under this Guarantee; (d) any defense based upon an election of remedies by a Benefitted Party, including but not limited to an election to proceed against the Guarantor for reimbursement; (e) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (f) any defense arising because of a Benefitted Party's election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code; and (g) any defense based on any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code. The Guarantor hereby covenants that this Guarantee will not be discharged except by payment in full of all principal, premium, if any, and interest on the Advances and all other costs provided for under this Agreement. This is a Guarantee of payment and not of collectibility. If any Lender or the Agent is required by any court or otherwise to return to either the Company or the Guarantor, or any trustee or similar official acting in relation to either the Company or the Guarantor, any amount paid by the Company or the Guarantor to the Agent or such Lender, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Lenders or the Agent in respect of any obligations guaranteed under this Guarantee until payment in full of all obligations guaranteed hereby. The Guarantor agrees that, as between it, on the one hand, and the Lenders and the Agent, on the other hand, (x) the maturity of the obligations guaranteed under this Guarantee may be accelerated as provided in Article VI hereof for the purposes hereof, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purpose of this Guarantee. SECTION 10.02 Limitation of Guarantor's Liability. The Guarantor, and by its acceptance hereof, each Lender, hereby confirms that it is the intention of the parties hereto that this Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or State law. To effectuate the foregoing intention, the Lenders and the Guarantor hereby irrevocably agree that the obligations of the Guarantor under this Article X shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of the Guarantor, result in the obligations of the Guarantor under the Guarantee not constituting a fraudulent transfer or conveyance under federal or state law. 56 61 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE PEPSI BOTTLING GROUP, INC., as Borrower By /s/ Christopher Langhoff ----------------------------------------- Title: Assistant Treasurer BOTTLING GROUP, LLC, as Guarantor By /s/ Pamela C. McGuire ----------------------------------------- Title: Managing Director THE CHASE MANHATTAN BANK, as Agent By /s/ Karen M. Sharf ----------------------------------------- Title: Vice President 62
Commitment Initial Lenders - ---------- --------------- $30,000,000.00 THE CHASE MANHATTAN BANK, as an Initial Lender By /s/ Karen M. Sharf ----------------------------- Title: Vice President $30,000,000.00 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as an Initial Lender By /s/ W. L. Hess ----------------------------- Title: Managing Director $30,000,000.00 CITIBANK, N.A., as an Initial Lender By /s/ Laura A. Siracuse ----------------------------- Title: Vice President $25,000,000.00 CREDIT SUISSE FIRST BOSTON CORPORATION, as an Initial Lender By /s/ David Kratovil ----------------------------- Title: Director By /s/ Robert Hetu ----------------------------- Title: Vice President
63 $25,000,000.00 UBS AG as an Initial Lender By /s/ Paula Mueller ----------------------------- Title: Director By /s/ Roman Edelmann ----------------------------- Title: Director $20,000,000.00 LEHMAN COMMERCIAL PAPER INC., as an Initial Lender By /s/ Michele Swanson ----------------------------- Title: Authorized Signatory $15,000,000.00 ROYAL BANK OF CANADA, as an Initial Lender By /s/ John Crawford ----------------------------- Title: Senior Manager $12,500,000.00 BANCO BILBAO VIZCAYA, as an Initial Lender By /s/ Pilar Fernadez ----------------------------- Title: Vice President By /s/ Eduardo Martinez ----------------------------- Title: Assistant Vice President
64 $12,500,000.00 DEUTSCHE BANK AG, as an Initial Lender By /s/ Alexander Karow Title: Assistant Vice President By /s/ Stephan Wiedemann ----------------------------- Title: Director $12,500,000.00 FLEET NATIONAL BANK, as an Initial Lender By /s/ Christopher Criswell ----------------------------- Title: Senior Vice President $12,500,000.00 HONG KONG & SHANGHAI BANKING CORP., as an Initial Lender By /s/ Kim Leary ----------------------------- Title: Vice President $12,500,000.00 THE BANK OF NEW YORK, as an Initial Lender By /s/ Eliza S. Adams ----------------------------- Title: Vice President $12,500,000.00 THE NORTHERN TRUST COMPANY, as an Initial Lender By /s/ Nicole Boehm ----------------------------- Title: Commercial Banking Officer $250,000,000 Total of the Commitments
65 SCHEDULE I
Lender Domestic Lending Office Eurodollar Lending Office - ------ ----------------------- ------------------------- THE CHASE MANHATTAN 270 Park Avenue 270 Park Avenue BANK New York, New York 10017 New York, New York 10017 BANK OF AMERICA 1850 Gateway Blvd. 1850 Gateway Blvd. NATIONAL TRUST Concord, CA 94520 Concord, CA 94520 AND SAVINGS ASSOCIATION CITIBANK, N.A. 399 Park Avenue 399 Park Avenue New York New York 10043 New York New York 10043 CREDIT SUISSE FIRST 11 Madison Avenue Credit Suisse First Boston BOSTON New York, New York, 10010 Cayman Islands Branch c/-11 Madison Avenue New York, New York 10010 UBS AG 677 Washington Blvd. 677 Washington Blvd Stamford, CT 06912 Stamford, CT 06912 LEHMAN COMMERCIAL c/- Bankers Trust Company c/- Bankers Trust Company PAPER INC. 130 Liberty Street 130 Liberty Street 9th Floor 9th Floor New York, New York 10006 New York, New York 10006 cc Lehman Commercial cc Lehman Commercial Paper Paper Inc. Inc. 101 Hudson Street 101 Hudson Street 30th Floor 30th Floor Jersey City, New Jersey Jersey City, New Jersey 07302 07302 ROYAL BANK OF CANADA One Liberty Plaza One Liberty Plaza New York, New York New York, New York 10006-1404 10006-1404 BANCO BILBAO VIZCAYA 1345 Avenue of the 1345 Avenue of the Americas Americas New York, New York 10105 New York, New York 10105 DEUTSCHE BANK AG NEW 31 West 52nd Street Cayman Islands Branch YORK BRANCH AND/OR New York, New York 10019 c/-31 West 52nd Street CAYMAN ISLANDS BRANCH New York, New York 10019 FLEET NATIONAL BANK One Landmark Sq. One Landmark Sq. Stamford, CT 06904 Stamford, CT 06904 HONG KONG & SHANGHAI HSBC Center HSBC Center BANKING CORP. 26th Floor 26th Floor Buffalo, New York, 14206 Buffalo, New York, 14206 THE BANK OF NEW YORK One Wall Street, One Wall Street, New York, New York 10286 New York, New York 10286 THE NORTHERN TRUST 50 South La Salle Street, 50 South La Salle St. COMPANY Chicago, Ill. 60675 Chicago, Ill. 60675
-2- 66 SCHEDULE 2 APPLICABLE MARGIN
364-Day 364-Day 364-Day Rating Facility Fee LIBOR Margin Drawn Cost ------ ------------ ------------ ---------- A/A2 6.0 bps 29.0 bps 35.0 bps A-/A3 7.0 bps 33.0 bps 40.0 bps BBB+/Baa1 10.0 bps 40.0 bps 50.0 bps BBB/Baa2 15.0 bps 47.5 bps 62.5 bps (less than or equal to) BBB-/Baa3 20.0 bps 55.0 bps 75.0 bps
-3- 67 EXHIBIT A-1 - FORM OF NOTICE OF REVOLVING CREDIT BORROWING The Chase Manhattan Bank, as Agent for the Lenders parties to the 364-Day Credit Agreement referred to below 270 Park Avenue New York, New York 10017 [Date] Attention: Nina Wang Ladies and Gentlemen: The undersigned, The Pepsi Bottling Group, Inc. (the "Company"), refers to the 364-Day Credit Agreement, dated as of April 22, 1999 (as amended or modified from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, Bottling Group, LLC (the "Guarantor"), certain Lenders parties thereto and The Chase Manhattan Bank, as administrative agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Revolving Credit Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Revolving Credit Borrowing (the "Proposed Revolving Credit Borrowing") as required by Section 2.02(a) of the Credit Agreement: (i) The Business Day of the Proposed Revolving Credit Borrowing is __________, ____. (ii) The Type of Advances comprising the Proposed Revolving Credit Borrowing is [Base Rate Advances] [Eurodollar Rate Advances]. (iii) The aggregate amount of the Proposed Revolving Credit Borrowing is $______. (iv) The identity of the Borrower is __________, a ____________ corporation. [(v)] [The initial Interest Period for each Eurodollar Rate Advance made as part of the Proposed Revolving Credit Borrowing is ___ month[s].] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Revolving Credit Borrowing: A-1-1 68 (A) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects, on and as of the date of the Proposed Revolving Credit Borrowing, before and after giving effect to the Proposed Revolving Credit Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (B) no event has occurred and is continuing, or would result from such Proposed Revolving Credit Borrowing or from the application of the proceeds therefrom, that constitutes a Default. Very truly yours, THE PEPSI BOTTLING GROUP, INC. By Title: A-1-2 69 EXHIBIT A-2 - FORM OF NOTICE OF COMPETITIVE BID BORROWING The Chase Manhattan Bank, as Agent for the Lenders parties to the 364-Day Credit Agreement referred to below 270 Park Avenue New York, New York 10017 [Date] Attention: Nina Wang Ladies and Gentlemen: The undersigned, The Pepsi Bottling Group, Inc. (the "Company"), refers to the 364-Day Credit Agreement, dated as of April 22, 1999 (as amended or modified from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, Bottling Group, LLC (the "Guarantor"), certain Lenders parties thereto and The Chase Manhattan Bank, as administrative agent for said Lenders, and hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby requests a Competitive Bid Borrowing under the Credit Agreement, and in that connection sets forth the terms on which such Competitive Bid Borrowing (the "Proposed Competitive Bid Borrowing") is requested to be made: (A) Date of Proposed Competitive Bid Borrowing ___________________ (B) Aggregate Amount of Proposed Competitive Bid Borrowing ___________________ (C) Maturity Date ___________________ (D) Interest Rate Basis ___________________ (E) Interest Payment Date(s) ___________________ (F) Identity of Borrower ___________________ The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Competitive Bid Borrowing: (a) the representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects, on and as of the A-2-1 70 date of the Proposed Competitive Bid Borrowing, before and after giving effect to the Proposed Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (b) no event has occurred and is continuing, or would result from the Proposed Competitive Bid Borrowing or from the application of the proceeds therefrom, that constitutes a Default. The undersigned hereby confirms that the Proposed Competitive Bid Borrowing is to be made available to it in accordance with Section 2.03(a)(v) of the Credit Agreement. Very truly yours, THE PEPSI BOTTLING GROUP, INC. By Title: A-2-2 71 EXHIBIT A-3 - FORM OF EXTENSION AGREEMENT EXTENSION AGREEMENT The Pepsi Bottling Group, Inc. One Pepsi Way Somers, New York 10589 Attention: Treasurer The Chase Manhattan Bank, as Agent under the 364-Day Credit Agreement referred to below 270 Park Avenue New York, New York 10017 Attention: Nina Wang Gentlemen: Each undersigned Lender hereby agrees to extend, effective on [insert effective date, which shall be no more than 29 days prior to the existing Termination Date] (the "Extension Date"), the Termination Date under the 364-Day Credit Agreement dated as of April 22, 1999 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among The Pepsi Bottling Group, Inc., Bottling Group, LLC, the Lenders and agents party thereto and The Chase Manhattan Bank, as administrative agent for the Lenders, to [364 days from the effective date of this Extension Agreement]. Terms defined in the Credit Agreement are used herein as therein defined. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. [Remainder of this page intentionally left blank] A-3-1 72 EXHIBIT B - FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the 364-Day Credit Agreement dated as of April 22, 1999 (as amended or modified from time to time, the "Credit Agreement"), among THE PEPSI BOTTLING GROUP, INC., a Delaware corporation (the "Company"), Bottling Group, LLC (the "Guarantor"), the Lenders (as defined in the Credit Agreement) and The Chase Manhattan Bank, as administrative agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof (other than in respect of Competitive Bid Advances) equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement (other than in respect of Competitive Bid Advances). After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Revolving Credit Advances owing to the Assignee will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance by the Company of any of its obligations or the obligations of any Borrower under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to B-1 73 the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.14 of the Credit Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. B-2 74 Schedule 1 to Assignment and Acceptance Percentage interest assigned: ___% Assignee's Commitment: $__________ Aggregate outstanding principal amount of Revolving Credit Advances assigned: $__________ Effective Date(1): _______________, ____ [NAME OF ASSIGNOR], as Assignor By Title: Dated: , [NAME OF ASSIGNEE], as Assignee By Title: Dated: , Domestic Lending Office: [Address] Eurodollar Lending Office: [Address] - ------------------- (1) This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent. 75 Accepted and Approved this ____ day of ________, ____ THE CHASE MANHATTAN BANK, as Agent By ___________________________________ Title: Approved this ____ day of ________, ____ THE PEPSI BOTTLING GROUP, INC. By ___________________________________ Title: 2 76 EXHIBIT C - FORM OF OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR [Effective Date] To each of the Lenders parties to the 364-Day Credit Agreement dated as of April 22, 1999 among The Pepsi Bottling Group, Inc., said Lenders and The Chase Manhattan Bank, as Agent for said Lenders, and to The Chase Manhattan Bank, as Agent The Pepsi Bottling Group, Inc. Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 3.01(g)(v) of the 364-Day Credit Agreement, dated as of April 22, 1999 (the "Credit Agreement"), among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC, (the "Guarantor"), the Lenders parties thereto and The Chase Manhattan Bank, as Agent for said Lenders, providing for extensions of credit to be made by said Lenders to the Company in an aggregate principal amount at any one time outstanding of up to $250,000,000. Terms defined in the Credit Agreement are used herein as therein defined. I am the General Counsel of the Company and have acted as counsel to the Company and the Guarantor in connection with the Credit Agreement. In connection with this opinion, I have examined: (1) The Credit Agreement. (2) The documents furnished by the Company and the Guarantor pursuant to subsections 3.01(g)(i)-(iv) of the Credit Agreement. (3) The Articles of Incorporation of the Company and all amendments thereto (the "Charter"). C-1 77 (4) The by-laws of the Company and all amendments thereto (the "By-laws"). (5) A certificate of the Secretary of State of Delaware, dated _______________, 1999, attesting to the continued corporate existence and good standing of the Company in that State. (6) The Amended and Restated Limited Liability Company Agreement of the Guarantor, dated as of March 30, 1999, and all amendments thereto (the "LLC Agreement"). (7) The Certificate of Formation of the Guarantor and all amendments thereto (the "Certificate of Formation"). (8) A certificate of the Secretary of State of Delaware dated _________, 1999, attesting to the continued existence and good standing of the Guarantor in that State. (9) Resolutions of the Board of Directors of the Company adopted on March 30, 1999. (10) Resolutions of the Managing Directors of the Guarantor adopted on , 1999. In addition, I have examined the originals, or copies certified or otherwise identified to my satisfaction, of such other corporate records of the Company and the Guarantor, certificates of public officials and of officers of the Company and the Guarantor, and agreements, instruments and other documents, as I have deemed necessary as a basis for the opinions expressed below. I have assumed the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Initial Lenders and the Agent. The opinions expressed below are limited to the law of the State of New York, the Delaware corporate law, the Federal law of the United States and, with respect to paragraphs 1 and 2 and clauses (i), (ii) and (iii)(a) of paragraph 3 only, the Delaware General Corporation Law and the Delaware Limited Liability Company Act. Based upon the foregoing and upon such investigation as I have deemed necessary and subject to the qualifications set forth herein, I am of the following opinion: 1. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware. 2. The Guarantor is a limited liability company validly existing and in good standing under the laws of the state of Delaware. C-2 78 3. The execution, delivery and performance by the Company and the Guarantor of the Credit Agreement (i) are within the Company's corporate, and the Guarantor's limited liability company, powers, (ii) have been duly authorized by all necessary corporate, or limited liability company, action, and (iii) do not contravene (a) the Charter or the Bylaws of the Company or the LLC Agreement or Certificate of Formation of the Guarantor or (b) to the best of my knowledge (1) any United States Federal or New York State law, rule or regulation applicable to the Company or the Guarantor (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (2) any contractual or legal restriction contained in any material judgment, decree, mortgage, agreement, indenture or other instrument to which the Company or the Guarantor is a party. The Credit Agreement has been duly executed and delivered on behalf of the Company and the Guarantor. 4. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body of the State of New York or the Federal government of the United States is required for the due execution, delivery and performance by the Company or the Guarantor of the Credit Agreement. 5. The Credit Agreement is a valid and binding obligation of the Company and the Guarantor enforceable against the Company and the Guarantor in accordance with its terms. 6. To the best of my knowledge and except as disclosed in the Company's consolidated financial statements, there are no pending or overtly threatened actions or proceedings against the Company or any of its Subsidiaries, before any court, governmental agency or arbitrator that purport to affect the legality, validity, binding effect or enforceability of the Credit Agreement or that are likely to have a materially adverse effect upon the financial condition or operations of the Company or any of its Subsidiaries. The opinions set forth above are subject to the following qualifications: (a) My opinion in paragraph 5 above is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally. (b) My opinion in paragraph 5 above is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). (c) I express no opinion as to the effect (if any) of the law of any jurisdiction (other than the State of New York) wherein any Lender may be located or wherein en- C-3 79 forcement of the Credit Agreement may be sought that limits the rates of interest that such Lender may charge or collect. (d) I express no opinion as to the effect of Section 548 of the United States Bankruptcy Code or any similar provision of State law. I am aware that Skadden, Arps, Slate Meagher & Flom LLP will rely upon the opinions set forth in paragraphs 1, 2 and 3 of this opinion in rendering their opinion furnished pursuant to Section 3.01 of the Credit Agreement. In all other respects and for all other purposes, this opinion is given solely for the benefit of the Agent and the Lenders and may not be relied upon by any other person or entity without my prior written consent. Very truly yours, C-4 80 EXHIBIT D FORM OF DESIGNATION LETTER ------------, ---- To The Chase Manhattan Bank as Agent Attention: Nina Wang Ladies and Gentlemen: We make reference to the 364-Day Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of April 22, 1999 among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), The Chase Manhattan Bank, as administrative agent (the "Agent"), and the banks party thereto (the "Initial Lenders"). Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby designates [______________] (the "Borrowing Subsidiary"), a Subsidiary of the Company and a corporation duly incorporated under the laws of [_______________] as a Borrower in accordance with Section 2.17 of the Credit Agreement until such designation is terminated in accordance with said Section 2.17. The Borrowing Subsidiary hereby accepts the above designation and hereby expressly and unconditionally accepts the obligations of a Borrower under the Credit Agreement, adheres to the Credit Agreement and agrees and confirms that, upon your execution and return to the Company of the enclosed copy of this letter, such Borrowing Subsidiary shall be a Borrower for purposes of the Credit Agreement and agrees to be bound by and perform and comply with the terms and provisions of the Credit Agreement applicable to it as if it had originally executed the Credit Agreement as a Borrower. The Borrowing Subsidiary hereby authorizes and empowers the Company to act as its representative and attorney-in-fact for the purposes of signing documents and giving and receiving notices (including notices of Borrowing under the Credit Agreement) and other communications in connection with the Credit Agreement and the transactions contemplated thereby and for the purposes of modifying or amending any provision of the Credit Agreement and further agrees that the Agent and each Lender may conclusively rely on the foregoing authorization. D-1 81 The Borrowing Subsidiary represents and warrants that each of the representations and warranties set forth in Section 4.01 (a) (as if the reference therein to Delaware were a reference to its jurisdiction of organization), (b), (c) and (d) of the Credit Agreement are true as if each reference therein to the Company were a reference to the Borrowing Subsidiary and as if each reference therein to the Loan Documents were a reference to this Designation Letter. The Borrowing Subsidiary hereby agrees that this Designation Letter and the Credit Agreement shall be governed by, and construed in accordance with, the law of the State of New York. The Borrowing Subsidiary hereby submits to the nonexclusive jurisdiction of any New York state court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Designation Letter, the Credit Agreement or for recognition or enforcement of any judgment. The Borrowing Subsidiary irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Borrowing Subsidiary further agrees that service of process in any such action or proceeding brought in New York may be made upon it by service upon the Borrower at the "Address for Notices" specified below its name on the signature pages to the Credit Agreement. Without limiting the foregoing, the Borrowing Subsidiary joins in the submission, agreements, waivers and consents in Section 8.11 and 8.12 of the Credit Agreement. THE PEPSI BOTTLING GROUP, INC. By ___________________________________ Title: [NAME OF BORROWING SUBSIDIARY] By ___________________________________ Title: D-2 82 ACCEPTED THE CHASE MANHATTAN BANK as Agent By ___________________________________ Title: D-3 83 EXHIBIT E FORM OF SUBSTITUTION LETTER ------------, ---- To The Chase Manhattan Bank as Agent Attention: Nina Wang Ladies and Gentlemen: We make reference to the 364-Day Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of April 22, 1999 among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), The Chase Manhattan Bank, as administrative agent (the "Agent"), and the banks party thereto (the "Initial Lenders"). Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby elects to terminate its rights as a Borrower under the Credit Agreement and designates the Guarantor as the exclusive Borrower thereunder, in accordance with Section 2.17 of the Credit Agreement. The Guarantor hereby accepts the above substitution and hereby expressly and unconditionally accepts the obligations of the Company under the Credit Agreement, adheres to the Credit Agreement and agrees and confirms that, as of the date hereof, the Guarantor shall become a Borrower for purposes of the Credit Agreement and agrees to be bound by and perform and comply with the terms and provisions of the Credit Agreement applicable to it as if it had originally executed the Credit Agreement as the Company. The Company and the Guarantor hereby represent and warrant to the Agent and each Lender that, before and after giving effect to this Substitution Letter, (i) the representations and warranties set forth in Section 4.01 of the Credit Agreement (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are true and correct in all material respects on the date hereof and after giving effect to the substitution contemplated hereby as if made on and as of the date hereof and (ii) no Default has occurred and is continuing. E-1 84 The Company and the Guarantor hereby agree that this Substitution Letter shall be governed by, and construed in accordance with, the law of the State of New York. The Company and the Guarantor hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Substitution Letter or the transactions contemplated hereby. THE PEPSI BOTTLING GROUP, INC. By --------------------------- Title: BOTTLING GROUP, LLC By --------------------------- Title: E-2 85 EXHIBIT F FORM OF TERMINATION LETTER ____________, ____ To The Chase Manhattan Bank, as Agent Attention: Nina Wang Ladies and Gentlemen: We make reference to the 364-Day Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of April 22, 1999 by and among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), The Chase Manhattan Bank, as administrative agent, and the banks party thereto. Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby terminates the status as a Borrowing Subsidiary of [_______________], a corporation incorporated under the laws of [_______________], in accordance with Section 2.17 of the Credit Agreement, effective as of the date of receipt of this notice by the Agent. The undersigned hereby represents and warrants that all principal of and interest on any Advance of the above-referenced Borrowing Subsidiary and all other amounts payable by such Borrowing Subsidiary pursuant to the Credit Agreement have been paid in full on or prior to the date hereof. Notwithstanding the foregoing, this Termination Letter shall not affect any obligation which by the terms of the Credit Agreement survives termination thereof THE PEPSI BOTTLING GROUP, INC. By ___________________________________ Title: F-1 EX-4.6 3 5 YEAR CREDIT AGREEMENT 1 EXHIBIT 4.6 CONFORMED COPY ================================================================================ U.S. $250,000,000 5 YEAR CREDIT AGREEMENT Dated as of April 22, 1999 among THE PEPSI BOTTLING GROUP, INC. BOTTLING GROUP, LLC THE LENDERS NAMED HEREIN THE CHASE MANHATTAN BANK, as Agent, CHASE SECURITIES INC., as Arranger and NATIONSBANC MONTGOMERY SECURITIES LLC AND SALOMON SMITH BARNEY INC. as Co-Syndication Agents ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01 Certain Defined Terms.................................................... 1 SECTION 1.02 Computation of Time Periods.............................................. 12 SECTION 1.03 Accounting Terms......................................................... 12 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01 The Revolving Credit Advances............................................ 13 SECTION 2.02 Making the Revolving Credit Advances..................................... 13 SECTION 2.03 The Competitive Bid Advances............................................. 15 SECTION 2.04 Fees .................................................................... 18 SECTION 2.05 Termination, Reduction or Increase of the Commitments ................... 19 SECTION 2.06 Repayment of Revolving Credit Advances; Evidence of Indebtedness; Extension of Termination Date.................. 22 SECTION 2.07 Interest on Revolving Credit Advances.................................... 23 SECTION 2.08 Interest Rate Determination.............................................. 24 SECTION 2.09 Optional Conversion of Revolving Credit Advances......................... 25 SECTION 2.10 Optional Prepayments of Revolving Credit Advances........................ 25 SECTION 2.11 Increased Costs.......................................................... 26 SECTION 2.12 Illegality............................................................... 27 SECTION 2.13 Payments and Computations................................................ 27 SECTION 2.14 Taxes ................................................................... 28 SECTION 2.15 Sharing of Payments, Etc................................................. 31 SECTION 2.16 Use of Proceeds.......................................................... 31 SECTION 2.17 Borrowings by Borrowing Subsidiaries; Substitution of Borrower .......... 31 SECTION 2.18 Mitigation Obligations................................................... 33 ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01 Conditions Precedent to Effectiveness of Sections 2.01 and 2.03.......... 33 SECTION 3.02 Conditions Precedent to Each Revolving Credit Borrowing.................. 35 SECTION 3.03 Conditions Precedent to Each Competitive Bid Borrowing................... 35 SECTION 3.04 Determinations Under Section 3.01........................................ 36
i 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Representations and Warranties of the Loan Parties....................... 36 ARTICLE V COVENANTS SECTION 5.01 Affirmative Covenants.................................................... 38 SECTION 5.02 Negative Covenants....................................................... 39 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01 Events of Default........................................................ 42 ARTICLE VII THE AGENT.................................................................................. 44 ARTICLE VIII MISCELLANEOUS SECTION 8.01 Amendments, Etc.......................................................... 46 SECTION 8.02 Notices, Etc............................................................. 46 SECTION 8.03 No Waiver; Remedies...................................................... 47 SECTION 8.04 Costs and Expenses....................................................... 47 SECTION 8.05 Right of Set-off......................................................... 48 SECTION 8.06 Binding Effect........................................................... 49 SECTION 8.07 Assignments and Participations........................................... 49 SECTION 8.08 Confidentiality.......................................................... 51 SECTION 8.09 Governing Law............................................................ 52 SECTION 8.10 Execution in Counterparts................................................ 52 SECTION 8.11 Jurisdiction, Etc........................................................ 52 SECTION 8.12 WAIVER OF JURY TRIAL..................................................... 52 ARTICLE IX COMPANY GUARANTEE SECTION 9.01 Guarantee................................................................ 53 SECTION 9.02 Obligations Unconditional................................................ 53 SECTION 9.03 Reinstatement............................................................ 54 SECTION 9.04 Subrogation.............................................................. 54 SECTION 9.05 Remedies ................................................................ 54
ii 4 SECTION 9.06 Continuing Guarantee..................................................... 54 ARTICLE X SUBSIDIARY GUARANTEE SECTION 10.01 Subsidiary Guarantee..................................................... 54 SECTION 10.02 Limitation of Guarantor's Liability...................................... 56
SCHEDULE I SCHEDULE 2 APPLICABLE MARGIN EXHIBIT A-1 FORM OF NOTICE OF REVOLVING CREDIT BORROWING EXHIBIT A-2 FORM OF NOTICE OF COMPETITIVE BID BORROWING EXHIBIT A-3 FORM OF EXTENSION AGREEMENT EXHIBIT B FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT C FORM OF OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR EXHIBIT D FORM OF DESIGNATION LETTER EXHIBIT E FORM OF SUBSTITUTION LETTER EXHIBIT F FORM OF TERMINATION LETTER iii 5 CREDIT AGREEMENT Dated as of April 22, 1999 THE PEPSI BOTTLING GROUP, INC., a Delaware corporation (the "Company"), BOTTLING GROUP, LLC, a Delaware limited liability company (the "Guarantor"), the banks, financial institutions and other institutional lenders (the "Initial Lenders") listed on the signature pages hereof, and THE CHASE MANHATTAN BANK ("Chase"), as administrative agent (in such capacity, the "Agent") for the Lenders (as hereinafter defined), agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Advance" means a Revolving Credit Advance or a Competitive Bid Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "Agent's Account " means the account of the Agent maintained by the Agent at Chase with its office at 270 Park Avenue, New York, New York 10017. "Alternate Covenant Date" means any day on which the Index Debt of Pepsi shall be rated less than A- by S&P or less than A3 by Moody's. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of the Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Agent as Applicable Lending Office with respect to such Competitive Bid Advance. "Applicable Margin" means with respect to any Eurodollar Rate Advance or with respect to the facility fees payable hereunder, as the case may be, for any day, the applicable rate 6 per annum set forth in Schedule 2; provided, that, for purposes of calculating the Applicable Margin, (i) if either Moody's or S&P shall not have in effect a rating for the Company, then the Applicable Margin shall be determined based on the highest applicable facility fee or LIBOR Margin in Schedule 2, (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Company shall fall within different categories, the Applicable Margin shall be based on the higher of the two ratings unless one of the two ratings is two or more categories lower than the other, in which case the Applicable Margin shall be determined by reference to the category next below that of the higher of the two ratings; and (iii) if the ratings established or deemed to have been established by Moody's and S&P for the Company shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Agent and the Lenders. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit B hereto. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Chase in New York, New York, from time to time, as Chase's base rate; and (b) 1/2 of one percent per annum above the Federal Funds Rate. "Base Rate Advance" means a Revolving Credit Advance that bears interest as provided in Section 2.07(a). "Borrowers" means, at any time, collectively, the Company unless the Substitution Date has occurred pursuant to Section 2.17, each Borrowing Subsidiary and, on and after the Substitution Date has occurred pursuant to Section 2.17, the Guarantor. "Borrowing" means a Revolving Credit Borrowing or a Competitive Bid Borrowing. 2 7 "Borrowing Subsidiary" means any Subsidiary of the Company, as to which a Designation Letter has been delivered to the Agent and as to which a Termination Letter has not been delivered to the Agent in accordance with Section 2.17. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Change of Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) other than Pepsi, of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (i) nominated by the board of directors of the Company nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Company by any Person or group other than Pepsi. "Commitment" has the meaning specified in Section 2.01. "Competitive Bid Advance" means an advance by a Lender to a Borrower as part of a Competitive Bid Borrowing resulting from the auction bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance. "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the auction bidding procedure described in Section 2.03. "Competitive Bid Reduction" has the meaning specified in Section 2.01. "Confidential Information" means information that the Company furnishes to the Agent or any Lender in a writing designated as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes rightfully available to the Agent or such Lender from a source other than the Company. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount with respect to Debt (including the Advances), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not 3 8 limited to, goodwill) and organization costs, (e) any extraordinary expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business), and (f) any other non-cash charges, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) any extraordinary income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (b) any other non-cash income, all as determined on a Consolidated basis; in each case exclusive of the cumulative effect of foreign currency gains or losses. For the purposes of calculating Consolidated EBITDA for any period pursuant to any determination of the Consolidated Leverage Ratio, if during such period the Company or any Subsidiary, including the Guarantor, shall have made an acquisition or incurred or assumed (without duplication of any Debt incurred to refinance such assumed Debt) any Debt, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such acquisition occurred and such Debt had been incurred or assumed or refinanced on the first day of such period. "Consolidated Leverage Ratio" means, as at the last day of any Fiscal Quarter, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for the four consecutive fiscal quarters then ended (taken as one accounting period). "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and its Restricted Subsidiaries, including the Guarantor, determined on a consolidated basis in accordance with GAAP, before deduction of any minority interests in the Guarantor and excluding the cumulative effect of any foreign currency gains or losses. "Consolidated Net Tangible Assets" means the total assets of the Company and its Restricted Subsidiaries (less applicable depreciation, amortization, and other valuation reserves), except to the extent resulting from write-ups of capital assets (other than writeups in connection with accounting for acquisitions, in accordance with GAAP), less all current liabilities (excluding intercompany liabilities) and all intangible assets of the Company and its Restricted Subsidiaries, all as set forth on the most recent Consolidated balance sheet of the Company and its Restricted Subsidiaries, prepared in accordance with GAAP, but before deduction of any minority interests in the Guarantor and exclusive of any foreign currency translation adjustments. "Consolidated Net Worth" means, as of any date of determination, all items which in conformity with GAAP would be included under shareholders' equity on a Consolidated balance sheet of the Company and its Subsidiaries, including the Guarantor, at such date plus amounts representing mandatorily redeemable preferred securities issued by Subsidiaries of the Company, including the Guarantor, but before deduction of any minority interests in the Guarantor and exclusive of any foreign currency translation adjustments. 4 9 "Consolidated Total Debt" means, at any date (i) the aggregate principal amount of all Debt of the Company and its Subsidiaries, including the Guarantor minus (ii) the aggregate amount (not in excess of $500,000,000) of all cash and cash equivalents of the Company and its Subsidiaries, in each case at such date and determined on a Consolidated basis in accordance with GAAP. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Convert", "Conversion" and "Converted" each refers to a conversion of Revolving Credit Advances of one Type into Revolving Credit Advances of the other Type pursuant to Section 2.08 or 2.09. "Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations (other than trade accounts payable arising in the ordinary course of business) of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all Debt of others referred to in clauses (a) through (c) above or clause (g) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through (i) an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss, or (ii) a standby letter of credit and (g) all Debt referred to in clauses (a) through (f) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Debt to Capitalization Ratio" means at any time the ratio of (x) Consolidated Total Debt to (y) the sum of (i) Consolidated Total Debt plus (ii) Consolidated Net Worth. 5 10 "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Designation Letter" has the meaning specified in Section 2.17(a). "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule 1 hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Company and the Agent. "Effective Date" has the meaning specified in Section 3.01. "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender; (iii) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $15,000,000,000 and a combined capital and surplus of at least $1,000,000,000; (iv) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $15,000,000,000 and a combined capital and surplus of at least $1,000,000,000; (v) a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow or of the Cayman Islands, or a political subdivision of any such country, and having total assets in excess of $l5,000,000,000 and a combined capital and surplus of at least $1,000,000,000 so long as such bank is acting through a branch or agency located in the United States or in the country in which it is organized or another country that is described in this clause (v); (vi) the central bank of any country that is a member of the Organization for Economic Cooperation and Development; provided, however, that each Person described in clauses (ii) through (vi) shall have a short term public debt rating of not less than A by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or shall be approved by the Company; and (vii) any other Person approved by the Company, such approval not to be unreasonably withheld or delayed; provided, however, that neither the Company nor an Affiliate of the Company shall qualify as an Eligible Assignee. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance relating to the environment, health, safety or Hazardous Materials. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule 1 hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is 6 11 specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Company and the Agent. "Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing, an interest rate per annum appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of 11:00 A.M. (London time) on the date two Business Days prior to the first day of such Interest Period as the rate for Dollar deposits having a term comparable to such Interest Period, or in the event such offered rate is not available from said Page 3750, the average (rounded to the nearer whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of such Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period. If the Eurodollar Rate does not appear on said Page 3750 (or any successor page), the Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "Eurodollar Rate Advance" means a Revolving Credit Advance that bears interest as provided in Section 2.07(b). "Events of Default" has the meaning specified in Section 6.01. "Extension Agreement" means an Extension Agreement substantially in the form contained in Exhibit A-3 hereto. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means a period of 13 or (or 14) weeks treated by the Company as a fiscal quarter. 7 12 "Fiscal Year" means the period of 52 (or 53) weeks ending on the last Saturday of any calendar year and treated by the Company as its fiscal year. "5-Year Facility" means the 5 Year Credit Agreement dated as of the date hereof among each of the parties hereto. "Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i). "GAAP" means generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited Consolidated financial statements of the Borrower and its Subsidiaries delivered to the Lenders. "Granting Lender" has the meaning specified in Section 8.07(e). "Guaranteed Party" has the meaning specified in Section 9.01. "Hazardous Materials" means petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, radon gas and any other chemicals, materials or substances designated, classified or regulated as being "hazardous" or "toxic", or words of similar import, under any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance. "Index Debt" of any Person means senior, unsecured, long term indebtedness for borrowed money of such Person that is not guaranteed by any other Person (other than, in the case of the Company, the Guarantor) or subject to any other credit enhancement. "Information Memorandum" means the information memorandum dated March 1999 used by the Agent in connection with the syndication of the Commitments. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Company pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Company pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three, six or, to the extent available from all the Lenders, nine [or twelve] months, as the Company may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: 8 13 (i) the Company may not select any Interest Period that ends after the Termination Date; (ii) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Revolving Credit Borrowing shall be of the same duration; (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iv) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Lenders" means the Initial Lenders and each Person that shall become a party hereto pursuant to Sections 2.05(c) or 8.07. "LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor. "Loan Documents" means, collectively, this Agreement, each promissory note issued thereunder, each Designation Letter and each Termination Letter. "Loan Party" has the meaning specified in Section 4.01. "Master Bottling Agreement" means the Master Bottling Agreement dated March 30, 1999, between the Company and Pepsi or any successor or replacement agreement that confers substantially the same benefits on the Company as the Master Bottling Agreement conferred on the date hereof. 9 14 "Material Adverse Change" means any material adverse change in the financial condition, operations or properties of the Company or the Company and its Subsidiaries (including the Guarantor) taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the financial condition, operations or properties of the Company and its Subsidiaries (including the Guarantor) taken as a whole, (b) the rights and remedies of the Agent or any Lender under this Agreement or any promissary note or (c) the ability of the Company to perform its obligations under this Agreement or any promissary note. "Material Subsidiary" means each Subsidiary of the Company which is a "significant subsidiary" as that term is defined in Rule 1-02(w) of the Regulation S-X under the Securities Act of 1933, as such rule is in effect as of the date hereof. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "New Lender" means, for purposes of Section 2.05(c), an Eligible Assignee (which may be a Lender) selected by the Company with (in the case of a New Lender that is not already a Lender) prior consultation with the Agent. "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.13(a). "Notice of Revolving Credit Borrowing" has the meaning specified in Section 2.02(a). "Pepsi" means PepsiCo, Inc., a North Carolina corporation. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "Principal Property" means any single manufacturing or processing plant, office building, or warehouse owned or leased by the Company or a Restricted Subsidiary other than a plant, warehouse, office building, or portion thereof which, in the opinion of the Company's Board of Directors, is not of material importance to the business conducted by the Company and its Restricted Subsidiaries as an entirety. "Rating" means the rating of the Company's Index Debt by S&P or Moody's, as the case may be. "Reference Banks" means Chase, Citibank N.A. and Bank of America (and any successors thereof). 10 15 "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Register" has the meaning specified in Section 8.07(d). "Required Lenders" means at any time Lenders owed more than 50% of the then aggregate unpaid principal amount of the Revolving Credit Advances (excluding Competitive Bid Advances) owing to Lenders, or, if no such principal amount is then outstanding, Lenders having more than 50% of the aggregate amount of the Commitments. "Restricted Subsidiary" means at any time any Subsidiary of the Company except a Subsidiary which is at the time an Unrestricted Subsidiary. "Revolving Credit Advance" means an advance by a Lender to a Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of Revolving Credit Advance). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by each of the Lenders pursuant to Section 2.01. "S&P" means Standard & Poors Rating Services or any successor thereto. "Short Term Facilities" means (i) the $750,000,000 Series A Senior Notes due 2000 issued pursuant to the Indenture dated as of February 25, 1999 between Pepsi and The Chase Manhattan Bank, as Trustee, as modified by the First Supplemental Indenture dated as of February 26, 1999 among the Company, the Guarantor, Pepsi and The Chase Manhattan Bank, as Trustee, and (ii) the $2,500,000,000 Series B Senior Notes due 2000 issued pursuant to the Indenture dated as of March 5, 1999 among the Company, the Guarantor and The Chase Manhattan Bank, as Trustee. "SPC" has the meaning specified in Section 8.07(e). "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. 11 16 "Substitution Date" has the meaning specified in Section 2.17(c). "Substitution Letter" has the meaning specified in Section 2.17(c). "Termination Date" means April 22, 2004 or, if earlier, the date of termination in whole of the Commitments pursuant to Section 2.05(a) or 6.01 or, in the case of any Lender whose Commitment is extended pursuant to Section 2.06(b), the date to which such Commitment is extended; provided in each case that if any such date is not a Business Day, the relevant Termination Date of such Lender shall be the immediately preceding Business Day. "Termination Letter" has the meaning specified in Section 2.17(b). "364 Day Facility" means the 364 Day Credit Agreement dated as of the date hereof among each of the parties hereto. "Type" has the meaning specified in the definition of "Revolving Credit Advance." "Unrestricted Subsidiary" means any Subsidiary of the Company (not at the time designated a Restricted Subsidiary) other than the Guarantor (i) the major part of whose business consists of finance, banking, credit, leasing, insurance, financial services, or other similar operations, or any continuation thereof, (ii) substantially all the assets of which consist of the capital stock of one or more such Subsidiaries, or (iii) designated as such by the Company's Board of Directors. Any Subsidiary designated as a Restricted Subsidiary may be designated as an Unrestricted Subsidiary. "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar actions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. SECTION 1.02 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03 Accounting Terms. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP; provided that, if the Company notifies the Agent that the Company wishes to amend any provisions hereof to eliminate the effect of any change in GAAP (or if the Agent notifies the Company that the Required Lenders wish to amend any provision hereof for such purpose), then such provision shall be applied on the basis of GAAP in effect immediately 12 17 before the relevant change in GAAP became effective, until either such notice is withdrawn or such provision is amended in a manner satisfactory to the Company and the Required Lenders. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01 The Revolving Credit Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Credit Advances to the Company and any Borrowing Subsidiary from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on the signature pages hereof or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.05(a) or increased pursuant to Section 2.05(c) (such Lender's "Commitment"), provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the Competitive Bid Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be allocated among the Lenders ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments being a "Competitive Bid Reduction"). Each Revolving Credit Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof (or, if less, (i) an aggregate amount equal to the amount by which the aggregate amount of a proposed Competitive Bid Borrowing requested by the Company exceeds the aggregate amount of Competitive Bid Advances offered to be made by the Lenders and accepted by the Company in respect of such Competitive Bid Borrowing, if such Competitive Bid Borrowing is made on the same date as such Revolving Credit Borrowing or (ii) the aggregate amount of the unused Commitments, after giving effect to any Competitive Bid Reductions then in effect) and shall consist of Revolving Credit Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, each Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.10 and reborrow under this Section 2.01. SECTION 2.02 Making the Revolving Credit Advances. (a) Each Revolving Credit Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, or the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base Rate Advances, by the Company (on its own behalf and on behalf of any Borrowing Subsidiary) to the Agent, which shall give to each Lender prompt notice thereof by telecopier or telex. Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be by telecopier or telex, confirmed promptly 13 18 in writing, in substantially the form of Exhibit A-1 hereto, specifying therein the requested (i) date of such Revolving Credit Borrowing, (ii) Type of Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, (iv) in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Revolving Credit Advance and (v) the name of the relevant Borrower (which shall be the Company or a Borrowing Subsidiary). Each Lender shall, before 11:00 A.M. (New York City time), in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, or before 1:00 P.M. (New York City time), in the case of a Revolving Credit Borrowing consisting of Base Rate Advances, on the date of such Revolving Credit Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's ratable portion of such Revolving Credit Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such same day funds available to the relevant Borrower at such Borrower's account at the Agent's address referred to in Section 8.02. (b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Company may not select Eurodollar Rate Advances for any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit Borrowing is less than $10,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 and (ii) the Eurodollar Rate Advances may not be outstanding as part of more than six separate Revolving Credit Borrowings. (c) Each Notice of Revolving Credit Borrowing shall be irrevocable and binding on the relevant Borrower. In the case of any Revolving Credit Borrowing that the related Notice of Revolving Credit Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Company shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Revolving Credit Advance to be made by such Lender as part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a result of such failure, is not made on such date. (d) Unless the Agent shall have received notice from a Lender prior to the date of any Revolving Credit Borrowing that such Lender will not make available to the Agent such Lender's ratable portion of such Revolving Credit Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Revolving Credit Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the relevant Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and such Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date 14 19 such amount is made available to such Borrower until the date such amount is repaid to the Agent, at (i) in the case of a Borrower, the interest rate applicable at the time to Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Revolving Credit Advance as part of such Revolving Credit Borrowing for purposes of this Agreement and shall be made available in same day funds to the relevant Borrower's account at the Agent's address referred to in Section 8.02. (e) The failure of any Lender to make the Revolving Credit Advance to be made by it as part of any Revolving Credit Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Revolving Credit Advance on the date of such Revolving Credit Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Credit Advance to be made by such other Lender on the date of any Revolving Credit Borrowing. SECTION 2.03 The Competitive Bid Advances. (a) Each Lender severally agrees that each Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 7 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders (computed without regard to any Competitive Bid Reduction). (i) The Company (on its own behalf and on behalf of any Borrowing Subsidiary) may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Agent, by telecopier or telex, confirmed promptly in writing, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit A-2 hereto, specifying therein (u) the date of such proposed Competitive Bid Borrowing, (v) the aggregate amount of such proposed Competitive Bid Borrowing, (w) the maturity date for repayment of each Competitive Bid Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the Termination Date), (x) the interest payment date or dates relating thereto, (y) the name of the Borrower, and (z) any other terms to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed Competitive Bid Borrowing, if the Company shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if the Company shall instead specify in the Notice of Competitive Bid Borrowing another basis to be used by the Lenders in determining the rates of interest to be offered by them (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). The Agent shall in turn promptly notify 15 20 each Lender of each request for a Competitive Bid Borrowing received by it from the Company by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the relevant Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Agent (which shall give prompt notice thereof to the Company), before 10:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Company of such offer before 9:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. (iii) The Company shall, in turn, before 11:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 1:00 P.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: (x) cancel such Competitive Bid Borrowing by giving the Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, by giving notice to the Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Company by the Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Agent notice to that effect. If the 16 21 Company accepts any offers made by Lenders pursuant to paragraph (ii) above, such offers shall be accepted in the order of the lowest to highest interest rates or, if two or more Lenders offer to make Competitive Bid Advances at the same interest rate, such offers, if any, shall be accepted in proportion to the amount offered by each such Lender at such interest rate notwithstanding any minimum specified by such Lender in its notice given pursuant to Section 2.03(a)(ii). The Company may not accept offers in excess of the amount specified in accordance with paragraph (i)(v) above. (iv) If the Company notifies the Agent that such Competitive Bid Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the Company accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Company, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Agent of such funds, the Agent will make such same day funds available to the relevant Borrower at such Borrower's account at the Agent's address referred to in Section 8.02. Promptly after each Competitive Bid Borrowing the Agent will notify each Lender of the amount of the Competitive Bid Borrowing, the consequent Competitive Bid Reduction and the dates upon which such Competitive Bid Reduction commenced and will terminate. (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Company shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.03, each Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to 17 22 subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing. (d) Each Borrower shall repay to the Agent for the account of each Lender that has made a Competitive Bid Advance to such Borrower, on the maturity date of such Competitive Bid Advance (such maturity date being that specified by the Company for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and provided in the promissory note, if any, evidencing such Competitive Bid Advance), the then unpaid principal amount of such Competitive Bid Advance. No Borrower shall have any right to prepay any principal amount of any Competitive Bid Advance unless (x) such Borrower obtains the prior written consent of the Lender which made such Competitive Bid Advance, or (y), such prepayment is made on the terms, specified by the Company for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and set forth in the promissory note, if any, evidencing such Competitive Bid Advance. (e) Each Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance to such Borrower from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, as provided in the promissory note, if any, evidencing such Competitive Bid Advance. (f) At its option, the Company (on its own behalf and on behalf of any Borrower) may request a Competitive Bid Borrowing directly from the Lenders; provided that it follows the procedures set forth in this Section 2.03 and promptly delivers, by telecopier or telex, a copy of the Notice of Competitive Bid Borrowing and notice in writing of the results of such request to the Agent. (g) The indebtedness of each Borrower resulting from each Competitive Bid Advance made to such Borrower as part of a Competitive Bid Borrowing shall, if requested by the applicable Lender, be evidenced by a separate promissory note of such Borrower payable to the order of the Lender making such Competitive Bid Advance. SECTION 2.04 Fees. (a) Facility Fee. The Company agrees to pay to the Agent for the account of each Lender a facility fee on the aggregate amount of such Lender's Commitment irrespective of usage from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each 18 23 other Lender until the Termination Date (on a daily basis) at the Applicable Margin, payable in arrears quarterly on the last day of each March, June, September and December, commencing June 30, 1999, and ending on the Termination Date. (b) Agent's Fees. The Company shall pay to the Agent for its own account such fees as may from time to time be agreed between the Company and the Agent. (c) Usage Fees. The Company shall pay to the Agent for the account of each Lender, a usage fee of 10 basis points per annum on the amount of such Lender's Commitment for each day on which the outstanding amount of the Advances exceeds 33 1/3% of the aggregate Commitments from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date (on a daily basis) payable in arrears quarterly on the last day of each March, June, September and December commencing June 30, 1999 and ending on the Termination Date. SECTION 2.05 Termination, Reduction or Increase of the Commitments. (a) The Company shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and provided further that (x) the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount that is less than the aggregate principal amount of the Competitive Bid Advances then outstanding, and (y) once terminated, a portion of a Commitment shall not be reinstated except pursuant to Section 2.05(c). (b) If any Lender shall make a demand under Section 2.11 or 2.14 or if the obligation of any Lender to make Eurodollar Rate Advances shall have been suspended pursuant to Section 2.12, the Company shall have the right, upon at least ten Business Days' notice, to terminate in full the Commitment of such Lender or to demand that such Lender assign to one or more Persons all of its rights and obligations under this Agreement in accordance with Section 8.07. If the Company shall elect to terminate in full the Commitment of any Lender pursuant to this Section 2.05(b), the Company shall pay to such Lender, on the effective date of such Commitment termination, an amount equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, whereupon such Lender shall cease to be a party hereto. (c) (i) Not more than once in any calendar year, the Company may propose to increase the aggregate amount of the Commitments by an aggregate amount of $25,000,000 or an integral multiple of $1,000,000 in excess thereof (a "Proposed Aggregate Commitment Increase") in the manner set forth below, provided that: 19 24 (1) no Default shall have occurred and be continuing either as of the date on which the Company shall notify the Agent of its request to increase the aggregate amount of the Commitments or as of the related Increase Date (as hereinafter defined); and (2) after giving effect to any such increase, the aggregate amount of the Commitments shall not exceed $500,000,000. (ii) The Company may request an increase in the aggregate amount of the Commitments by delivering to the Agent a notice (an "Increase Notice"; the date of delivery thereof to the Agent being the "Increase Notice Date") specifying (1) the Proposed Aggregate Commitment Increase, (2) the proposed date (the "Increase Date") on which the Commitments would be so increased (which Increase Date may not be fewer than 30 nor more than 60 days after the Increase Notice Date) and (3) the New Lenders, if any, to whom the Company desires to offer the opportunity to commit to all or a portion of the Proposed Aggregate Commitment Increase. The Agent shall in turn promptly notify each Lender of the Company's request by sending each Lender a copy of such notice. (iii) Not later than the date five days after the Increase Notice Date, the Agent shall notify each New Lender, if any, identified in the related Increase Notice of the opportunity to commit to all or any portion of the Proposed Aggregate Commitment Increase. Each such New Lender may irrevocably commit to all or a portion of the Proposed Aggregate Commitment Increase (such New Lender's "Proposed New Commitment") by notifying the Agent (which shall give prompt notice thereof to the Company) before 11:00 A.M. (New York City time) on the date that is 10 days after the Increase Notice Date; provided that: (1) the Proposed New Commitment of each New Lender shall be in an amount not less than $25,000,000; and (2) each New Lender that submits a Proposed New Commitment shall enter into an agreement in form and substance satisfactory to the Company and the Agent pursuant to which such New Lender shall undertake a Commitment (and, if any such New Lender is already a Lender, its Commitment shall be in addition to such Lender's Commitment hereunder on such date), and shall pay to the Agent a processing and recordation fee of $3,500. (iv) If the aggregate Proposed New Commitments of all of the New Lenders shall be less than the Proposed Aggregate Commitment Increase, then (unless the Company otherwise requests) the Agent shall, on or prior to the date that is 15 days after the Increase Notice Date, notify each Lender of the opportunity to so commit to all or any portion of the Proposed Aggregate Commitment Increase not committed to by New Lenders pursuant to Section 2.05(c)(iii). Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to commit to all or a portion of such remainder (such Lender's "Proposed Increased Commitment") by notifying the 20 25 Agent (which shall give prompt notice thereof to the Company) no later than 11:00 A.M. (New York City time) on the date five days before the Increase Date. (v) If the aggregate amount of Proposed New Commitments and Proposed Increased Commitments (such aggregate amount, the "Total Committed Increase") equals or exceeds $25,000,000, then, subject to the conditions set forth in Section 2.05(c)(i): (1) effective on and as of the Increase Date, the aggregate amount of the Commitments shall be increased by the lesser of the proposed aggregate Committed Increase and the Total Committed Increase and shall be allocated among the New Lenders and the Lenders as provided in Section 2.05(c)(vi); and (2) on the Increase Date, if any Revolving Loans are then outstanding, the Company shall borrow Revolving Loans from all or certain of the Lenders and/or (subject to compliance by the Company with Section 8.04(c)) prepay Revolving Loans of all or certain of the Lenders such that, after giving effect thereto, the Revolving Loans (including, without limitation, the Types and Interest Periods thereof) shall be held by the Lenders (including for such purposes New Lenders) ratably in accordance with their respective Commitments. If the Total Committed Increase is less than $25,000,000, then the aggregate amount of the Commitments shall not be changed pursuant to this Section 2.05(c). (vi) The Total Committed Increase shall be allocated among New Lenders having Proposed New Commitments and Lenders having Proposed Increased Commitments as follows: (1) If the Total Committed Increase shall be at least $25,000,000 and less than or equal to the Proposed Aggregate Commitment Increase, then (x) the initial Commitment of each New Lender shall be such New Lender's Proposed New Commitment and (y) the Commitment of each Lender shall be increased by such Lender's Proposed Increased Commitment. (2) If the Total Committed Increase shall be greater than the Proposed Aggregate Commitment Increase, then the Total Committed Increase shall be allocated: (x) first to New Lenders (to the extent of their respective Proposed New Commitments) in such a manner as the Company shall agree; and (y) then to Lenders on a pro rata basis based on the ratio of each Lender's Proposed Increased Commitment (if any) to the aggregate amount of the Proposed Increased Commitments of all of the Lenders. 21 26 (vii) No increase in the Commitments contemplated hereby shall become effective until the Agent shall have received (x) promissory notes in respect of the Revolving Loans payable to each New Lender and each other Lender whose Commitment is being increased that, in either case, shall have requested such promissory notes at least two Business Days prior to the Increase Date, and (y) evidence satisfactory to the Agent (including an update of the opinion of counsel provided pursuant to Section 3.01 (g)(iv)) that such increases in the Commitments, and borrowings thereunder, have been duly authorized. SECTION 2.06 Repayment of Revolving Credit Advances; Evidence of Indebtedness; Extension of Termination Date. (a) The Company and each Borrower shall repay to the Agent for the ratable account of the Lenders on the Termination Date the aggregate principal amount of the Revolving Credit Advances then outstanding. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Advance made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Agent shall maintain accounts in which it shall record (i) the amount of each Advance made hereunder, the Type thereof and the Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) the amount of any sum received by the Agent hereunder for the account of the Lenders and each Lender's share thereof. The entries made in the accounts maintained pursuant to this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of any Borrower to repay the Advances in accordance with the terms of this Agreement. Any Lender may request that Advances made by it be evidenced by a promissory note. In such event, the applicable Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Agent. Thereafter, the Advances evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 8.07) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). (c) The Company may by written notice to the Agent, not more than 90 nor less than 60 days prior to the Termination Date then in effect (such Termination Date following such notice, the "Extension Date"), request that the Termination Date then in effect be extended for a further period of one year. Such request shall be irrevocable and binding upon the Company. The Agent shall promptly notify each Lender of such request. If a Lender agrees, in its individual and sole discretion, to so extend its Commitment (an "Extending Lender"), it will notify the Agent, in writing, of its decision to do so not more than 30 nor less than 20 days before 22 27 the Termination Date then in effect. The Commitment of any Lender that fails to accept (or fails to respond to) the Company's request for extension of the Termination Date (a "Declining Lender") shall be terminated on the Termination Date theretofore in effect (without regard to extension by other Lenders). The Extending Lenders, or any of them, shall then have the right to increase their respective Commitments by an aggregate amount up to the amount of all Declining Lenders' Commitments, and, to the extent of any shortfall, the Company shall have the right to require any Declining Lender to assign in full its rights and obligations under this Agreement to an Eligible Assignee designated by the Company that agrees to accept all of such rights and obligations (a "Replacement Lender"), provided that (i) such increase and/or such assignment is otherwise in compliance with Section 8.07, (ii) such Declining Lender receives payment in full of an amount equal to the principal amount of all Advances owing to such Declining Lender, together with accrued interest thereon to the date of such assignment and all other amounts payable to such Declining Lender under this Agreement and (iii) any such increase shall be effective on the Extension Date and any such assignment shall be effective on the date specified by the Company and agreed to by the Replacement Lender and the Agent. If (i) Extending Lenders and/or Replacement Lenders provide Commitments in an aggregate amount equal to 51% of the aggregate amount of the Commitments outstanding immediately prior to the Extension Date in effect at the time the Company requests such extension, and (ii) no Default shall have occurred and be continuing immediately prior to the Extension Date, the Termination Date shall be extended by one year (except that, if the date on which the Termination Date is to be extended is not a Business Day, such Termination Date as so extended shall be the next preceding Business Day) from the effective date set forth in an Extension Agreement, in substantially the form in Exhibit A-3 hereto, which has been duly completed and signed by the Company, the Agent and the Extending Lenders and Replacement Lenders party thereto. Such Extension Agreement shall be executed and delivered no earlier than 30 days prior to the Extension Date. No extension of the Commitments pursuant to this Section 2.06(c) shall be legally binding on any party hereto unless and until such party executes and delivers a counterpart of such Extension Agreement. SECTION 2.07 Interest on Revolving Credit Advances. Each Borrower shall pay interest on the unpaid principal amount of each Revolving Credit Advance made to such Borrower owing to each Lender from the date of such Revolving Credit Advance until such principal amount shall be paid in full, at the following rates per annum: (a) Base Rate Advances. During such periods as such Revolving Credit Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full. 23 28 (b) Eurodollar Rate Advances. During such periods as such Revolving Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Revolving Credit Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Revolving Credit Advance plus (y) the Applicable Margin, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. SECTION 2.08 Interest Rate Determination. (a) If the Eurodollar Rate does not appear on Page 3750 of the Telerate Service (or any successor page), each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate. If the Eurodollar Rate does not appear on said Page 3750 (or any successor page), and if any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Agent shall give prompt notice to the Company and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.07, and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.07(b). (b) If, due to a major disruption in the interbank funding market with respect to any Eurodollar Rate Advances, the Required Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. (c) If the Company shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify the Company and the Lenders and the Company will be deemed to have selected an Interest Period of one month. (d) If the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances on the last day of the Interest Period applicable thereto. 24 29 (e) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. (f) If the Eurodollar Rate does not appear on Page 3750 of the Telerate Service (or any successor page) and fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, (i) the Agent shall forthwith notify the Company and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances, (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and (iii) the obligation of the Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. SECTION 2.09 Optional Conversion of Revolving Credit Advances. The Company may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all Revolving Credit Advances of one Type comprising the same Borrowing into Revolving Credit Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b) and no Conversion of any Revolving Credit Advances shall result in more separate Revolving Credit Borrowings than permitted under Section 2.02(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Revolving Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Company. SECTION 2.10 Optional Prepayments of Revolving Credit Advances. The Company may, upon notice not later than 11:00 A.M. (New York City time) on the date of such payment, in the case of Base Rate Advances, and two Business Days' notice, in the case of Eurodollar Rate Advances, to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Company shall, prepay the outstanding principal amount of the Revolving Credit Advances comprising part of the same Revolving Credit Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment 25 30 on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the Company shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(d). SECTION 2.11 Increased Costs. (a) If, due to either (i) the introduction of or any change in any law or regulation or in the interpretation or administration of any law or regulation by any governmental authority charged with the interpretation or administration thereof or (ii) the compliance with any guideline or request from any central bank or other governmental authority that would be complied with generally by similarly situated banks acting reasonably (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances by an amount deemed by such Lender to be material, then the Company shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Company and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding the foregoing, no Lender shall be entitled to request compensation under this paragraph with respect to any Competitive Bid Advance if the change giving rise to such request was applicable to such Lender at the time of submission of such Lender's offer to make such Competitive Bid Advance. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental or regulatory authority which becomes effective after the date hereof, there shall be any increase in the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender and the amount of such capital is increased by or based upon the existence of such Lender's Advances or commitment to lend hereunder and other commitments of this type by an amount deemed by such Lender to be material, then, upon demand by such Lender (with a copy of such demand to the Agent), the Company shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Advances or commitment to lend hereunder. A certificate as to such amounts submitted to the Company and the Agent by such Lender shall be conclusive and binding for all purposes as to the calculations therein, absent manifest error. Such certificate shall be in reasonable detail and shall certify that the claim for additional amounts referred to therein is generally consistent with such Lender's treatment of similarly situated customers of such Lender whose transactions with such Lender are similarly affected by the change in circumstances giving rise to such payment, but such Lender shall not be required to disclose any confidential or proprietary information therein. 26 31 SECTION 2.12 Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent (and provide to the Company an opinion of counsel to the effect) that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as the case may be, of such Lender will automatically, upon such demand, Convert into a Base Rate Advance or an Advance that bears interest at the rate set forth in Section 2.07(a), as the case may be, and (ii) the obligation of such Lender to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Company and such Lender that the circumstances causing such suspension no longer exist and such Lender shall make the Base Rate Advances in the amount and on the dates that it would have been requested to make Eurodollar Rate Advances had no such suspension been in effect. SECTION 2.13 Payments and Computations. (a) Each Borrower shall make each payment hereunder not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at the Agent's Account in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees or usage fees ratably (other than amounts payable pursuant to Section 2.03, 2.04(b), 2.05(b), 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on the Base Rate and of facility fees and of usage fees shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or facility fees or usage fees are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. 27 32 (c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fee or usage fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Agent shall have received notice from the Company prior to the date on which any payment is due to the Lenders hereunder that a Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.14 Taxes. (a) Each Lender is exempt from any withholding imposed under the laws of the United States in respect of any fees, interest or other payments to which it is entitled pursuant to this Agreement or any promissory notes issued hereunder (the "Income") because (i) the Lender is organized under the laws of the United States; (ii) the Income is effectively connected with the conduct of a trade or business within the United States within the meaning of Section 871 of the Internal Revenue Code of 1986, as amended or any successor thereto (the "Code"); or (iii) the Income is eligible for an exemption by reason of a tax treaty. The Agent is exempt from any withholding tax imposed under the laws of the United States in respect of the Income because the Agent is organized under the laws of the United States. (b) Each Lender organized under the laws of a jurisdiction outside the United States (each, a "Foreign Lender") shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender, and on the date of the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Foreign Lender and from time to time thereafter if requested in writing by the Company or the Agent, provide the Agent and the relevant Borrower with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Foreign Lender is exempt or entitled to a reduced rate of United States withholding tax on any Income that is the subject of such forms. If the form provided by a Foreign Lender at the time such Foreign Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, or in excess of the rate applicable to the Foreign Lender assignor on the date of the Assignment and Acceptance pursuant to which it became a Foreign 28 33 Lender, in the case of each other Foreign Lender, withholding tax at such rate shall be considered excluded from Taxes as defined in Section 2.14(c). (c) Based on Section 2.14(a) and (b), any and all payments by any Borrower hereunder or under any promissory notes issued hereunder shall be made free and clear of and without deduction for any present United States federal income withholding taxes imposed on a Foreign Lender under the Code (such withholding taxes being hereinafter referred to as "Taxes"). (d) If, as a result of the enactment, promulgation, execution or ratification of, or any change in or amendment to, any United States law or any tax treaty (or in the application or official interpretation of any law or any tax treaty) that occurs on or after the date a Foreign Lender first becomes a party to this Agreement (a "Change in Law"), a Foreign Lender cannot comply with Section 2.14(b) or, if despite such compliance, any Borrower shall be required to deduct any Taxes from or in respect of any Income, then: (i) the sum payable to such Foreign Lender shall be increased as may be necessary so that after making all required deductions for such Taxes (including deductions applicable to additional sums payable under this Section 2.14) such Foreign Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Notwithstanding the foregoing, each Borrower shall be entitled to pay any Taxes in any lawful manner so as to reduce any deductions and such Foreign Lender shall to the extent it is reasonably able provide any documentation or file any forms as may be required by the Internal Revenue Service or any other foreign governmental agency. In addition, if any Foreign Lender or the Agent (in lieu of such Foreign Lender), as the case may be, is required to pay directly any Taxes as a result of a Change in Law because a Borrower cannot or does not legally or timely do so, the Company shall indemnify such Foreign Lender or Agent for payment of such Taxes, without duplication of, or increase in, the amount of Taxes otherwise due to the Foreign Lender. (e) In addition, the Company agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (excluding any income or franchise taxes, business taxes or capital taxes of any nature) that arise from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). If a Lender is required to pay directly Other Taxes because a Borrower cannot or does not legally or timely do so, the Company shall indemnify such Lender for such payment of Other Taxes. (f) Within 30 days after the date of any payment of Taxes or foreign withholding taxes, the Company shall furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. Prior to making any payment hereunder by or on behalf of any Borrower through an account or branch outside the United States or on behalf of any Borrower by a payor that is not a United States person (a "Foreign Payment"), such Borrower shall determine that no foreign withholding taxes are payable in 29 34 respect thereof, and at its expense, shall furnish, or shall cause such payor to furnish, to the Agent, at such address, a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to the Agent, in either case stating that such Foreign Payment is exempt from or not subject to foreign withholding taxes. Each Lender shall cooperate with each Borrower's efforts described in this subsection by providing to the extent reasonably within its means any forms requested by such Borrower substantiating an exemption from foreign withholding taxes required by any governmental agency. For purposes of this subsection (f), the terms "United States" and "United States person" shall have the meaning specified in Section 7701 of the Code. If, as a result of the enactment, promulgation, execution or ratification of, or any change in or amendment to, any applicable foreign law or any tax treaty (or in the application or official interpretation of any law or any tax treaty) that occurs on or after the date a tax opinion is rendered pursuant to the terms of this subsection, and which renders such tax opinion incorrect as to the absence of any foreign withholding tax (a "Foreign Change in Law"), any Borrower shall be required to deduct any foreign withholding taxes from or in respect of any Income, then: (i) the sum payable to the applicable Lender shall be increased as may be necessary so that after making all required deductions for foreign withholding taxes (including deductions applicable to additional sums payable under this Section 2.14) such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Notwithstanding the foregoing, each Borrower shall be entitled to pay any foreign withholding taxes in any lawful manner so as to reduce any deductions and such Lender shall to the extent it is reasonably able provide any documentation or file any forms as may be required by the Internal Revenue Service or any other foreign governmental agency. In addition, if any Lender is required to pay directly any foreign withholding tax in respect of any Foreign Payments made pursuant to this Agreement because a Borrower cannot or does not legally or timely do so, the Company shall indemnify such Lender for payment of such tax. (g) For any period with respect to which a Lender has failed to comply with the requirements of subsection (b) or (f) relating to certain forms intended to reduce withholding taxes (other than if such failure is due to a Change in Law or a Foreign Change in Law), such Lender shall not be entitled to indemnification under subsection (d) or (f). (h) Upon a Change in Law or the imposition of any foreign withholding tax in respect of Foreign Payments, a Lender shall, upon the written request of and at the expense of the Company, use reasonable efforts to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such taxes that may thereafter accrue and would not, in the reasonable judgment of such Lender, cause the imposition on such Lender of any material legal or regulatory burdens. (i) Without prejudice to the survival of any other agreement of any Borrower hereunder, the agreements and obligations of the Company contained in this Section 2.14 shall 30 35 survive the payment in full of principal and interest hereunder until the applicable statute of limitations relating to the payment of any Taxes under Section 2.14(d) has expired. (j) Any request by any Lender for payment of any amount under this Section 2.14 shall be accompanied by a certification that such Lender's claim for said amount is generally consistent with such Lender's treatment of similarly situated customers of such Lender whose transactions with such Lender are similarly affected by the change in circumstances giving rise to such payment, but such Lender shall not be required to disclose any confidential or proprietary information therein. SECTION 2.15 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Revolving Credit Advances owing to it (other than pursuant to Section 2.05(b), 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Revolving Credit Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Revolving Credit Advances owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. SECTION 2.16 Use of Proceeds. The proceeds of the Advances shall be available (and the Company agrees that such proceeds shall be used) for general corporate purposes of the Company and its Subsidiaries, including commercial paper backstop. SECTION 2.17 Borrowings by Borrowing Subsidiaries; Substitution of Borrower. (a) The Company may, at any time or from time to time, designate one or more Subsidiaries (including the Guarantor) as Borrowers hereunder by furnishing to the Agent a letter (a "Designation Letter") in duplicate, in substantially the form of Exhibit D, duly completed and executed by the Company and such Subsidiary. Upon any such designation of a Subsidiary, such Subsidiary shall be a Borrowing Subsidiary and a Borrower entitled to borrow Revolving Credit Advances and Competitive Bid Advances on and subject to the terms and conditions of this Agreement. 31 36 (b) If all principal of and interest on all Advances made to any Borrowing Subsidiary have been paid in full, the Company may terminate the status of such Borrowing Subsidiary as a Borrower hereunder by furnishing to the Agent a letter (a "Termination Letter") in substantially the form of Exhibit F, duly completed and executed by the Company. Any Termination Letter furnished hereunder shall be effective upon receipt by the Agent, which shall promptly notify the Lenders, whereupon the Lenders shall, upon payment in full of all amounts owing by such Borrower hereunder, promptly deliver to the Company (through the Agent) the promissory notes, if any, of such former Borrower. Notwithstanding the foregoing, the delivery of a Termination Letter with respect to any Borrower shall not terminate (i) any obligation of such Borrower that remains unpaid at the time of such delivery (including without limitation any obligation arising thereafter in respect of such Borrower under Section 2.11 or 2.14) or (ii) the obligations of the Company under Article IX with respect to any such unpaid obligations; provided, that if the status of such Borrowing Subsidiary has been terminated as aforesaid because the Company has sold or transferred its interest in such Subsidiary, and the Company so certifies to the Agent at the time of delivery of such Termination Letter, and subject to payment of said principal and interest, (i) such Subsidiary shall, automatically upon the effectiveness of the delivery of such Termination Letter and certification, cease to have any obligation under this Agreement and (ii) the Company shall automatically be deemed to have unconditionally assumed, as primary obligor, and hereby agrees to pay and perform, all of such obligations. (c) In addition to the foregoing, the Company may, at any time when there are no Advances outstanding hereunder and upon not less than 10 Business Days' notice, irrevocably elect to terminate its right to be a Borrower hereunder as of the date (which shall be a Business Day) specified in such Substitution Letter (the "Substitution Date") and designate the Guarantor as a Borrower hereunder by furnishing to the Agent (x) a letter (a "Substitution Letter"), in substantially the form of Exhibit E duly completed and executed by the Company and the Guarantor, (y) a certificate signed by a duly authorized officer of the Company, and a certificate signed by a duly authorized officer of the Guarantor, each dated the Substitution Date, stating that: (i) the representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the Substitution Date, as though made on and as of such date, and (ii) No event has occurred and is continuing, or would result from such designation, that constitutes a Default; and (z) the Agent shall have received such other corporate documents, resolutions and legal opinions relating to the foregoing as it, or any Lender through the Agent, may reasonably request. 32 37 SECTION 2.18 Mitigation Obligations. If any Lender requests compensation under Section 2.11, or if the obligation of any Lender to make or continue Advances as, or Convert Advances into, Eurodollar Rate Advances is suspended pursuant to Section 2.12, then, upon the written request of the Company, such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designations or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.11 or would cause such Lender not to be subject to such suspension, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not, in the reasonable judgment of such Lender, cause imposition on such Lender of any material legal or regulatory burdens or otherwise be disadvantageous to such Lender. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01 Conditions Precedent to Effectiveness of Sections 2.01 and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied: (a) As of the Effective Date, there shall have occurred no Material Adverse Change since December 26, 1998 that has not been publicly disclosed. (b) As of the Effective Date, there shall exist no action, suit, investigation, litigation or proceeding affecting the Company, or any of its Subsidiaries (including the Guarantor) pending or, to the knowledge of the Company's or the Guarantor's executive officers, threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) could reasonably be likely to affect the legality, validity or enforceability of this Agreement or the consummation of the transactions contemplated hereby. (c) As of the Effective Date, nothing shall have come to the attention of the Lenders during the course of their due diligence investigation to lead them to believe that the Information Memorandum was or has become misleading, incorrect or incomplete in any material respect. (d) As of the Effective Date, all governmental and third party consents and approvals necessary in connection with the transactions contemplated hereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect. 33 38 (e) As of the Effective Date, the Company shall have paid all accrued fees and expenses of the Agent and the Lenders (including the accrued fees and expenses of counsel to the Agent, to the extent invoiced at least one Business Day prior to the Effective Date). (f) On the Effective Date, the following statements shall be true and the Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Company dated the Effective Date, stating that: (i) The representations and warranties contained in Section 4.01 are correct in all material aspects on and as of the Effective Date, and (ii) No event has occurred and is continuing that constitutes a Default. (g) The Agent shall have received on or before the Effective Date the following, each dated such day, in form and substance satisfactory to the Agent and (except for any notes requested by the Lenders) in sufficient copies for each Lender: (i) To the extent any Lender shall have requested, at least one Business day prior to the Effective Date that its Revolving Credit Advances be evidenced by a promissory note, a note payable to the order of such Lender. (ii) Certified copies of the resolutions of the Board of Directors of the Company and of the Guarantor approving this Agreement, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement. (iii) A certificate of the Secretary or an Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to sign this Agreement and the other documents to be delivered hereunder. (iv) A certificate of the Secretary or an Assistant Secretary of the Guarantor certifying the names and true signatures of the officers of the Guarantor authorized to sign this Agreement and the other documents to be delivered hereunder. (v) An opinion of Pamela O'Brien, General Counsel of each of the Company and the Guarantor, substantially in the form of Exhibit C hereto and as to such other matters as any Lender through the Agent may reasonably request. (vi) A favorable opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, counsel for the Agent. (vii) The Agent shall have received such other approvals, opinions or documents as any Lender through the Agent may reasonably request. 34 39 (h) On or prior to the Effective Date, the Company shall have completed the initial public offering of its common stock and shall have received net proceeds thereof in a minimum amount of $2,300,000,000. SECTION 3.02 Conditions Precedent to Each Revolving Credit Borrowing. The obligation of each Lender to make a Revolving Credit Advance on the occasion of each Revolving Credit Borrowing shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Revolving Credit Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Revolving Credit Borrowing and the acceptance by any Borrower of the proceeds of such Revolving Credit Borrowing shall constitute a representation and warranty by the Company and such Borrower that on the date of such Borrowing such statements are true): (i) The representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the date of such Revolving Credit Borrowing, before and after giving effect to such Revolving Credit Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, and (ii) No event has occurred and is continuing, or would result from such Revolving Credit Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and (b) in the case of the first Borrowing by a Borrowing Subsidiary, the Agent shall have received such corporate documents, resolutions and legal opinions relating to such Borrowing Subsidiary as the Agent may reasonably require. SECTION 3.03 Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as part of such Competitive Bid Borrowing is subject to the conditions precedent that (i) the Agent shall have received the written confirmatory Notice of Competitive Bid Borrowing with respect thereto, and (ii) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by any Borrower of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by the Company and such Borrower that on the date of such Competitive Bid Borrowing such statements are true): (a) The representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects on and as of the date of such Competitive Bid Borrowing, before and after giving effect to such Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and 35 40 (b) No event has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom, that constitutes a Default. SECTION 3.04 Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the proposed Effective Date, as notified by the Company to the Lenders, specifying its objection thereto. The Agent shall promptly notify the Lenders of the occurrence of the Effective Date. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 Representations and Warranties of the Loan Parties. Each of the Company and the Guarantor (each, a "Loan Party") represents and warrants as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and the Guarantor is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The execution, delivery and performance by each Loan Party of this Agreement and the consummation of the transactions contemplated hereby, are within such Loan Party's powers, have been duly authorized by all necessary corporate or other action, and do not contravene (i) its charter, by-laws or other organizational documents or (ii) any law or contractual restriction binding on or materially affecting such Loan Party. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by either Loan Party of this Agreement. (d) This Agreement has been duly executed and delivered by each Loan Party. This Agreement is the legal, valid and binding obligation of each Loan Party enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and equitable principles of general applicability. 36 41 (e) The combined balance sheet of the Company as at December 26, 1998, and the related combined statements of operations and cash flows of the Company for the fiscal year then ended, accompanied by an opinion of KPMG Peat Marwick, independent public accountants, fairly present the financial condition of the Company as at such date and the results of the operations of the Company for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied. Since December 26, 1998, there has been no Material Adverse Change that has not been publicly disclosed. (f) There is no pending or threatened action, suit, investigation, litigation or proceeding affecting either Loan Party before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be likely to affect the legality, validity or enforceability of this Agreement or any promissory note issued under this Agreement, if any, or the consummation of the transactions contemplated hereby. (g) It is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, in either case in a manner that would cause the Advances or any Lender to be in violation of Regulation U. (h) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets (either of any Borrower only or of the Company and its Subsidiaries or the Guarantor and its Subsidiaries, in each case on a Consolidated Basis) subject to the provisions of Section 5.02(a) or (b)(ii) or subject to any restriction contained in any agreement or instrument between it and any Lender or any Affiliate of any Lender relating to Debt and within the scope of Section 6.01 (d) will be margin stock. (i) Neither Loan Party is an "investment company", a company "controlled by", or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances nor the application of the proceeds or repayment thereof by any Borrower will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (j) Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Company's and the Subsidiaries', including the Guarantor's, computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Company's or such Subsidiaries' systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed within such period of time as is required to avoid the occurrence of a Material Adverse Effect as a result of the failure to complete such reprogramming. The cost to the Company and such Sub- 37 42 sidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company and such Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Material Adverse Effect. ARTICLE V COVENANTS SECTION 5.01 Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, each Loan Party will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws, except where failure so to comply would not, and would not be reasonably likely to, have a Material Adverse Effect. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither Loan Party nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors and such Lien would be reasonably likely to have a Material Adverse Effect. (c) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that each Loan Party and its Material Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(b) and provided further that neither Loan Party nor any of its Material Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of such Loan Party or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Loan Party or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to such Loan Party, such Subsidiary or the Lenders. (d) Reporting Requirements. Furnish to the Lenders: (i) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Company, the Consolidated balance 38 43 sheet of the Company and its Subsidiaries as of the end of such quarter and Consolidated statements of operations and cash flows of the Company and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer of the Company as having been prepared in accordance with GAAP, it being agreed that delivery of the Company's Quarterly Report on Form 10-Q will satisfy this requirement; (ii) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Company, a copy of the annual audit report for such year for the Company and its Subsidiaries, containing the Consolidated balance sheet of the Company and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of operations and cash flows of the Company and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion by KPMG Peat Marwick or other independent public accountants of nationally recognized standing, it being agreed that delivery of the Company's Annual Report on Form 10-K will satisfy this requirement; (iii) as soon as possible and in any event within five days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer of the Company setting forth details of such Default and the action that the Company has taken and proposes to take with respect thereto; and (iv) promptly after the sending or filing thereof, copies of all annual reports and proxy solicitations that the Company sends to any of its securityholders, and copies of all reports on Form 8-K that the Company or any Subsidiary files with the Securities and Exchange Commission. (e) Repayment of Short Term Facilities. Repay all Debt outstanding under the Short Term Facilities on or before May 29, 1999. SECTION 5.02 Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, neither Loan Party will: (a) Secured Debt. Create or suffer to exist, or permit any of its Restricted Subsidiaries to create or suffer to exist, any Debt secured by a Lien on any Principal Property or on any shares of stock of or Debt of any Restricted Subsidiary unless such Loan Party or such Restricted Subsidiary secures or causes such Restricted Subsidiary to secure the Advances and all other amounts payable under this Agreement equally and ratably with such secured Debt, so long as such secured Debt shall be so secured, unless after giving effect thereto the aggregate amount of all such Debt so secured does not exceed 15% of Consolidated Net Tangible Assets, provided that the foregoing restriction does not apply to Debt secured by: (i) Liens existing prior to the date hereof; 39 44 (ii) Liens on property of, or on shares of stock of or Debt of, any corporation existing at the time such corporation becomes a Restricted Subsidiary; (iii) Liens in favor of a Loan Party or any Restricted Subsidiary; (iv) Liens in favor of any governmental bodies to secure progress or advance payments; (v) Liens on property, shares of stock or Debt existing at the time of acquisition thereof (including acquisition through merger or consolidation) or liens securing Debt incurred to finance all or any part of the purchase price or cost of construction of property (or additions, substantial repairs, alterations or substantial improvements thereto), provided that such Lien and the Debt secured thereby are incurred within 365 days of the later of acquisition or completion of construction (or addition, repair, alteration or improvement) and full operation thereof; and (vi) any extension, renewal or refunding of Debt referred to in the foregoing clauses (i) to (v), inclusive. (b) Mergers, Etc. (i) Merge or consolidate with or into any corporation or (ii) sell, lease, transfer or otherwise dispose of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, unless the Company or the Guarantor would be the acquiring or surviving party in such transaction and no Event of Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom. (c) Subsidiary Debt. Permit any Restricted Subsidiary to create, incur, assume or permit to exist any Debt, except: (i) Debt of the Guarantor and Borrowing Subsidiaries, if any, created hereunder and under the 364-Day Facility; (ii) Debt existing on the Effective Date; (iii) Debt of the Guarantor constituting guaranties of Debt of the Company; (iv) Debt of any Subsidiary to any Loan Party or any other Subsidiary; (v) Debt of any Person that becomes a Subsidiary after the date hereof; provided that such Debt exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary; (vi) any refinancing, refunding or replacement of any Debt permitted under clause (ii) through (v) above; and 40 45 (vii) other Debt in an aggregate principal amount not exceeding 15% of Consolidated Net Tangible Assets at any time outstanding; provided, that the foregoing provisions of this Section 5.02(c) shall cease to apply to the Guarantor from and after the occurrence of the Substitution Date as provided in Section 2.17. (d) Restrictive Agreements. Neither Loan Party will enter into, incur or permit to exist any agreement or other arrangement that prohibits or restricts the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to, or otherwise transfer assets to the Company; provided that the foregoing shall not apply to (i) restrictions and conditions imposed by law or by this Agreement or the 364-Day Facility, (ii) customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iii) restrictions or conditions imposed by any agreement relating to secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt, (iv) customary provisions in leases and other contracts restricting the assignment thereof, (v) any agreement in effect on the Effective Date, as any such agreement is in effect on such date, (vi) any agreement binding upon such Subsidiary prior to the date on which such Subsidiary was acquired by the Company and outstanding on such date, (vii) customary net worth and other financial maintenance covenants in an agreement relating to Debt or other obligations incurred in compliance with this Agreement, and (viii) any agreement refinancing, renewing or replacing any agreement or Debt referred to in (i) through (vii) above, provided that the relevant provisions are no more restrictive than those in the agreement or Debt being refinanced, renewed or replaced. (e) Ownership. In the case of the Company, cease to own, legally and beneficially, 75% or more of the membership interests in the Guarantor. SECTION 5.03 Financial Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Company will not: (a) Debt to Capitalization Ratio. Permit the Debt to Capitalization Ratio as at the last day of any Fiscal Quarter that is not an Alternate Covenant Date to exceed 0.75 to 1.0. (b) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as at the last day of any Fiscal Quarter that is an Alternate Covenant Date to exceed 5.0 to 1.0. 41 46 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01 Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Any Borrower shall fail to pay any principal of, or interest on, any Advance or to make any other payment under this Agreement, in each case within five days after the same becomes due and payable; or (b) Any representation or warranty made by any Loan Party herein or by any Borrower (or any of its officers) in connection with this Agreement (including without limitation by any Borrowing Subsidiary pursuant to any Designation Letter) shall prove to have been incorrect in any material respect when made; or (c) (i) Any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), 5.02 or 5.03, or (ii) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to either Loan Party by the Agent or any Lender; or (d) Either Loan Party or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal or notional amount of at least $50,000,000 in the aggregate (but excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) Either Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment 42 47 of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such Loan Party of any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $50,000,000 shall be rendered against either Loan Party or any of its Material Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not be an Event of Default under this Section 6.01(f) if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least "A" by A.M. Best Company, has been notified of, and has not disputed the claim made for payment of, the amount of such judgment or order; or (g) Any event, action or condition with respect to an employee benefit plan of the Company subject to Title IV of ERISA results in any penalty or action pursuant to ERISA that has a material adverse effect on the business or financial condition of either Loan Party and its Subsidiaries, taken as a whole; or (h) The Master Bottling Agreement ceases to be valid and binding and in full force and effect; or Pepsi denies that it has any liability or obligation under the Master Bottling Agreement and Pepsi ceases performance thereunder; or (i) A Change of Control shall occur; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Company, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Company, declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party or any Borrowing Subsidiary under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and 43 48 all such amounts shall automatically become and be due and payable, without presentment, protest or any notice of any kind, all of which are hereby expressly waived by each Loan Party. ARTICLE VII THE AGENT Each of the Lenders hereby irrevocably appoints the Agent as its agent and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Loan Parties or any Subsidiary or other Affiliate thereof as if it were not the Agent hereunder. The Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.01), and (c) except as expressly set forth herein, the Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Loan Parties or any if their Subsidiaries that is communicated to or obtained by the bank serving as Agent or any of its Affiliates in any capacity. The Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.01) or in the absence of its own gross negligence or wilful misconduct. The Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Agent by a Loan Party or a Lender, and the Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article III or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent. 44 49 The Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Agent may consult with legal counsel (who may be counsel for any Loan Party), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Agent. The Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent. Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, the Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor agent approved by the Company, which approval will not be unreasonably withheld or delayed; provided that such approval shall not be required if an Event of Default has occurred and is continuing. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States or any State thereof, having a combined capital and surplus of at least $50,000,000 with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointments as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Company to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Agent's resignation hereunder, the provisions of this Article and Section 8.04 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall from time to time deem appro- 45 50 priate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. ARTICLE VIII MISCELLANEOUS SECTION 8.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) except pursuant to Section 2.05(b), 2.05(c), 2.15 or 2.17, increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (b) reduce the principal of, or interest on, the Revolving Credit Advances or any fees or other amounts payable hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, the Revolving Credit Advances or any fees or other amounts payable hereunder, (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Revolving Credit Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (e) release the guarantee as set forth in Section 9.01 or 10.01, or (f) amend this Section 8.01; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement. SECTION 8.02 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed or delivered, if to the Company, any Borrower or the Guarantor, to the Company at its address at One Pepsi Way, Somers, New York 10589, Attention: General Counsel, Telecopier No. (914) 767-1161, with a copy to Secretary, Telecopier No. (914) 767-1161; if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Agent, at The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York, 10081, Attention of Nina Wang (Telecopy No. (212) 552-7500), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Karen Sharf (Telecopy No. (212) 270-5120); or, as to the Company, any Borrower, the Guarantor or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. All such notices and communications shall, when mailed, telecopied, telegraphed or telexed, be effective when deposited in the mails, telecopied, delivered to the telegraph company or confirmed by telex answer back, respec- 46 51 tively, except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. SECTION 8.03 No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04 Costs and Expenses. (a) The Company agrees to pay on demand all costs and expenses of the Agent as set forth in the fee letter between the Company and the Agent dated March 4, 1999. The Company further agrees to pay on demand all reasonable costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the Agent and each Lender in connection with the enforcement of rights under this Section 8.04(a). (b) The Company agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with this Agreement, any promissory note issued hereunder, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances, whether or not such investigation, litigation or proceeding is brought by any Borrower, the Guarantor, their directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. (c) To the extent that the Company fails to pay any amount required to be paid by it to the Agent under paragraph (a) or (b) of this Section 8.04, each Lender severally agrees to pay to the Agent such Lenders' Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Agent in its capacity as such. 47 52 (d) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by any Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Company shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (e) Without prejudice to the survival of any other agreement of any Borrower hereunder, the agreements and obligations of the Company contained in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder. SECTION 8.05 Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or the account of any Loan Party or any Borrower against any and all of the obligations of such Loan Party or such Borrower now or hereafter existing under this Agreement, whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Company after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender and its Affiliates may have. SECTION 8.06 Binding Effect. This Agreement shall become effective (other than Sections 2.01 and 2.03, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Loan Parties and the Agent and when the Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Loan Parties, each Subsidiary Borrower (if any), the Agent and each Lender and their respective successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. 48 53 SECTION 8.07 Assignments and Participations. (a) Each Lender may, upon ten days' notice to the Agent and with the consent of the Company (which shall not be unreasonably withheld) and, if demanded by the Company (following a demand by such Lender pursuant to Section 2.11 or Section 2.14 or a suspension of such Lender's obligation to make or continue Advances as, or convert Advances into, Eurodollar Rate Advances pursuant to Section 2.12) upon at least ten days' notice to such Lender and the Agent, will assign to one or more Persons all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Revolving Credit Advances owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement (other than any right to make Competitive Bid Advances or Competitive Bid Advances owing to it), (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than the lesser of (x) $25,000,000 and (y) the smallest initial Commitment of any Initial Lender, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment made as a result of a demand by the Company pursuant to this Section 8.07(a) shall be arranged by the Company after consultation with the Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Company pursuant to this Section 8.07(a) unless and until such Lender shall have received one or more payments from either the Company or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement and (vi) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register (as defined in clause (d) below), an Assignment and Acceptance, together with a processing and recordation fee of $3,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). 49 54 (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company. (d) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and, with respect to Lenders, the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and each Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Loan Parties or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such 50 55 in writing from time to time by the Granting Lender to the Agent and the Company, the option to provide to the Company all or any part of any Advance that such Granting Lender would otherwise be obligated to make to the Company pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Advance, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Lender shall be obligated to make such Advance pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Advance were made by such Granting Lender. Each party hereto agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 8.07(e), any SPC may (i) with notice to, but without the prior written consent of, the Company and the Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Advances to the Granting Lender or to any financial institutions (consented to by the Company and the Agent) providing liquidity and/or credit support to or for the account of any SPC to support the funding or maintenance of Advances and (ii) disclose on a confidential basis any non-public information relating to its Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. (f) Each Lender may, upon notice to the Agent and the Company, sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any promissory note issued or assigned to it hereunder, (iv) the Borrowers, the Guarantor, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement, or any consent to any departure by any Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or 51 56 participant or proposed assignee or participant any information relating to any Loan Party or any Borrower furnished to such Lender by or on behalf of any Loan Party or any Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Loan Parties or the Borrowers received by it from such Lender. (h) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement or any promissory note issued to such Lender hereunder (including, without limitation, the Advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 8.08 Confidentiality. Neither the Agent nor any Lender shall disclose any Confidential Information to any Person without the consent of the Company, other than (a) to the Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties or the Borrowers received by it from such Lender and (d) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking. SECTION 8.09 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.11 Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any 52 57 other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court sitting in New York City. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.12 WAIVER OF JURY TRIAL. EACH BORROWER, THE GUARANTOR, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. ARTICLE IX COMPANY GUARANTEE SECTION 9.01 Company Guarantee. Subject to the provisions of this Article IX, the Company unconditionally and irrevocably guarantees to each Lender and the Agent and their respective successors and assigns, that: (i) the principal of, premium, if any, and interest on the Advances to each Borrowing Subsidiary and, following the Substitution Date, the Guarantor (each a "Guaranteed Party") and any promissory notes issued by any Guaranteed Party hereunder will be duly and punctually paid in full when due, whether at maturity, by acceleration, by redemption or otherwise, and interest on overdue principal, and premium, if any, and (to the extent permitted by law) interest on any interest, if any, on the Advances and all other obligations of the Guaranteed Parties to the Lenders or the Agent hereunder (including fees and expenses) will be promptly paid in full, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or renewal of any of the Advances to any Guaranteed Party or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Guaranteed Parties to the Lenders or the Agent, for whatever reason, the Company will be obligated to pay, or to perform or to cause the performance of, the same immediately. An Event of Default under this Agreement shall constitute an event of default under this Guarantee, and shall entitle the Lenders to accelerate the obligations of the 53 58 Company under this Guarantee in the same manner and to the same extent as the obligations of the Guaranteed Parties. The Company hereby agrees that its obligations under this Guarantee shall be unconditional, irrespective of the validity, regularity or enforceability of this Agreement, any Designation Letter or the Substitution Letter, the absence of any action to enforce the same, any waiver or consent by any Lender or the Agent of this Agreement any Designation Letter or the Substitution Letter, with respect to any thereof, the entry of any judgment against any Guaranteed Party, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Company. The Company hereby waives and relinquishes: (a) any right to require the Agent, the Lenders or any Guaranteed Party (each, a "Benefitted Party") to proceed against any Guaranteed Party or any other Person or to proceed against or exhaust any security held by a Benefitted Party at any time or to pursue any other remedy in any secured party's power before proceeding against the Company; (b) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other Person or Persons or the failure of a Benefitted Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person or Persons; (c) demand, protest and notice of any kind (except as expressly required by this Agreement), including but not limited to notice of the existence, creation or incurring of any new or additional Debt or obligation or of any action or non-action on the part of the Company, any Benefitted Party, any creditor of the Company or any Guaranteed Party or on the part of any other Person whomsoever in connection with any obligations the performance of which are guaranteed under this Guarantee; (d) any defense based upon an election of remedies by a Benefitted Party, including but not limited to an election to proceed against the Company or any other Guaranteed Party for reimbursement; (e) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (f) any defense arising because of a Benefitted Party's election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code; and (g) any defense based on any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code. The Company hereby covenants that this Guarantee will not be discharged except by payment in full of all principal, premium, if any, and interest on the Advances made to each Guaranteed Party and all other costs provided for under this Agreement in respect thereof. This is a Guarantee of payment and not of collectibility. If any Lender or the Agent is required by any court or otherwise to return to either the Company or any Guaranteed Party, or any trustee or similar official acting in relation to either the Company or any Guaranteed Party, any amount paid by the Company or any Guaranteed Party to the Agent or such Lender, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Company agrees that it will not be entitled to any right of subrogation in relation to the Lenders or the Agent in respect of any obligations guaranteed under this Guarantee until payment in full of all obligations guaranteed hereby. The Company agrees that, as between it, on the one hand, and the Lenders and the Agent, on the other hand, (x) the maturity of the obligations guaranteed under this Guarantee may be accelerated as provided in 54 59 Article VI hereof for the purposes hereof, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by such Company for the purpose of this Guarantee. ARTICLE X SUBSIDIARY GUARANTEE SECTION 10.01 Subsidiary Guarantee. Subject to the provisions of this Article X, the Guarantor unconditionally and irrevocably guarantees to each Lender and the Agent and their respective successors and assigns, that: (i) the principal of, premium, if any, and interest on the Advances and any promissory note issued hereunder will be duly and punctually paid in full when due, whether at maturity, by acceleration, by redemption or otherwise, and interest on overdue principal, and premium, if any, and (to the extent permitted by law) interest on any interest, if any, on the Advances, any promissory note issued hereunder and all other obligations of the Company to the Lenders or the Agent hereunder (including fees and expenses) will be promptly paid in full, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or renewal of any of the Advances or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Lenders or the Agent, for whatever reason, the Guarantor will be obligated to pay, or to perform or to cause the performance of, the same immediately. An Event of Default under this Agreement shall constitute an event of default under this Guarantee, and shall entitle the Lenders to accelerate the obligations of the Guarantor under this Guarantee in the same manner and to the same extent as the obligations of the Company. The Guarantor hereby agrees that its obligations under this Guarantee shall be unconditional, irrespective of the validity, regularity or enforceability of this Agreement, the absence of any action to enforce the same, any waiver or consent by any Lender or the Agent of this Agreement with respect to any thereof, the entry of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives and relinquishes: (a) any right to require the Agent, the Lenders or the Company (each, a "Benefitted Party") to proceed against the Company or any other Person or to proceed against or exhaust any security held by a Benefitted Party at any time or to pursue any other remedy in any secured party's power before proceeding against the Guarantor; (b) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other Person or Persons or the failure of a Benefitted Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person or Persons; (c) demand, protest and notice of any kind (except as expressly required by this Agreement), including but not limited to notice of the existence, creation 55 60 or incurring of any new or additional Debt or obligation or of any action or non-action on the part of the Guarantor, the Company, any Benefitted Party, any creditor of the Guarantor, the Company or on the part of any other Person whomsoever in connection with any obligations the performance of which are guaranteed under this Guarantee; (d) any defense based upon an election of remedies by a Benefitted Party, including but not limited to an election to proceed against the Guarantor for reimbursement; (e) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (f) any defense arising because of a Benefitted Party's election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code; and (g) any defense based on any borrowing or grant of a security interest under Section 364 of the Bankruptcy Code. The Guarantor hereby covenants that this Guarantee will not be discharged except by payment in full of all principal, premium, if any, and interest on the Advances and all other costs provided for under this Agreement. This is a Guarantee of payment and not of collectibility. If any Lender or the Agent is required by any court or otherwise to return to either the Company or the Guarantor, or any trustee or similar official acting in relation to either the Company or the Guarantor, any amount paid by the Company or the Guarantor to the Agent or such Lender, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Lenders or the Agent in respect of any obligations guaranteed under this Guarantee until payment in full of all obligations guaranteed hereby. The Guarantor agrees that, as between it, on the one hand, and the Lenders and the Agent, on the other hand, (x) the maturity of the obligations guaranteed under this Guarantee may be accelerated as provided in Article VI hereof for the purposes hereof, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purpose of this Guarantee. SECTION 10.02 Limitation of Guarantor's Liability. The Guarantor, and by its acceptance hereof, each Lender, hereby confirms that it is the intention of the parties hereto that this Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or State law. To effectuate the foregoing intention, the Lenders and the Guarantor hereby irrevocably agree that the obligations of the Guarantor under this Article X shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of the Guarantor, result in the obligations of the Guarantor under the Guarantee not constituting a fraudulent transfer or conveyance under federal or state law. 56 61 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. THE PEPSI BOTTLING GROUP, INC., as Borrower By /s/ Christopher Langhoff ------------------------------- Title: Assistant Treasurer BOTTLING GROUP, LLC, as Guarantor By /s/ Pamela C. McGuire ------------------------------- Title: Managing Director THE CHASE MANHATTAN BANK, as Agent By /s/ Karen M. Sharf ------------------------------- Title: Vice President 62
Commitment Initial Lenders - ---------- --------------- $30,000,000.00 THE CHASE MANHATTAN BANK, as an Initial Lender By /s/ Karen M. Sharf ---------------------------------------- Title: Vice President $30,000,000.00 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as an Initial Lender By /s/ W. L. Hess ---------------------------------------- Title: Managing Director $30,000,000.00 CITIBANK, N.A., as an Initial Lender By /s/ Laura A. Siracuse ---------------------------------------- Title: Vice President $25,000,000.00 CREDIT SUISSE FIRST BOSTON CORPORATION, as an Initial Lender By /s/ David Kratovil ---------------------------------------- Title: Director By /s/ Robert Hetu ---------------------------------------- Title: Vice President
63 $25,000,000.00 UBS AG as an Initial Lender By /s/ Paula Mueller ---------------------------------------- Title: Director By /s/ Roman Edelmann ---------------------------------------- Title: Director $20,000,000.00 LEHMAN COMMERCIAL PAPER INC., as an Initial Lender By /s/ Michele Swanson ---------------------------------------- Title: Authorized Signatory $15,000,000.00 ROYAL BANK OF CANADA, as an Initial Lender By /s/ John Crawford ---------------------------------------- Title: Senior Manager $12,500,000.00 BANCO BILBAO VIZCAYA, as an Initial Lender By /s/ Pilar Fernadez ---------------------------------------- Title: Vice President By /s/ Eduardo Martinez ---------------------------------------- Title: Assistant Vice President
64 $12,500,000.00 DEUTSCHE BANK AG, as an Initial Lender By /s/ Alexander Karow ---------------------------------------- Title: Assistant Vice President By /s/ Stephan Wiedemann ---------------------------------------- Title: Director $12,500,000.00 FLEET NATIONAL BANK, as an Initial Lender By /s/ Christopher Criswell ---------------------------------------- Title: Senior Vice President $12,500,000.00 HONG KONG & SHANGHAI BANKING CORP., as an Initial Lender By /s/ Kim Leary ---------------------------------------- Title: Vice President $12,500,000.00 THE BANK OF NEW YORK, as an Initial Lender By /s/ Eliza S. Adams ---------------------------------------- Title: Vice President $12,500,000.00 THE NORTHERN TRUST COMPANY, as an Initial Lender By /s/ Nicole Boehm ---------------------------------------- Title: Commercial Banking Officer $250,000,000 Total of the Commitments
65 SCHEDULE I
Lender Domestic Lending Office Eurodollar Lending Office - ------ ----------------------- ------------------------- THE CHASE MANHATTAN BANK 270 Park Avenue 270 Park Avenue New York, New York 10017 New York, New York 10017 BANK OF AMERICA NATIONAL TRUST 1850 Gateway Blvd. 1850 Gateway Blvd. AND SAVINGS ASSOCIATION Concord, CA 94520 Concord, CA 94520 CITIBANK, N.A. 399 Park Avenue 399 Park Avenue New York New York 10043 New York New York 10043 CREDIT SUISSE FIRST BOSTON 11 Madison Avenue Credit Suisse First Boston Cayman New York, New York, 10010 Islands Branch c/-11 Madison Avenue New York, New York 10010 UBS AG 677 Washington Blvd. 677 Washington Blvd Stamford, CT 06912 Stamford, CT 06912 LEHMAN COMMERCIAL PAPER INC. c/- Bankers Trust Company c/- Bankers Trust Company 130 Liberty Street 130 Liberty Street 9th Floor 9th Floor New York, New York 10006 New York, New York 10006 cc Lehman Commercial Paper Inc. cc Lehman Commercial Paper Inc. 101 Hudson Street 101 Hudson Street 30th Floor 30th Floor Jersey City, New Jersey 07302 Jersey City, New Jersey 07302 ROYAL BANK OF CANADA One Liberty Plaza One Liberty Plaza New York, New York 10006-1404 New York, New York 10006-1404 BANCO BILBAO VIZCAYA 1345 Avenue of The Americas 1345 Avenue of The Americas New York, New York, 10105 New York, New York, 10105 DEUTSCHE BANK AG NEW 31 West 52nd Street Cayman Islands Branch YORK BRANCH AND/OR New York, New York, 10019 c/-31 West 52nd Street CAYMAN ISLANDS BRANCH New York, New York, 10019 FLEET NATIONAL BANK One Landmark Sq. One Landmark Sq. Stamford, CT 06904 Stamford, CT 06904 HONG KONG & SHANGHAI BANKING HSBC Center HSBC Center CORP. 26th Floor 26th Floor Buffalo, New York, 14206 Buffalo, New York, 14206 THE BANK OF NEW YORK One Wall Street, One Wall Street, New York, New York 10286 New York, New York 10286 THE NORTHERN TRUST COMPANY 50 South La Salle Street, 50 South La Salle St. Chicago, Ill. 60675 Chicago, Ill. 60675
- 2 - 66 SCHEDULE 2 APPLICABLE MARGIN
5-Year 5-Year 5-Year Rating Facility Fee LIBOR Margin Drawn Cost ------ ------------ ------------ ---------- A/A2 8.0 bps 27.0 bps 35.0 bps A-/A3 9.0 bps 31.0 bps 40.0 bps BBB+/Baa1 12.5 bps 37.5 bps 50.0 bps BBB/Baa2 17.5 bps 45.0 bps 62.5 bps less than or equal to BBB-/Baa3 25.0 bps 50.0 bps 75.0 bps
- 3 - 67 EXHIBIT A-1 - FORM OF NOTICE OF REVOLVING CREDIT BORROWING The Chase Manhattan Bank, as Agent for the Lenders parties to the 5-Year Credit Agreement referred to below 270 Park Avenue New York, New York 10017 [Date] Attention: Nina Wang Ladies and Gentlemen: The undersigned, The Pepsi Bottling Group, Inc. (the "Company"), refers to the 5-Year Credit Agreement, dated as of April 22, 1999 (as amended or modified from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, Bottling Group, LLC (the "Guarantor"), certain Lenders parties thereto and The Chase Manhattan Bank, as administrative agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Revolving Credit Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Revolving Credit Borrowing (the "Proposed Revolving Credit Borrowing") as required by Section 2.02(a) of the Credit Agreement: (i) The Business Day of the Proposed Revolving Credit Borrowing is __________, ____. (ii) The Type of Advances comprising the Proposed Revolving Credit Borrowing is [Base Rate Advances] [Eurodollar Rate Advances]. (iii) The aggregate amount of the Proposed Revolving Credit Borrowing is $______. (iv) The identity of the Borrower is __________, a ____________ corporation. [(v)] [The initial Interest Period for each Eurodollar Rate Advance made as part of the Proposed Revolving Credit Borrowing is ___ month[s].] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Revolving Credit Borrowing: A-1-1 68 (A) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects, on and as of the date of the Proposed Revolving Credit Borrowing, before and after giving effect to the Proposed Revolving Credit Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (B) no event has occurred and is continuing, or would result from such Proposed Revolving Credit Borrowing or from the application of the proceeds therefrom, that constitutes a Default. Very truly yours, THE PEPSI BOTTLING GROUP, INC. By Title: A-1-2 69 EXHIBIT A-2 - FORM OF NOTICE OF COMPETITIVE BID BORROWING The Chase Manhattan Bank, as Agent for the Lenders parties to the 5-Year Credit Agreement referred to below 270 Park Avenue New York, New York 10017 [Date] Attention: Nina Wang Ladies and Gentlemen: The undersigned, The Pepsi Bottling Group, Inc. (the "Company"), refers to the 5-Year Credit Agreement, dated as of April 22, 1999 (as amended or modified from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, Bottling Group, LLC (the "Guarantor"), certain Lenders parties thereto and The Chase Manhattan Bank, as administrative agent for said Lenders, and hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby requests a Competitive Bid Borrowing under the Credit Agreement, and in that connection sets forth the terms on which such Competitive Bid Borrowing (the "Proposed Competitive Bid Borrowing") is requested to be made: (A) Date of Proposed Competitive Bid Borrowing ___________________ (B) Aggregate Amount of Proposed Competitive Bid Borrowing ___________________ (C) Maturity Date ___________________ (D) Interest Rate Basis ___________________ (E) Interest Payment Date(s) ___________________ (F) Identity of Borrower ___________________ The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Competitive Bid Borrowing: (a) the representations and warranties contained in Section 4.01 (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are correct in all material respects, on and as of the A-2-1 70 date of the Proposed Competitive Bid Borrowing, before and after giving effect to the Proposed Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (b) no event has occurred and is continuing, or would result from the Proposed Competitive Bid Borrowing or from the application of the proceeds therefrom, that constitutes a Default. The undersigned hereby confirms that the Proposed Competitive Bid Borrowing is to be made available to it in accordance with Section 2.03(a)(v) of the Credit Agreement. Very truly yours, THE PEPSI BOTTLING GROUP, INC. By Title: A-2-2 71 EXHIBIT A-3 - FORM OF EXTENSION AGREEMENT EXTENSION AGREEMENT The Pepsi Bottling Group, Inc. One Pepsi Way Somers, New York 10589 Attention: Treasurer The Chase Manhattan Bank, as Agent under the 5-Year Credit Agreement referred to below 270 Park Avenue New York, New York 10017 Attention: Nina Wang Gentlemen: Each undersigned Lender hereby agrees to extend, effective on [insert effective date, (the "Extension Date"), the Termination Date under the 5-Year Credit Agreement dated as of April 22, 1999 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among The Pepsi Bottling Group, Inc., Bottling Group, LLC, the Lenders and agents party thereto and The Chase Manhattan Bank, as administrative agent for the Lenders, to_________________ date which is one year from the existing Termination Date. Terms defined in the Credit Agreement are used herein as therein defined. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. [Remainder of this page intentionally left blank] A-3-1 72 EXHIBIT B - FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the 5-Year Credit Agreement dated as of April 22, 1999 (as amended or modified from time to time, the "Credit Agreement"), among THE PEPSI BOTTLING GROUP, INC., a Delaware corporation (the "Company"), Bottling Group, LLC (the "Guarantor"), the Lenders (as defined in the Credit Agreement) and The Chase Manhattan Bank, as administrative agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 hereto agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof (other than in respect of Competitive Bid Advances) equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement (other than in respect of Competitive Bid Advances). After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Revolving Credit Advances owing to the Assignee will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance by the Company of any of its obligations or the obligations of any Borrower under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to B-1 73 the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.14 of the Credit Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. B-2 74 Schedule 1 to Assignment and Acceptance Percentage interest assigned: ___% Assignee's Commitment: $__________ Aggregate outstanding principal amount of Revolving Credit Advances assigned: $__________ Effective Date (1): _______________, ____ [NAME OF ASSIGNOR], as Assignor By Title: Dated: , [NAME OF ASSIGNEE], as Assignee By Title: Dated: , Domestic Lending Office: [Address] Eurodollar Lending Office: [Address] - ------------------- (1) This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent. 75 Accepted and Approved this ____ day of ________, ____ THE CHASE MANHATTAN BANK, as Agent By ___________________________________ Title: Approved this ____ day of ________, ____ THE PEPSI BOTTLING GROUP, INC. By ___________________________________ Title: 2 76 EXHIBIT C - FORM OF OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR [Effective Date] To each of the Lenders parties to the Credit Agreement dated as of April 22, 1999 among The Pepsi Bottling Group, Inc., said Lenders and The Chase Manhattan Bank, as Agent for said Lenders, and to The Chase Manhattan Bank, as Agent The Pepsi Bottling Group, Inc. Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 3.01(g)(v) of the 5-Year Credit Agreement, dated as of April 22, 1999 (the "Credit Agreement"), among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC, (the "Guarantor"), the Lenders parties thereto and The Chase Manhattan Bank, as Agent for said Lenders, providing for extensions of credit to be made by said Lenders to the Company in an aggregate principal amount at any one time outstanding of up to $250,000,000. Terms defined in the Credit Agreement are used herein as therein defined. I am the General Counsel of the Company and have acted as counsel to the Company and the Guarantor in connection with the Credit Agreement. In connection with this opinion, I have examined: (1) The Credit Agreement. (2) The documents furnished by the Company and the Guarantor pursuant to subsections 3.01(g)(i)-(iv) of the Credit Agreement. (3) The Articles of Incorporation of the Company and all amendments thereto (the "Charter"). C-1 77 (4) The by-laws of the Company and all amendments thereto (the "By-laws"). (5) A certificate of the Secretary of State of Delaware, dated _______________, 1999, attesting to the continued corporate existence and good standing of the Company in that State. (6) The Amended and Restated Limited Liability Company Agreement of the Guarantor, dated as of March 30, 1999, and all amendments thereto (the "LLC Agreement"). (7) The Certificate of Formation of the Guarantor and all amendments thereto (the "Certificate of Formation"). (8) A certificate of the Secretary of State of Delaware dated _________, 1999, attesting to the continued existence and good standing of the Guarantor in that State. (9) Resolutions of the Board of Directors of the Company adopted on March 30, 1999. (10) Resolutions of the Managing Directors of the Guarantor adopted on ___________, 1999. In addition, I have examined the originals, or copies certified or otherwise identified to my satisfaction, of such other corporate records of the Company and the Guarantor, certificates of public officials and of officers of the Company and the Guarantor, and agreements, instruments and other documents, as I have deemed necessary as a basis for the opinions expressed below. I have assumed the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Initial Lenders and the Agent. The opinions expressed below are limited to the law of the State of New York, the Delaware corporate law, the Federal law of the United States and, with respect to paragraphs 1 and 2 and clauses (i), (ii) and (iii)(a) of paragraph 3 only, the Delaware General Corporation Law and the Delaware Limited Liability Company Act. Based upon the foregoing and upon such investigation as I have deemed necessary and subject to the qualifications set forth herein, I am of the following opinion: 1. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware. 2. The Guarantor is a limited liability company validly existing and in good standing under the laws of the state of Delaware. C-2 78 3. The execution, delivery and performance by the Company and the Guarantor of the Credit Agreement (i) are within the Company's corporate, and the Guarantor's limited liability company, powers, (ii) have been duly authorized by all necessary corporate, or limited liability company, action, and (iii) do not contravene (a) the Charter or the Bylaws of the Company or the LLC Agreement or Certificate of Formation of the Guarantor or (b) to the best of my knowledge (1) any United States Federal or New York State law, rule or regulation applicable to the Company or the Guarantor (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (2) any contractual or legal restriction contained in any material judgment, decree, mortgage, agreement, indenture or other instrument to which the Company or the Guarantor is a party. The Credit Agreement has been duly executed and delivered on behalf of the Company and the Guarantor. 4. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body of the State of New York or the Federal government of the United States is required for the due execution, delivery and performance by the Company or the Guarantor of the Credit Agreement. 5. The Credit Agreement is a valid and binding obligation of the Company and the Guarantor enforceable against the Company and the Guarantor in accordance with its terms. 6. To the best of my knowledge and except as disclosed in the Company's consolidated financial statements, there are no pending or overtly threatened actions or proceedings against the Company or any of its Subsidiaries, before any court, governmental agency or arbitrator that purport to affect the legality, validity, binding effect or enforceability of the Credit Agreement or that are likely to have a materially adverse effect upon the financial condition or operations of the Company or any of its Subsidiaries. The opinions set forth above are subject to the following qualifications: (a) My opinion in paragraph 5 above is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally. (b) My opinion in paragraph 5 above is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). (c) I express no opinion as to the effect (if any) of the law of any jurisdiction (other than the State of New York) wherein any Lender may be located or wherein en- C-3 79 forcement of the Credit Agreement may be sought that limits the rates of interest that such Lender may charge or collect. (d) I express no opinion as to the effect of Section 548 of the United States Bankruptcy Code or any similar provision of State law. I am aware that Skadden, Arps, Slate Meagher & Flom LLP will rely upon the opinions set forth in paragraphs 1, 2 and 3 of this opinion in rendering their opinion furnished pursuant to Section 3.01 of the Credit Agreement. In all other respects and for all other purposes, this opinion is given solely for the benefit of the Agent and the Lenders and may not be relied upon by any other person or entity without my prior written consent. Very truly yours, C-4 80 EXHIBIT D FORM OF DESIGNATION LETTER ____________, ____ To The Chase Manhattan Bank as Agent Attention: Nina Wang Ladies and Gentlemen: We make reference to the 5-Year Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of April 22, 1999 among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), The Chase Manhattan Bank, as administrative agent (the "Agent"), and the banks party thereto (the "Initial Lenders"). Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby designates [______________] (the "Borrowing Subsidiary"), a Subsidiary of the Company and a corporation duly incorporated under the laws of [_______________] as a Borrower in accordance with Section 2.17 of the Credit Agreement until such designation is terminated in accordance with said Section 2.17. The Borrowing Subsidiary hereby accepts the above designation and hereby expressly and unconditionally accepts the obligations of a Borrower under the Credit Agreement, adheres to the Credit Agreement and agrees and confirms that, upon your execution and return to the Company of the enclosed copy of this letter, such Borrowing Subsidiary shall be a Borrower for purposes of the Credit Agreement and agrees to be bound by and perform and comply with the terms and provisions of the Credit Agreement applicable to it as if it had originally executed the Credit Agreement as a Borrower. The Borrowing Subsidiary hereby authorizes and empowers the Company to act as its representative and attorney-in-fact for the purposes of signing documents and giving and receiving notices (including notices of Borrowing under the Credit Agreement) and other communications in connection with the Credit Agreement and the transactions contemplated thereby and for the purposes of modifying or amending any provision of the Credit Agreement and further agrees that the Agent and each Lender may conclusively rely on the foregoing authorization. D-1 81 The Borrowing Subsidiary represents and warrants that each of the representations and warranties set forth in Section 4.01 (a) (as if the reference therein to Delaware were a reference to its jurisdiction of organization), (b), (c) and (d) of the Credit Agreement are true as if each reference therein to the Company were a reference to the Borrowing Subsidiary and as if each reference therein to the Loan Documents were a reference to this Designation Letter. The Borrowing Subsidiary hereby agrees that this Designation Letter and the Credit Agreement shall be governed by, and construed in accordance with, the law of the State of New York. The Borrowing Subsidiary hereby submits to the nonexclusive jurisdiction of any New York state court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Designation Letter, the Credit Agreement or for recognition or enforcement of any judgment. The Borrowing Subsidiary irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Borrowing Subsidiary further agrees that service of process in any such action or proceeding brought in New York may be made upon it by service upon the Borrower at the "Address for Notices" specified below its name on the signature pages to the Credit Agreement. Without limiting the foregoing, the Borrowing Subsidiary joins in the submission, agreements, waivers and consents in Section 8.11 and 8.12 of the Credit Agreement. THE PEPSI BOTTLING GROUP, INC. By ___________________________________ Title: [NAME OF BORROWING SUBSIDIARY] By ___________________________________ Title: D-2 82 ACCEPTED THE CHASE MANHATTAN BANK as Agent By ___________________________________ Title: D-3 83 EXHIBIT E FORM OF SUBSTITUTION LETTER __________, ____ To The Chase Manhattan Bank as Agent Attention: Nina Wang Ladies and Gentlemen: We make reference to the 5-Year Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of April 22, 1999 among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), The Chase Manhattan Bank, as administrative agent (the "Agent"), and the banks party thereto (the "Initial Lenders"). Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby elects to terminate its rights as a Borrower under the Credit Agreement and designates the Guarantor as the exclusive Borrower thereunder, in accordance with Section 2.17 of the Credit Agreement. The Guarantor hereby accepts the above substitution and hereby expressly and unconditionally accepts the obligations of the Company under the Credit Agreement, adheres to the Credit Agreement and agrees and confirms that, as of the date hereof, the Guarantor shall become a Borrower for purposes of the Credit Agreement and agrees to be bound by and perform and comply with the terms and provisions of the Credit Agreement applicable to it as if it had originally executed the Credit Agreement as the Company. The Company and the Guarantor hereby represent and warrant to the Agent and each Lender that, before and after giving effect to this Substitution Letter, (i) the representations and warranties set forth in Section 4.01 of the Credit Agreement (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f) thereof (other than clause (ii) thereof)) are true and correct in all material respects on the date hereof and after giving effect to the substitution contemplated hereby as if made on and as of the date hereof and (ii) no Default has occurred and is continuing. E-1 84 The Company and the Guarantor hereby agree that this Substitution Letter shall be governed by, and construed in accordance with, the law of the State of New York. The Company and the Guarantor hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Substitution Letter or the transactions contemplated hereby. THE PEPSI BOTTLING GROUP, INC. By ______________________________ Title: BOTTLING GROUP, LLC By ______________________________ Title: E-2 85 EXHIBIT F FORM OF TERMINATION LETTER ______________, _____ To The Chase Manhattan Bank, as Agent Attention: Nina Wang Ladies and Gentlemen: We make reference to the 5-Year Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of April 22, 1999 by and among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), The Chase Manhattan Bank, as administrative agent, and the banks party thereto. Terms defined in the Credit Agreement are used herein as defined therein. The Company hereby terminates the status as a Borrowing Subsidiary of [_______________], a corporation incorporated under the laws of [_______________], in accordance with Section 2.17 of the Credit Agreement, effective as of the date of receipt of this notice by the Agent. The undersigned hereby represents and warrants that all principal of and interest on any Advance of the above-referenced Borrowing Subsidiary and all other amounts payable by such Borrowing Subsidiary pursuant to the Credit Agreement have been paid in full on or prior to the date hereof. Notwithstanding the foregoing, this Termination Letter shall not affect any obligation which by the terms of the Credit Agreement survives termination thereof. THE PEPSI BOTTLING GROUP, INC. By ___________________________________ Title: F-1 EX-10.8 4 PBG EXECUTIVE INCOME DEFERRAL PLAN 1 EXHIBIT 10.8 EXECUTIVE INCOME DEFERRAL PROGRAM AS EFFECTIVE APRIL 7, 1999 2 PBG EXECUTIVE INCOME DEFERRAL PROGRAM TABLE OF CONTENTS ARTICLE I: INTRODUCTION.......................................................1 ARTICLE II: DEFINITIONS.......................................................2 2.1 Account.........................................................2 2.2 Base Compensation...............................................2 2.3 Beneficiary.....................................................2 2.4 Bonus Compensation..............................................3 2.5 Code............................................................3 2.6 Company.........................................................3 2.7 Deferral Subaccount.............................................3 2.8 Disability......................................................3 2.9 Effective Date..................................................3 2.10 Election Form...................................................3 2.11 Employer........................................................3 2.12 ERISA...........................................................3 2.13 Executive.......................................................4 2.14 Fair Market Value...............................................4 2.15 Participant.....................................................4 2.16 PBG.............................................................4 2.17 Performance Unit Payout.........................................4 2.18 Plan............................................................4 2.19 Plan Administrator..............................................4 2.20 Plan Year.......................................................5 2.21 Prior Plan......................................................5 2.22 Retirement......................................................5 2.23 Risk of Forfeiture Subaccount...................................5 2.24 Stock Option Gains..............................................5 2.25 Termination of Employment.......................................5 2.26 Valuation Date..................................................6 ARTICLE III: PARTICIPATION....................................................7 3.1 Eligibility to Participate.......................................7 3.2 Deferral Election................................................8 3.3 Time and Manner of Deferral Election.............................8 3.4 Period of Deferral..............................................10 -i- 3 ARTICLE IV: INTERESTS OF PARTICIPANTS........................................11 4.1 Accounting for Participants' Interests..........................11 4.2 Vesting of a Participant's Account..............................13 4.3 Risk of Forfeiture Subaccounts..................................14 4.4 Distribution of a Participant's Account.........................15 4.5 Acceleration of Payment in Certain Cases........................18 ARTICLE V: PLAN ADMINISTRATOR................................................19 5.1 Plan Administrator..............................................19 5.2 Action..........................................................19 5.3 Rights and Duties...............................................19 5.4 Compensation, Indemnity and Liability...........................20 5.5 Taxes...........................................................20 ARTICLE VI: CLAIMS PROCEDURE.................................................21 6.1 Claims for Benefits.............................................21 6.2 Appeals.........................................................21 ARTICLE VII: AMENDMENT AND TERMINATION.......................................22 7.1 Amendments......................................................22 7.2 Termination of Plan.............................................22 ARTICLE VIII: MISCELLANEOUS..................................................23 8.1 Limitation on Participant's Rights..............................23 8.2 Unfunded Obligation of Individual Employer......................23 8.3 Other Plans.....................................................23 8.4 Receipt or Release..............................................23 8.5 Governing Law...................................................24 8.6 Adoption of Plan by Related Employers...........................24 8.7 Gender, Tense, Headings and Examples............................24 8.8 Successors and Assigns; Nonalienation of Benefits...............24 8.9 Facility of Payment.............................................25 8.10 Separate Plans..................................................25 APPENDIX ARTICLE A INITIAL PUBLIC OFFERING OF PBG.............................2 -ii- 4 ARTICLE I INTRODUCTION The Pepsi Bottling Group, Inc. (the "Company") established the PBG Executive Income Deferral Program (the "Plan") to permit eligible executives to defer base pay, certain cash awards made under its executive compensation programs, and certain gains on stock options. The Plan is a successor to the PepsiCo Executive Income Deferral Program. Except as otherwise provided, this document sets forth the terms of the Plan as in effect on the Effective Date. As of that date, it specifies the group of executives of the Company and certain affiliated employers eligible to make deferrals, the procedures for electing to defer compensation and the Plan's provisions for maintaining and paying out amounts that have been deferred. Additional provisions applicable to certain executives are set forth in the Appendix, which modifies and supplements the general provisions of the Plan. The Plan is unfunded and unsecured. Amounts deferred by an executive are an obligation of that executive's individual employer. With respect to his or her employer, the executive has the rights of a general creditor. 1 5 ARTICLE II DEFINITIONS When used in this Plan, the following underlined terms shall have the meanings set forth below unless a different meaning is plainly required by the context: 2.1 Account: The account maintained for a Participant on the books of his or her Employer to determine, from time to time, the Participant's interest under this Plan. The balance in such Account shall be determined by the Plan Administrator. Each Participant's Account shall consist of at least one Deferral Subaccount for each separate deferral under Section 3.2. In accordance with Section 4.3, some or all of a separate deferral may be held in a Risk of Forfeiture Subaccount. The Plan Administrator may also establish such additional subaccounts as it deems necessary for the proper administration of the Plan. Where appropriate, a reference to a Participant's Account shall include a reference to each applicable subaccount that has been established thereunder. 2.2 Base Compensation: An eligible Executive's adjusted base salary, as determined by the Plan Administrator and to the extent paid in U.S. dollars from an Employer's U.S. payroll. For any applicable payroll period, an eligible Executive's adjusted base salary shall be determined after reductions for applicable tax withholdings, Executive authorized deductions (including deductions for the PBG 401(k) Plan, Benefits Plus and charitable donations), tax levies, garnishments and such other amounts as the Plan Administrator recognizes as reducing the amount of base salary available for deferral. 2.3 Beneficiary: The person or persons (including a trust or trusts) properly designated by a Participant, as determined by the Plan Administrator, to receive the amounts in one or more of the Participant's subaccounts in the event of the Participant's death. To be effective, any Beneficiary designation must be in writing, signed by the Participant, and filed with the Plan Administrator prior to the Participant's death, and it must meet such other standards (including any requirement for spousal consent) as the Plan Administrator shall require from time to time. If no designation is in effect at the time of a Participant's death or if all designated Beneficiaries have predeceased the Participant, then the Participant's Beneficiary shall be his or her estate. A Beneficiary designation of an individual by name (or name and relationship) remains in effect regardless of any change in the designated individual's relationship to the Participant. A Beneficiary designation solely by relationship (for example, a designation of "spouse," that does not give the name of the spouse) shall designate whoever is the person in that relationship to the Participant at his or her death. An individual who is otherwise a Beneficiary with respect to a Participant's Account ceases to be a Beneficiary when all payments have been made from the Account. 2.4 Bonus Compensation: An eligible Executive's adjusted annual incentive award under his or her Employer's annual incentive plan or the PBG Executive Incentive 2 6 Compensation Plan, as determined and adjusted by the Plan Administrator and to the extent paid in U.S. dollars from an Employer's U.S. payroll. An eligible Executive's annual incentive awards shall be adjusted to reduce them for applicable tax withholdings, Executive authorized deductions (including deductions for the PBG 401(k) Plan, Benefits Plus and charitable donations), tax levies, garnishments and such other amounts as the Plan Administrator recognizes as reducing the amount of such awards available for deferral. 2.5 Code: The Internal Revenue Code of 1986, as amended from time to time. 2.6 Company: The Pepsi Bottling Group, Inc., a corporation organized and existing under the laws of the State of Delaware, or its successor or successors. 2.7 Deferral Subaccount: A subaccount of a Participant's Account maintained to reflect his or her interest in the Plan attributable to each deferral (or separately tracked portion of a deferral) of Base Compensation, Bonus Compensation, Performance Unit Payout and Stock Option Gains, respectively, and earnings or losses credited to such subaccount in accordance with Section 4.1(b). 2.8 Disability: A Participant who is entitled to receive benefits under the PBG Long Term Disability Plan shall be deemed to suffer from a disability. Participants who are not eligible to participate in the PBG Long Term Disability Plan shall be deemed to suffer from a disability if, in the judgment of the Plan Administrator, they satisfy the standards for disability under the PBG Long Term Disability Plan. 2.9 Effective Date: 12:00 A.M., Eastern Daylight Time, on the day after the Offering Date as that term is defined in the 1999 Separation Agreement between PepsiCo, Inc. and the Company. 2.10 Election Form: The form prescribed by the Plan Administrator on which a Participant specifies the amount of his or her Base Compensation, Bonus Compensation, Performance Unit Payout or Stock Option Gains to be deferred pursuant to the provisions of Article III. 2.11 Employer: Each division of the Company and each of the Company's subsidiaries and affiliates (if any) that is currently designated as an Employer by the Plan Administrator. 2.12 ERISA: Public Law 93-406, the Executive Retirement Income Security Act of 1974, as amended from time to time. 2.13 Executive: Any person in an executive classification of an Employer who (i) is receiving remuneration for personal services rendered in the employment of the Employer, and (ii) is paid in U.S. dollars from the Employer's U.S. payroll. 3 7 2.14 Fair Market Value: For purposes of converting a Participant's deferrals to PBG Common Stock or PepsiCo Capital Stock as of any date, the Fair Market Value of such stock is determined as the average of the high and low price on such date (or if such date is not a trading date, the immediately preceding date that is a trading date) for PBG or PepsiCo Stock (as applicable) as reported on the composite tape for securities listed on the New York Stock Exchange, Inc., rounded to four decimal places. For purposes of determining the value of a Plan distribution or for reallocating amounts between phantom investment options under the Plan, the Fair Market Value of PBG Common Stock or PepsiCo Capital Stock is determined as the closing price on the applicable Valuation Date (identified based on the Plan Administrator's current procedures) for PBG or PepsiCo stock (as applicable) as reported on the composite tape for securities listed on the New York Stock Exchange, Inc., rounded to four decimal places. 2.15 Participant: Any Executive who is qualified to participate in this Plan in accordance with Section 3.1 and who has an Account. A Participant includes any individual who deferred compensation under the Prior Plan prior to the Effective Date and for whom any Employer maintains on its books an Account for such deferred compensation as of the Effective Date. An active Participant is one who is currently deferring under Section 3.2. 2.16 PBG: The Pepsi Bottling Group, Inc. 2.17 Performance Unit Payout: The adjusted performance unit award payable to an Executive under the Company's Long Term Incentive Plan during a Plan Year, to the extent paid in U.S. dollars from an Employer's U.S. payroll. An eligible Executive's performance unit award shall be adjusted to reduce it for applicable tax withholdings, Executive authorized deductions, tax levies, garnishments and such other amounts as the Plan Administrator recognizes as reducing the amount of such awards available for deferral. 2.18 Plan: The PBG Executive Income Deferral Program, the plan set forth herein, as it may be amended from time to time. 2.19 Plan Administrator: The Compensation and Management Development Committee of the Board of Directors of the Company or its delegate or delegates, which shall have the authority to administer the Plan as provided in Article V. 2.20 Plan Year: Except with respect to the first Plan Year, which begins on the Effective Date and ends on December 31, 1999, the 12-consecutive month period beginning on January 1 and ending on December 31. 2.21 Prior Plan: The PepsiCo Executive Income Deferral Program, as in effect for periods before the Effective Date. 4 8 2.22 Retirement: Termination of service with the Company and its affiliates after attaining eligibility for retirement. A Participant attains eligibility for retirement when he or she attains (i) at least age 55 with 10 or more years of service, (ii) at least age 65 with 5 or more years of service, or (iii) such other eligibility requirement for retirement under the PBG Salaried Executives Retirement Plan as may apply to the Participant (whichever occurs earliest) while in the employment of the Company or any of its affiliates that are determined by the Plan Administrator to qualify for this purpose. A Participant's service is determined under the terms of the PBG Salaried Executives Retirement Plan. 2.23 Risk of Forfeiture Subaccount: The subaccount provided for by Section 4.3 to contain the portion of each separate deferral that is subject to forfeiture. 2.24 Stock Option Gains: The gains on an eligible Executive's 1990 PepsiCo Performance Share Stock Options and PBG Long Term Incentive Plan Stock Options that are available for deferral under the Plan pursuant to Section 3.3(c). With respect to any options that are made subject to a Stock Option Gain deferral election, the gains on such options shall be determined through a sale of related shares by the issuer of the underlying shares net of: (i) the exercise price of the options, (ii) any transaction costs incurred when such gains are captured through the sale of related shares, and (iii) any related taxes that the issuer determines will not otherwise be satisfied by the Participant. For purposes of such sales, the issuer may aggregate shares related to the options of different Participants, sell them over one or more days and divide the net proceeds from such aggregate sales between the Participants in a reasonable manner. The issuer shall have absolute discretion with respect to the timing and aggregation of such sales. 2.25 Termination of Employment: A Participant's cessation of employment with the Company, all Employers and all other Company subsidiaries and affiliates (as defined for this purpose by the Plan Administrator). For purposes of determining forfeitures under Section 4.3 and distributing a Participant's Account under Section 4.4, the following shall apply: (a) A Participant does not have a Termination of Employment when the business unit or division of the Company that employs him is sold if the Participant and substantially all employees of that entity continue to be employed by the entity or its successor after the sale. A Participant also does not have a Termination of Employment when the subsidiary of the Company that employs him is sold if: (i) the Participant continues to be employed by the entity or its successor after the sale, and (ii) the Participant's interest in the Plan continues to be carried as a liability by that entity or its successor after the sale through a successor arrangement. In each case, the Participant's Termination of Employment shall occur upon the Participant's post-sale termination of employment from such entity or its successor (and their related organizations, as determined by the Plan Administrator). 5 9 (b) With respect to any individual deferral, the term "Termination of Employment" may encompass a Participant's death or death may be considered a separate event, depending upon the convention the Plan Administrator follows with respect to such deferral. 2.26 Valuation Date: Each date as of which Participant Accounts are valued in accordance with procedures of the Plan Administrator that are currently in effect. As of the Effective Date, the Valuation Dates are March 31, June 30, September 30 and December 31. Values are determined as of the close of a Valuation Date or, if such date is not a business day, as of the close of the immediately preceding business day. 6 10 ARTICLE III PARTICIPATION 3.1 Eligibility to Participate. (a) An Executive shall be eligible to defer compensation under the Plan while employed by an Employer as an Executive classified (or grandfathered) as Band II or above (or an equivalent level for employees not under the band system). Notwithstanding the preceding sentence, from time to time the Plan Administrator may modify, limit or expand the class of Executives eligible to defer hereunder, pursuant to criteria for eligibility that need not be uniform among all or any group of Executives. During the period an individual satisfies all of the eligibility requirements of this section, he or she shall be referred to as an eligible Executive. (b) Each eligible Executive becomes an active Participant on the date an amount is first withheld from his or her compensation pursuant to an Election Form submitted by the Executive to the Plan Administrator under Section 3.3. (c) An individual's eligibility to participate actively by making deferrals under Section 3.2 shall cease upon the election termination date (as defined below) occurring after the earlier of: (1) The date he or she ceases to be an Executive who is described in the first sentence of subsection (a) above (unless a less restrictive eligibility standard has been adopted in accordance with the second sentence of subsection (a), in which case only Paragraph (2) below shall apply); or (2) The date the Executive ceases to be eligible under criteria described in the second sentence of subsection (a) above. For purposes of this subsection, an individual's election termination date shall be a date as soon as administratively practicable following the cessation of eligibility (or such other date as may be determined in accordance with rules of the Plan Administrator). (d) An individual, who has been an active Participant under the Plan, ceases to be a Participant on the date his or her Account is fully paid out. 7 11 3.2 Deferral Election. (a) Each eligible Executive may make an election to defer under the Plan any whole percentage (up to 100%) of his or her Base Compensation, Bonus Compensation and Performance Unit Payout (and the Stock Option Gains on specified options) in the manner described in Section 3.3. The Plan Administrator may also permit the Participant to specify a dollar amount cap on his or her deferral in the case of Bonus Compensation. Any percentage of Base Compensation deferred by an eligible Executive for a Plan Year will be deducted each pay period during the Plan Year for which he or she has Base Compensation and is an eligible Executive. The percentage of Bonus Compensation or Performance Unit Payout deferred by an eligible Executive for a Plan Year will be deducted from his or her payment under the applicable compensation program at the time it would otherwise be made, provided he or she remains an eligible Executive at such time. Any Stock Option Gains deferred by an eligible Executive shall be captured as of the date or dates applicable for the category of underlying options under procedures adopted by the Plan Administrator, provided that the Plan Administrator determines the eligible Executive's rights in such options may still be recognized at such time. (b) To be effective, an eligible Executive's Election Form must set forth the percentage of Base Compensation, Bonus Compensation or Performance Unit Payout to be deferred (or for a deferral of Stock Option Gains, the specific options on which any gains are to be deferred), the investment choice under Section 4.1 (which investment must be stated in multiples of 5 percent), the deferral period under Section 3.4, the eligible Executive's Beneficiary designation, and any other information that may be requested by the Plan Administrator from time to time. In addition, the Election Form must meet the requirements of Section 3.3 below. 3.3 Time and Manner of Deferral Election. (a) Deferrals of Base Compensation. Subject to the next sentence, an eligible Executive must make a deferral election for a Plan Year with respect to Base Compensation at least two months prior to the Plan Year in which the Base Compensation would otherwise be paid. An individual who newly becomes an eligible Executive will have 30 days from the date the individual becomes an eligible Executive to make an election with respect to compensation for payroll cycles that begin after the election is received (if this 30-day period is a longer election period than applies under the preceding sentence). (b) Deferrals of Bonuses and Performance Unit Payouts. Subject to the next two sentences, an eligible Executive must make a deferral election for a Plan Year with respect to his or her Bonus Compensation or 8 12 Performance Unit Payout at least six months prior to the Plan Year in which the Bonus Compensation or Performance Unit Payout would otherwise be paid. The election deadline for such compensation payable in 2000 shall be July 15, 1999. An individual who newly becomes an eligible Executive may make a deferral election with respect to his or her Bonus Compensation or Performance Unit Payout to be paid during the succeeding Plan Year later than the date applicable under the previous sentence so long as the deferral election is made: (i) within 30 days of the date the individual becomes an eligible Executive, and (ii) sufficiently prior to the first day of such succeeding Plan Year to ensure, in the discretionary judgment of the Plan Administrator, that the amount to be deferred will not have been constructively received (under all the facts and circumstances). (c) Deferrals of Stock Option Gains. From time to time, the Plan Administrator shall notify eligible Executives with outstanding 1990 PepsiCo Performance Share Stock Options or PBG Long Term Incentive Plan Options which options then qualify for deferral of their related Stock Option Gains. Subject to the next sentence, an eligible Executive who has qualifying options must make a deferral election with respect to his or her related Stock Option Gains at least 6 months before such qualifying options' proposed capture date (as defined below) or, if earlier, in the calendar year preceding the year of the proposed capture date. In the case of an election with respect to 1990 PepsiCo Performance Share Stock Options, the election deadline shall be July 15, 1999. The "proposed capture date" for a set of options shall be the earliest date that the issuer of the underlying stock would capture a Participant's Stock Option Gains in accordance with the deferral agreement prepared for such purpose by the Plan Administrator. (d) General Provisions. A separate deferral election under (a), (b) or (c) above must be made by an eligible Executive for each category of a Plan Year's compensation that is eligible for deferral. If an eligible Executive fails to file a properly completed and executed Election Form with the Plan Administrator by the prescribed time, he or she will be deemed to have elected not to defer any Base Compensation, Bonus Compensation, Performance Unit Payout or Stock Option Gains, as the case may be, for the applicable Plan Year. An election is irrevocable once received and determined by the Plan Administrator to be properly completed. Increases or decreases in the amount or percentage a Participant elects to defer shall not be permitted during a Plan Year. Notwithstanding the preceding three sentences, to the extent necessary because of extraordinary circumstances, the Plan Administrator may grant an extension of any election period and may permit (to the extent necessary to avoid undue hardship to an eligible Executive) the complete revocation of an election with respect to future deferrals. Any such extension or revocation shall be available only if the Plan Administrator determines that it shall not trigger constructive receipt of income and is desirable for plan administration, and only upon such conditions as may be required by the Plan Administrator. 9 13 (e) Beneficiaries. A Participant designates on the Election Form a Beneficiary to receive payment in the event of his or her death of amounts credited to his or her subaccount for such deferral. A Beneficiary is paid in accordance with the terms of a Participant's Election Form, as interpreted by the Plan Administrator in accordance with the terms of this Plan. At any time, a Participant may change a Beneficiary designation for any or all subaccounts in a writing that is signed by the Participant and filed with the Plan Administrator prior to the Participant's death, and that meets such other standards as the Plan Administrator shall require from time to time. 3.4 Period of Deferral. An eligible Executive making a deferral election shall specify a deferral period on his or her Election Form by designating a specific payout date, one or more specific payout events or both a date and one or more specific events from the choices that are made available to the eligible Executive by the Plan Administrator. From time to time in its discretion, the Plan Administrator may condition a Participant's right to designate one or more specific payout events on the Participant's also specifying a payout date. Subject to the next sentence, an eligible Executive's elected period of deferral shall run until the earliest occurring date or event specified on his or her Election Form. Notwithstanding an eligible Executive's actual election, an eligible Executive shall be deemed to have elected a period of deferral of not less than: (a) For Base Compensation, at least until January 1 of the second Plan Year following the Plan Year during which the Base Compensation would have been paid absent the deferral (until 6 months after the Plan Year during which the Base Compensation would have been paid for deferral elections made before the Effective Date); (b) For Bonus Compensation, at least 2 years after the date the Bonus Compensation would have been paid absent the deferral (1 year for deferral elections made before the Effective Date); (c) For Performance Unit Payouts, at least 2 years after the date the Performance Unit Payout would have been paid absent the deferral (1 year for deferral elections made before the Effective Date); and (d) For Stock Option Gains, at least 2 years after the date the Stock Option Gain is credited to a Deferral Subaccount for the benefit of the Participant (1 year for deferral elections made before the Effective Date). 10 14 ARTICLE IV INTERESTS OF PARTICIPANTS 4.1 Accounting for Participants' Interests. (a) Deferral Subaccounts. Each Participant shall have at least one separate Deferral Subaccount for each separate deferral of Base Compensation, Bonus Compensation, Performance Unit Payout or Stock Option Gains made by the Participant under this Plan. A Participant's deferral shall be credited to his or her Account as soon as practicable following the date when the deferral of compensation actually occurs, as determined by the Plan Administrator. A Participant's Account is a bookkeeping device to track the value of his or her deferrals (and his or her Employer's liability therefor). No assets shall be reserved or segregated in connection with any Account, and no Account shall be insured or otherwise secured. (b) Account Earnings or Losses. As of each Valuation Date, a Participant's Account shall be credited with earnings and gains (and shall be debited for expenses and losses) determined as if the amounts credited to his or her Account had actually been invested as directed by the Participant in accordance with this section (as modified by Section 4.3, if applicable). The Plan provides only for "phantom investments," and therefore such earnings, gains, expenses and losses are hypothetical and not actual. However, they shall be applied to measure the value of a Participant's Account and the amount of his or her Employer's liability to make deferred payments to or on behalf of the Participant. (c) Investment Options. Each of a Participant's Subaccounts (other than those containing Stock Option Gains) shall be invested on a phantom basis in any combination of phantom investment options specified by the Participant (or following the Participant's death, by his or her Beneficiary) from those offered by the Plan Administrator for this purpose from time to time. Subsection (e) below governs the phantom investment options available for deferrals of Stock Option Gains. The Plan Administrator may discontinue any phantom investment option with respect to some or all Accounts, and it may provide for shifting a Participant's phantom investment from the discontinued option to a specified replacement option (unless the Participant selects another replacement option in accordance with such requirements as the Plan Administrator may apply). As of the Effective Date, the phantom investment options are: (1) Phantom Interest Bearing Cash Account. Participant Accounts invested in this phantom option accrue a return based upon the prime rate of interest announced from time to time by Citibank, N.A. (or another bank designated by the Plan Administrator from time to time). Returns accrue 11 15 during the period since the last Valuation Date based on the prime rate in effect on the first business day after such Valuation Date and are compounded annually. An amount deferred or transferred into this option is credited with the applicable rate of return beginning with the date as of which the amount is treated as invested in this option by the Plan Administrator. (2) Phantom PBG Stock Account. Participant Accounts invested in this phantom option are adjusted to reflect an investment in PBG Common Stock. An amount deferred or transferred into this option is converted to phantom shares of PBG Common Stock of equivalent value by dividing such amount by the Fair Market Value of a share of PBG Common Stock on the date as of which the amount is treated as invested in this option by the Plan Administrator. Only whole shares are determined. Any remaining amount (and all amounts that would be received by the Account as dividends, if dividends were paid on phantom shares of PBG Common Stock as they are on actual shares) are credited to a dividend subaccount that is invested in the phantom option in paragraph (1) above (the Phantom Interest Bearing Account). (i) A Participant's interest in the Phantom PBG Stock Account is valued as of a Valuation Date by multiplying the number of phantom shares credited to his or her Account on such date by the Fair Market Value of a share of PBG Common Stock on such date, and then adding the value of the Participant's dividend subaccount. (ii) If shares of PBG Common Stock change by reason of any stock split, stock dividend, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other any other corporate change treated as subject to this provision by the Plan Administrator, such equitable adjustment shall be made in the number and kind of phantom shares credited to an Account or subaccount as the Plan Administrator may determine to be necessary or appropriate. In no event will shares of PBG Common Stock actually be purchased or held under this Plan, and no Participant shall have any rights as a shareholder of PBG Common Stock on account of an interest in this phantom option. (3) PBG 401(k) Accounts. From time to time, the Plan Administrator shall designate which (if any) of the investment options under the Company's Long Term Savings Plan (401(k) Plan) shall be available as phantom investment options under this Plan. As of the Effective Date, such available phantom options are the Equity-Index Account, Equity-Income Account, and the Security Plus Account. Participant Accounts invested in 12 16 these phantom options are adjusted to reflect an investment in the corresponding investment options under the PBG 401(k) Plan. An amount deferred or transferred into one of these options is converted to phantom units in the applicable PBG 401(k) fund of equivalent value by dividing such amount by the value of a unit in such fund on the date as of which the amount is treated as invested in this option by the Plan Administrator. Thereafter, a Participant's interest in each such phantom option is valued as of a Valuation Date by multiplying the number of phantom units credited to his or her Account on such date by the value of a unit in the applicable PBG 401(k) fund. (4) Other Accounts: Any other phantom investment accounts shall be administered under procedures implemented from time to time by the Plan Administrator. (d) Method of Allocation. With respect to any deferral election by a Participant, the Participant must use his or her Election Form to allocate the deferral in 5 percent increments among the phantom investment options then offered by the Plan Administrator. Thereafter, a Participant may reallocate previously deferred amounts in a subaccount by properly completing and submitting a fund transfer form provided by the Plan Administrator and specifying, in 5 percent increments, the reallocation of his or her Subaccount among the phantom investment options then offered by the Plan Administrator for this purpose. Any such transfer form shall be effective as of the first Valuation Date that follows its receipt by at least the number of days that the Plan Administrator specifies for this purpose from time to time. If more than one transfer form is received on a timely basis for a subaccount, the transfer form that the Plan Administrator determines to be the most recent shall be followed. (e) Investment Choices for Stock Option Gains. Deferrals of Stock Option gains initially may be invested only in the Phantom PBG Stock Account. In the case of a Participant who has attained his or her Retirement, the Plan Administrator may make available some or all of the other phantom investment options described in subsection (c) above. In this case, any election to reallocate the balance in the Participant's applicable Deferral Subaccount shall be governed by the foregoing provisions of this section. 4.2 Vesting of a Participant's Account. Except as provided in Section 4.3, a Participant's interest in the value of his or her Account shall at all times be 100 percent vested, which means that it will not forfeit as a result of his or her Termination of Employment. 4.3 Risk of Forfeiture Subaccounts. A Participant may elect to defer Base Compensation, Bonus Compensation or Performance Unit Payouts to a Risk of Forfeiture 13 17 Subaccount only if: (i) he or she had, as of June 1, 1994, a deferred compensation subaccount under the Prior Plan maintained under a forfeiture agreement (as defined below), and (ii) he or she has not yet attained eligibility for Retirement when the first amount would be deferred pursuant to his or her current risk-of-forfeiture election. A "forfeiture agreement" is an agreement with the Company, any Employer, or one of their predecessors providing that the subaccount would be forfeited if the employee terminated employment voluntarily or on account of misconduct prior to Retirement. A Participant who meets these requirements may elect under Article III to defer some or all of his or her eligible compensation to a Risk of Forfeiture Subaccount subject to the following terms. (The date when a Participant attains eligibility for Retirement is specified in the definition of "Retirement.") (a) A Risk of Forfeiture Subaccount will be terminated and forfeited in the event that the Participant has a Termination of Employment that is voluntary or because of his or her misconduct prior to the earliest of: (1) The end of the deferral period designated in his or her Election Form for such deferral (or if later, the end of such minimum period as may be required under Section 3.4); (2) The date the Participant attains eligibility for Retirement; or (3) The date indicated on his or her Election Form as the end of the risk of forfeiture condition (but not before completing the minimum risk of forfeiture period required by the Plan Administrator from time to time). (b) A Risk of Forfeiture Subaccount shall become fully vested (and shall cease to be a Risk of Forfeiture Subaccount) when: (1) The Participant reaches any of the dates in subsection (a) above while still employed by the Company or one of its affiliates (as defined by the Plan Administrator for this purpose), or (2) On the date the Participant terminates involuntarily from his or her Employer (including death and termination for Disability), provided that such termination is not for his or her misconduct. (c) No amounts credited to a Risk of Forfeiture Subaccount may be transferred to a subaccount of the Participant that is not a Risk of Forfeiture Subaccount. No amounts credited to a subaccount of the Participant that is not a Risk of Forfeiture Subaccount may be transferred to a Risk of Forfeiture Subaccount. 14 18 (d) A Participant may initially direct and then reallocate his or her Risk of Forfeiture Subaccount to any of the phantom investment options under the Plan that are currently available for such direction or reallocation, whichever applies. During the period before a Risk of Forfeiture Subaccount ceases to be a Risk of Forfeiture Subaccount, the return under any such phantom investment option shall be supplemented as follows. (1) In the case of the Phantom PBG Stock Account, the Participant's dividend subaccount thereunder shall be credited with an additional year-end dividend amount equal to 2 percent of the average closing price of PBG Common Stock for the 30 business days preceding the end of the Company's fiscal year multiplied by the number of phantom shares of PBG Common Stock credited to the Participant's Account as of the end of the year. If the Participant's subaccount was not a Risk of Forfeiture Subaccount for the entire year (or if the Participant reallocated amounts to the Phantom PBG Stock Account after the beginning of the year), this 2 percent additional dividend will be prorated down appropriately, as determined by the Plan Administrator. In addition, the Participant's dividend subaccount shall earn interest at a rate that is 2 percent above the rate ordinarily applicable under the Phantom Interest Bearing Account for the period that it is contained within a Risk of Forfeiture Subaccount. (2) In the case of any other available phantom investment option, the return on each such option shall be supplemented with an additional 2% annual return for the period that it is held within a Risk of Forfeiture Subaccount (but prorated for periods of such investment of less than a year). 4.4 Distribution of a Participant's Account. A Participant's Account shall be distributed as provided in this Section 4.4. The portion of any subaccount that is invested in the Phantom PBG Stock Account may be distributed, at the option of the Plan Administrator, either in the form of cash or in whole shares of PBG Common Stock (with cash for any partial share and the value of the dividend account). The Plan Administrator may also adopt a rule that eliminates the option to pay out cash under the prior sentence (except for any partial share and the value of the dividend account). All other subaccount balances shall be distributed in cash. (a) Scheduled Payout Date. With respect to a specific deferral, a Participant's "Scheduled Payout Date" shall be the earlier of: (1) The date selected by the Participant for such deferral in accordance with Section 3.4, or 15 19 (2) The first day of the calendar quarter that follows the earliest to occur event selected by the Participant for such deferral in accordance with Section 3.4. Notwithstanding the prior sentence, in the case of a deferral of Stock Option Gains (and at the Plan Administrator's discretion, any other deferral), a Participant's Scheduled Payout Date for such deferral shall be first day of the calendar quarter following his or her Termination of Employment other than for death, Disability or Retirement (or if later, the first day of the calendar quarter on or after completing: (i) for deferrals of stock option gains, 1 year following when the gain is credited to a Deferral Subaccount, and (ii) for other deferrals, the minimum periods of deferral specified in Section 3.4(a), (b) and (c)). The discretion authorized in the preceding sentence shall be exercised consistently by Participant class (as identified by the Plan Administrator from time to time), rather than Participant-by-Participant. In addition, with respect to any deferral, if a Participant selects only a payout event that might not occur (such as Retirement) and then terminates employment before the occurrence of the event, the Plan Administrator may adopt rules to specify the Scheduled Payout Date that shall apply to the deferral, notwithstanding the terms of the Participant's election. Unless an election has been made in accordance with subsection (b) below, the Participant's subaccount containing the deferral shall be distributed to the Participant in a single lump sum as soon as practicable following the Scheduled Payout Date. (b) Payment Election. A Participant may delay receipt of a subaccount beyond its Scheduled Payout Date, or elect to receive installments rather than a lump sum, by making a payment election under this subsection. A payment election must be made by the calendar year before the year containing the Scheduled Payout Date (or if earlier, at least 6 months before the Scheduled Payout Date). This deadline applies without regard to whether the Participant has received any notice of the deadline or the availability of a payment election. Any payment election to receive a lump sum at a later time must specify a revised payout date that is at least 2 years after the Scheduled Payout Date. Any payment election to receive installment payments in lieu of a lump sum shall specify the amount (or method for determining) each installment and a set of revised payout dates, the last of which must be at least 2 years after the Scheduled Payout Date. With respect to any subaccount, only one election may be made under this subsection. Beneficiaries are not permitted to make elections under this subsection. In addition, an election under this subsection may not delay the distribution of a deferral of Stock Option Gains made by a Participant whose employment has terminated other than for death, Disability or Retirement. Actual payments shall be made as soon as practicable following a revised payout date. (c) Valuation. In determining the amount of any individual distribution pursuant to subsection (a) or (b) above, the Participant's subaccount shall 16 20 continue to be credited with earnings and gains (and debited for expenses and losses) under Sections 4.1 and 4.3 until the Valuation Date preceding the Scheduled Payout Date or revised payout date for such distribution (whichever is applicable). In determining the value of a Participant's remaining subaccount following an installment distribution, such installment distribution shall reduce the value of the Participant's subaccount as of the close of the Valuation Date preceding the revised payout date for such installment. (d) Limitations. The following limitations apply to distributions from the Plan. (1) Installments may only be made quarterly, semi-annually or annually, for a period of no more than 20 years, and not later than the Participant's 80th birthday (or what would have been his or her 80th birthday, if the Participant dies earlier). (2) If a Participant has elected a Scheduled Payout Date that would be after his or her 80th birthday, the Participant shall be deemed to have elected his or her 80th birthday as his or her Scheduled Payout Date. (3) If a Participant has elected to defer income, which would qualify as performance-based compensation under Code section 162(m), into a Risk of Forfeiture Subaccount, then such subaccount may not be paid out at any time while the Participant is a covered employee under Code section 162(m)(3), to the extent the Plan Administrator determines it would result in compensation being paid to the Participant in such year that would not be deductible under Code section 162(m). The payout of any such amount shall be deferred until a year when the Participant is no longer a section 162(m) covered employee. The Plan Administrator may waive the foregoing provisions of this paragraph to the extent necessary to avoid an undue hardship to the Participant. This paragraph shall apply notwithstanding any provision of the Plan to the contrary. (e) Upon a Participant's death, his or her Beneficiary shall be paid each subaccount still standing to the Participant's credit under the Plan in accordance with the terms of the Participant's payout election for such subaccount under Section 3.4, or his or her payment election under subsection (b) above, whichever is applicable. Any claim to be paid any amounts standing to the Credit of a Participant in connection with the Participant's death must be received by the Plan Administrator at least 14 days before any such amount is paid out by the Plan Administrator. Any claim received thereafter is untimely, and it shall not lie against the Plan, the Company, any Employer, the Plan Administrator or any other party acting for one or more of them. 17 21 4.5 Acceleration of Payment in Certain Cases. Except as expressly provided in this Section 4.5, no payments shall be made under this Plan prior to the date (or dates) applicable under Section 4.4. (a) A Participant who is suffering severe financial hardship resulting from extraordinary and unforeseeable events beyond the control of the Participant (and who does not have other funds reasonably available that could satisfy the severe financial hardship) may file a written request with the Plan Administrator for accelerated payment of all or a portion of the amount credited to his or her Account. A committee composed of representatives from the Company's Compensation Department, Tax Department and Law Department, or such other parties as the Plan Administrator may specify from time to time, shall have sole discretion to determine whether a Participant satisfies the requirements for a hardship request and the amount that may be distributed (which shall not exceed the amount reasonably necessary to alleviate the Participant's hardship). (b) After a Participant has filed a written request pursuant to this section, along with all supporting material, the committee shall grant or deny the request within 60 days (or such other number of days as is customarily applied from time to time) unless special circumstances warrant additional time. (c) The Plan Administrator may adjust the standards for hardship withdrawals from time to time to the extent it determines such adjustment to be necessary to avoid triggering constructive receipt of income under the Plan. (d) A Beneficiary may also request a hardship distribution upon satisfaction of the foregoing requirements and subject to the foregoing limitations. (e) When determined to be necessary in the interest of sound plan administration, the Plan Administrator may accelerate the payment of a class of Participants' subaccounts hereunder. This shall only occur to the extent the Plan Administrator determines that such acceleration will not trigger constructive receipt of subaccounts that are not paid out. (f) When some or all of a Participant's subaccount is distributed pursuant to this section, the distribution and the subaccount shall be valued as provided by the Plan Administrator, using rules patterned after those in Section 4.4(c) above, on the Valuation Date coincident with or immediately preceding the date on which the decision to make accelerated payment is made (or if later, the date on which it is deemed to be effective). 18 22 ARTICLE V PLAN ADMINISTRATOR 5.1 Plan Administrator. The Plan Administrator is the Compensation and Management Development Committee of the Company's Board of Directors (the "Committee") or its delegate or delegates, who shall act within the scope of their delegation pursuant to such operating guidelines as the Committee shall establish from time to time. The Plan Administrator is responsible for the administration of the Plan. 5.2 Action. Action by the Committee may be taken in accordance with procedures that the Committee adopts from time to time or that the Company's Law Department determines are legally permissible. 5.3 Rights and Duties. The Plan Administrator shall administer and manage the Plan and shall have all powers necessary to accomplish that purpose, including (but not limited to) the following: (a) To exercise its discretionary authority to construe, interpret, and administer this Plan; (b) To exercise its discretionary authority to make all decisions regarding eligibility, participation and deferrals, to make allocations and determinations required by this Plan, and to maintain records regarding Participants' Accounts; (c) To compute and certify to the Employer the amount and kinds of payments to Participants or their Beneficiaries, and to determine the time and manner in which such payments are to be paid; (d) To authorize all disbursements by the Employer pursuant to this Plan; (e) To maintain (or cause to be maintained) all the necessary records for administration of this Plan; (f) To make and publish such rules for the regulation of this Plan as are not inconsistent with the terms hereof; (g) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder; 19 23 (h) To establish or to change the phantom investment options or arrangements under Article IV; and (i) To hire agents, accountants, actuaries, consultants and legal counsel to assist in operating and administering the Plan. The Plan Administrator has the exclusive and discretionary authority to construe and to interpret the Plan, to decide all questions of eligibility for benefits, to determine the amount and manner of payment of such benefits and to make any determinations that are contemplated by (or permissible under) the terms of this Plan, and its decisions on such matters will be final and conclusive on all parties. Any such decision or determination shall be made in the absolute and unrestricted discretion of the Plan Administrator, even if (A) such discretion is not expressly granted by the Plan provisions in question, or (B) a determination is not expressly called for by the Plan provisions in question, and even though other Plan provisions expressly grant discretion or call for a determination. In the event of a review by a court, arbitrator or any other tribunal, any exercise of the Plan Administrator's discretionary authority shall not be disturbed unless it is clearly shown to be arbitrary and capricious. 5.4 Compensation, Indemnity and Liability. The Plan Administrator will serve without bond and without compensation for services hereunder. All expenses of the Plan and the Plan Administrator will be paid by the Employer. To the extent deemed appropriate by the Plan Administrator, any such expense may be charged against specific Participant Accounts, thereby reducing the obligation of the Employer. No member of the Committee, and no individual acting as the delegate of the Committee, shall be liable for any act or omission of any other member or individual, nor for any act or omission on his or her own part, excepting his or her own willful misconduct. The Employer will indemnify and hold harmless each member of the Committee and any employee of PBG (or a PBG affiliate, if recognized as an affiliate for this purpose by the Plan Administrator) acting as the delegate of the Committee against any and all expenses and liabilities, including reasonable legal fees and expenses, arising out of his or her membership on the Committee (or his or her serving as the delegate of the Committee), excepting only expenses and liabilities arising out of his or her own willful misconduct. 5.5 Taxes. If the whole or any part of any Participant's Account becomes liable for the payment of any estate, inheritance, income, or other tax which the Employer may be required to pay or withhold, the Employer will have the full power and authority to withhold and pay such tax out of any moneys or other property in its hand for the account of the Participant. To the extent practicable, the Employer will provide the Participant notice of such withholding. Prior to making any payment, the Employer may require such releases or other documents from any lawful taxing authority as it shall deem necessary. 20 24 ARTICLE VI CLAIMS PROCEDURE 6.1 Claims for Benefits. If a Participant, Beneficiary or other person (hereafter, "Claimant") does not receive timely payment of any benefits which he or she believes are due and payable under the Plan, he or she may make a claim for benefits to the Plan Administrator. The claim for benefits must be in writing and addressed to the Plan Administrator or to the Company. If the claim for benefits is denied, the Plan Administrator will notify the Claimant in writing within 90 days after the Plan Administrator initially received the benefit claim. However, if special circumstances require an extension of time for processing the claim, the Plan Administrator will furnish notice of the extension to the Claimant prior to the termination of the initial 90-day period and such extension may not exceed one additional, consecutive 90-day period. Any notice of a denial of benefits should advise the Claimant of the basis for the denial, any additional material or information necessary for the Claimant to perfect his or her claim, and the steps which the Claimant must take to have his or her claim for benefits reviewed. 6.2 Appeals. Each Claimant whose claim for benefits has been denied may file a written request for a review of his or her claim by the Plan Administrator. The request for review must be filed by the Claimant within 60 days after he or she received the written notice denying his or her claim. The decision of the Plan Administrator will be made within 60 days after receipt of a request for review and will be communicated in writing to the Claimant. Such written notice shall set forth the basis for the Plan Administrator's decision. If there are special circumstances which require an extension of time for completing the review, the Plan Administrator's decision may be rendered not later than 120 days after receipt of a request for review. 21 25 ARTICLE VII AMENDMENT AND TERMINATION 7.1 Amendments. The Compensation and Management Development Committee of the Board of Directors of the Company, or its delegate, has the right in its sole discretion to amend this Plan in whole or in part at any time and in any manner; provided, however, that no such amendment shall reduce the amount credited to the Account of any Participant as of the date such amendment is adopted. Any amendment shall be in writing and adopted by the Committee or an officer of the Company who is authorized by the Committee for this purpose. All Participants shall be bound by such amendment. 7.2 Termination of Plan. The Company expects to continue this Plan, but does not obligate itself to do so. The Company, acting by the Compensation and Management Development Committee of its Board of Directors (or its delegate), reserves the right to discontinue and terminate the Plan at any time, in whole or in part, for any reason (including a change, or an impending change, in the tax laws of the United States or any State). Termination of the Plan will be binding on all Participants (and a partial termination shall be binding upon all affected Participants), but in no event may such termination reduce the amounts credited at that time to any Participant's Account. If this Plan is terminated (in whole or in part), amounts theretofore credited to affected Participants' Accounts may either be paid in a lump sum immediately, or distributed in some other manner consistent with this Plan, as determined by the Plan Administrator in its sole discretion. 22 26 ARTICLE VIII MISCELLANEOUS 8.1 Limitation on Participant's Rights. Participation in this Plan does not give any Participant the right to be retained in the Employer's or Company's employ (or any right or interest in this Plan or any assets of the Company or Employer other than as herein provided). The Company and Employer reserve the right to terminate the employment of any Participant without any liability for any claim against the Company or Employer under this Plan, except for a claim for payment of deferrals as provided herein. 8.2 Unfunded Obligation of Individual Employer. The benefits provided by this Plan are unfunded. All amounts payable under this Plan to Participants are paid from the general assets of the Participant's individual Employer. Nothing contained in this Plan requires the Company or Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. Neither a Participant, Beneficiary, nor any other person shall have any property interest, legal or equitable, in any specific Employer asset. This Plan creates only a contractual obligation on the part of a Participant's individual Employer, and the Participant has the status of a general unsecured creditor of this Employer with respect to amounts of compensation deferred hereunder. Such a Participant shall not have any preference or priority over, the rights of any other unsecured general creditor of the Employer. No other Employer guarantees or shares such obligation, and no other Employer shall have any liability to the Participant or his or her Beneficiary. In the event, a Participant transfers from the employment of one Employer to another, the former Employer shall transfer the liability for deferrals made while the Participant was employed by that Employer to the new Employer (and the books of both Employers shall be adjusted appropriately). 8.3 Other Plans. This Plan shall not affect the right of any eligible Executive or Participant to participate in and receive benefits under and in accordance with the provisions of any other employee benefit plans which are now or hereafter maintained by any Employer, unless the terms of such other employee benefit plan or plans specifically provide otherwise or it would cause such other plan to violate a requirement for tax favored treatment. 8.4 Receipt or Release. Any payment to a Participant in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Plan Administrator, the Employer and the Company, and the Plan Administrator may require such Participant, as a condition precedent to such payment, to execute a receipt and release to such effect. 8.5 Governing Law. This Plan shall be construed, administered, and governed in all respects in accordance with applicable federal law and, to the extent not preempted by 23 27 federal law, in accordance with the laws of the State of New York. If any provisions of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 8.6 Adoption of Plan by Related Employers. The Plan Administrator may select as an Employer any division of the Company, as well as any corporation related to the Company by stock ownership, and permit or cause such division or corporation to adopt the Plan. The selection by the Plan Administrator shall govern the effective date of the adoption of the Plan by such related Employer. The requirements for Plan adoption are entirely within the discretion of the Plan Administrator and, in any case where the status of an entity as an Employer is at issue, the determination of the Plan Administrator shall be absolutely conclusive. 8.7 Gender, Tense, Headings and Examples. In this Plan, whenever the context so indicates, the singular or plural number and the masculine, feminine, or neuter gender shall be deemed to include the other. Headings and subheadings in this Plan are inserted for convenience of reference only and are not considered in the construction of the provisions hereof. Whenever an example is provided or the text uses the term "including" followed by a specific item or items, or there is a passage having a similar effect, such passage of the Plan shall be construed as if the phrase "without limitation" followed such example or term (or otherwise applied to such passage in a manner that avoids limitation on its breadth of application). 8.8 Successors and Assigns; Nonalienation of Benefits. This Plan inures to the benefit of and is binding upon the parties hereto and their successors, heirs and assigns; provided, however, that the amounts credited to the Account of a Participant are not (except as provided in Section 5.5) subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to any benefits payable hereunder, including, without limitation, any assignment or alienation in connection with a separation, divorce, child support or similar arrangement, will be null and void and not binding on the Plan or the Company or Employer. Notwithstanding the foregoing, the Plan Administrator reserves the right to make payments in accordance with a divorce decree, judgment or other court order as and when cash payments are made in accordance with the terms of this Plan from the subaccount of a Participant. Any such payment shall be charged against and reduce the Participant's Account. 8.9 Facility of Payment. Whenever, in the Plan Administrator's opinion, a Participant or Beneficiary entitled to receive any payment hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his or her financial affairs, the Plan Administrator may direct the Employer to make payments to such person or to the legal representative of such person for his or her benefit, or to apply the payment for 24 28 the benefit of such person in such manner as the Plan Administrator considers advisable. Any payment in accordance with the provisions of this section shall be a complete discharge of any liability for the making of such payment to the Participant or Beneficiary under the Plan. 8.10 Separate Plans. This Plan document encompasses two separate plans of deferred compensation for all legal purposes (including ERISA, federal tax law, and state tax law) as set forth in subsections (a) and (b) below. (a) The portion of the Plan that provides for deferrals of Base Compensation, Bonus Compensation and Performance Unit Payouts (which shall be known as the "PBG Executive Income Deferral Plan"). (b) The portion of the Plan that provides for deferrals of Stock Option Gains (which shall be known as the "PBG Option Gains Deferral Plan"). Together, these two separate plans of deferred compensation are referred to as the PBG Executive Income Deferral Program. 25 29 The above restated Plan is hereby adopted and approved by the Company's duly authorized officer to be effective as stated herein. THE PEPSI BOTTLING GROUP, INC. Submitted by: _________________________________ Mr. David Kasiarz Vice President, Compensation & Benefits Consented to by: _________________________________ Ms. Pamela McGuire Senior Vice President, General Counsel & Secretary Executed by: _________________________________ Mr. Kevin Cox Senior Vice President & Chief Personnel Officer 26 30 PBG EXECUTIVE INCOME DEFERRAL PROGRAM APPENDIX The following Appendix article or articles modify or supplement the general terms of the Plan as it applies to certain executives. Except as specifically modified in the Appendix, the foregoing provisions of the Plan shall fully apply. In the event of a conflict between this Appendix and the foregoing provisions of the Plan, the Appendix shall govern with respect to the conflict. 1 31 ARTICLE A INITIAL PUBLIC OFFERING OF PBG This Article sets forth provisions that apply in connection with the Company's initial public offering. A.1 Definitions: When used in this Article, the following underlined terms shall have the meanings set forth below. Except as otherwise provided in this Article, all terms that are defined in Article II of the Plan shall have the meaning assigned to them by Article II. (a) Employee Programs Agreement: The 1999 Employee Programs Agreement between PepsiCo and PBG. (b) Offering Date: The "Offering Date" as that term is defined in the 1999 Separation Agreement between PepsiCo and PBG. (c) PepsiCo: PepsiCo, Inc., a North Carolina Corporation. (d) PepsiCo Group: PepsiCo and its subsidiaries and affiliates, as determined by the Plan Administrator. (e) Transferred Individual: A nonterminated "Transferred Individual" as that term is defined in the Employee Programs Agreement. For this purpose, a Transferred Individual shall be considered "nonterminated" if he or she is actively employed by (or on a leave of absence from and expected to return to) the Company and any of its affiliates, as of the end of the day on the Offering Date. (f) Transition Individuals: A "Transition Individual" as that term is defined in the Employee Programs Agreement. A.2 Assumption of Benefits and Liabilities. Effective as of the beginning of the day on the Effective Date, all interests in the Prior Plan of (and Prior Plan liabilities with respect to) Transferred Individuals shall be assumed by this Plan. (a) In the case of a Transferred Individual, effective as of the beginning of the day on the Effective Date, his or her Account shall be credited with the amount that stood to his or her credit under the Prior Plan immediately prior to the Effective Date. The allocation of this amount to phantom investment options under this Plan shall mirror the allocation then in effect for the Transferred Individual under 2 32 the Prior Plan (except to the extent the Plan Administrator permits, and an authorized Executive makes, an investment change at a special Valuation Date offered to such Executive in connection with PBG's initial public offering). (b) Any deferral election made under the Prior Plan for a Transferred Individual shall be carried over and continued under this Plan, subject to the provisions of this Plan (as interpreted by the Plan Administrator). Notwithstanding the prior sentence, following the Effective Date, to the extent permitted by the Plan Administrator, a Transferred Individual may revise any Prior Plan deferral election during the period before the deadline for making such election has been reached. (c) A Transferred Individual who has made a deferral election with respect to a performance unit award payable to him under the PepsiCo Long Term Incentive Plan shall, once the deferral occurs, be credited with such deferral solely under this Plan. Any designation to have some or all of this deferral invested in the PepsiCo capital stock account under the Prior Plan shall be converted to a designation for investment in a phantom investment option under this Plan (other than the Phantom PepsiCo Stock Account) which is designated by the Plan Administrator for this purpose. A.3 Special PepsiCo Stock Investment Option. As of the Effective Date, the Plan Administrator shall establish a temporary phantom investment option under the Plan, the Phantom PepsiCo Stock Account. In no event will shares of PepsiCo capital stock actually be purchased or held under this Plan, and no Participant shall have any rights as a shareholder of PepsiCo capital stock on account of an interest in the Phantom PepsiCo Stock Account. (a) General Principles: the Phantom PepsiCo Stock Account shall be administered under rules that are similar to those applicable to the Phantom PBG Stock Account, but with such modifications as the Plan Administrator may apply from time to time. (b) Valuation and Adjustment: A Participant's interest in the Phantom PepsiCo Stock Account is valued as of a Valuation Date by multiplying the number of phantom shares credited to his or her Account on such date by the fair market value of a share of PepsiCo capital stock on such date, and then adding the value of the Participant's dividend subaccount. If shares of PepsiCo capital stock change by reason of any stock split, stock dividend, recapitalization, merger, consolidation, spin-off, combination or exchange of shares, complete or partial liquidation or other corporate change treated as subject to this provision by the Plan Administrator, such equitable adjustment shall be made in the number and kind of phantom shares 3 33 credited to an Account or subaccount as the Plan Administrator may determine to be necessary or appropriate. (c) Investment Allocations and Reallocations. No deferrals may be directed for investment in the Phantom PepsiCo Stock Account, except for a deferral of a Transferred Individual's 1999 base salary that he or she directed for investment in the Phantom PepsiCo Stock Account prior to the Effective Date. In accordance with Section 4.1(e), a Participant with an interest in the Phantom PepsiCo Stock Account may reallocate amounts from his or her Subaccounts in the Phantom PepsiCo Stock Account to other phantom investment options under the Plan that are available for this purpose. No Participant may reallocate amounts into the Phantom PepsiCo Stock Account. (d) Termination of the Phantom PepsiCo Stock Account. Effective as of the end of the day on December 31, 2000, the Phantom PepsiCo Stock Account shall cease to be available under the Plan. Any amount under the Plan still standing to the credit of a Participant on such date shall automatically be reallocated to the phantom investment option or options specified for this purpose by the Plan Administrator, unless the Participant selects a different phantom investment option or options in accordance with such requirements as the Plan Administrator may apply. A.4 Employment Transfers by Transition Individuals. This section shall apply to individuals who transfer between PBG and PepsiCo under circumstances that cause them to be Transition Individuals. (a) Transfers to PepsiCo. If a Participant, who is a Transition Individual, is transferred to the PepsiCo Group, such transfer to the PepsiCo Group shall not be considered a Termination of Employment or other event that could trigger distribution of the Participant's interest in the Plan. In this case, the Participant's interest in the Plan (and all Plan liabilities with respect to the Participant) may be retained by the Plan, or they may be transferred to the PepsiCo Executive Income Deferral Program as determined by the Plan Administrator in its discretion. If a transfer of the Participant's interest occurs, this transfer shall constitute a complete payout of the Participant's Account for purposes of determining who is a Participant or Beneficiary under the Plan. If a transfer does not occur, for purposes of determining the distribution of such Participant's interest in the Plan, the Participant's Termination of Employment shall not be deemed to occur before his or her termination of employment with the PepsiCo Group. (b) Transfers from PepsiCo. If an individual is transferred by the PepsiCo Group to an Employer under circumstances that cause him to be a Transition 4 34 Individual and such individual's interest in the PepsiCo Executive Income Deferral Program is transferred to this Plan, such Transition Individual shall become a Participant in this Plan. In connection with any such transfer of the individual's interest, the individual's phantom investment in PepsiCo capital stock under the PepsiCo Executive Income Deferral Program shall be carried over and replicated hereunder until December 31, 2000 (except to the extent the Plan Administrator permits, and an authorized Executive makes, an investment change at a special Valuation Date offered to such Executive in connection with the transfer). Any other phantom investment of the individual under the PepsiCo Executive Income Deferral Program may be carried over and replicated hereunder, or it may be converted to a phantom investment available under the Plan (depending upon the procedures then applied by the Plan Administrator). In determining the time of payout of a Transition Individual who has an interest transferred to this Plan, the elections of the Participant under the PepsiCo Executive Income Deferral Program shall be given effect, subject to this Plan's provisions on payouts (as interpreted by the Plan Administrator). 5 EX-10.9 5 PBG 1999 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10.9 THE PEPSI BOTTLING GROUP, INC. 1999 LONG TERM INCENTIVE PLAN 1. PURPOSE. The purposes of the 1999 Long Term Incentive Plan (the "Plan") are : (1) to provide long term incentives to those persons with significant responsibility for the success and growth of The Pepsi Bottling Group, Inc. ("PBG") and its subsidiaries, divisions and affiliated businesses (collectively, the "Company"); (2) to assist the Company in attracting and retaining key employees on a competitive basis; and (3) to associate the interests of such employees with those of PBG shareholders. 2. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by a committee (the "Committee"), which (i) prior to the date on which PBG becomes a separately held public company, shall be the Compensation Committee of the Board of Directors of PepsiCo, Inc.; and (ii) after the date on which PBG becomes a separately held public company, shall be the Compensation and Management Development Committee (and any subcommittee thereof) of the Board of Directors of PBG (the "Board"). The committee described in the foregoing clause (ii) shall be appointed by the Board and shall consist of two or more outside members of the Board. (b) The Committee shall have all powers vested in it by the terms of the Plan, such powers to include the authority (within the limitations described herein) to select the persons to be granted awards under the Plan, to determine the type, size and terms of awards to be made to each employee selected, to determine the time when awards will be granted and any conditions which must be satisfied by employees before an award is made, to establish objectives and conditions for earning awards, to determine whether such conditions have been met and whether awards will be paid at the end of the award period, or when the award is exercised, or deferred, to determine whether payment of an award should be reduced or eliminated, and to determine whether such awards should qualify, regardless of their amount, as deductible in their entirety for federal income tax purposes. (c) The Committee shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct 2 of its businesses as the Committee deems necessary or advisable. The Committee's interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including the Company, PBG shareholders and any person receiving an award under the Plan. (d) The Committee may delegate to the Chief Executive Officer of PBG any or all of its authority under Sections 2(b) and 2(c). 3. ELIGIBILITY. Each executive of the Company who is Salary Band I or above (or the equivalent) may, in the Committee's discretion, be granted any of the awards available under the Plan. 4. AWARDS. (a) Types. Awards under the Plan include stock options, incentive stock options, performance units, stock appreciation rights, restricted stock and share awards. (i) Stock Options. Stock options are rights to purchase shares of PBG Common Stock ("Common Stock") at a fixed price for a specified period of time. The purchase price per share of Common Stock covered by a stock option awarded pursuant to this Plan, including any incentive stock options, shall (A) for options granted on and after the date PBG becomes a separately held public company, be equal to or greater than the "Fair Market Value" of a share of PBG Common Stock on the date the stock option is awarded; and (B) for options granted prior to the date PBG becomes a separately held public company, be the price per share at which Common Stock is initially offered for sale to the public. "Fair Market Value" means an amount equal to the average of the high and low sales prices for Common Stock as reported on the composite tape for securities listed on The New York Stock Exchange, Inc. on the date in question (or, if no sales of Common Stock were made on said Exchange on such date, on the next preceding day on which sales were made on such Exchange), except that such average price shall be rounded up to the nearest one-fourth. (ii) Performance Units. Performance units are rights to receive up to 100% of the value of shares of Common Stock as of the date of grant, which value may be paid in cash or Common Stock, without payment of any amounts to PBG. The full and/or partial payment of performance unit awards granted under this Plan will be made only upon certification by the Committee of the attainment by PBG, over a performance period established by the Committee, of any one or more performance targets, which have been established by the Committee and which are based on objective criteria, 2 3 including (without limitation) one or more of the following: EBITDA, earnings per share, revenue growth, corporate earnings, return on investment, total shareholder return, profits, cash flow, market value added, economic value added or any of the foregoing against industry and peer comparisons. No payment will be made if the targets are not met. (iii) Stock Appreciation Rights. Stock appreciation rights ("SARs") are rights to receive the difference between (A) for SARs granted on and after the date PBG becomes a separately held public company, the Fair Market Value of a share of PBG Common Stock on the grant date, and for SARs granted prior to the date PBG becomes a separately held public company, the price per share at which Common Stock is initially offered for sale to the public, and (B) the Fair Market Value of a share of Common Stock on the date the SAR is exercised. (iv) Restricted Stock. The full and/or partial vesting of any restricted stock award made to key employees under this Plan will occur in accordance with a vesting schedule established by the Committee or upon the attainment by PBG of primary or secondary targets established by the Committee at the time the award is made. These targets shall be based on objective criteria, including (without limitation) one or more of the following: EBITDA, earnings per share, revenue growth, corporate earnings, return on investment, total shareholder return, profits, cash flow, market value added, economic value added or any of the foregoing against industry and peer comparisons. (v) Share Awards. Share awards are grants of shares of Common Stock. The Committee may grant a share award to any eligible employee on such terms and conditions as the Committee may determine in its sole discretion. Share awards may be made as additional compensation for services rendered by the eligible employee or may be in lieu of cash or other compensation to which the eligible employee is entitled from the Company. (b) Supplemental Awards. Employees who are newly hired or promoted into eligible status or certain eligible employees who are promoted during the vesting period may be granted supplemental pro rata grants or supplemental incremental grants of stock options and/or performance units, as determined by the Committee in its sole discretion. (c) Negative Discretion. Notwithstanding the attainment by PBG of any target specified under this Plan, the Committee has the discretion, by participant, to reduce some or all of an award that would otherwise be paid. (d) Guidelines. The Committee may, from time to time, adopt written policies for its implementation of the Plan. Any such policies shall be consistent 3 4 with the Plan and may include, but need not be limited to, the type, size and term of awards to be made, and the conditions for payment of such awards. (e) Maximum Awards. An eligible employee may be granted multiple awards under the Plan, but no one employee may be granted awards which would result in his or her receiving, in the aggregate, during the term of the Plan, more than 25% of the maximum number of shares available for award under the Plan. Solely for the purposes of determining whether this maximum is met, a performance unit or SAR shall be treated as entitling the holder thereof to one share of Common Stock. (f) Employment by the Company. To the extent the vesting, exercise, or term of any stock option award is conditioned on employment by the Company, an award recipient whose Company employment terminates through a Company-approved transfer to an allied organization (i) shall vest in and be entitled to exercise any stock option award immediately prior to the transfer, (ii) shall have employment with the allied organization treated as employment by the Company in determining the term of such award and the period for exercise, and (iii) shall have the allied organization considered part of the Company for purposes of applying the misconduct provisions of Section 8. The Chief Personnel Officer shall specify the entities that are considered allied organizations as of any time. 5. SHARES OF STOCK SUBJECT TO THE PLAN. The shares that may be delivered or purchased under the Plan shall not exceed an aggregate of 15,000,000 shares of Common Stock, as adjusted, if appropriate, pursuant to Section 7 hereof. 6. DEFERRED PAYMENTS. The Committee may determine that all or a portion of a payment to a participant under the Plan, whether it is to be made in cash, shares of Common Stock or a combination thereof, shall be deferred. Deferrals shall be for such periods and upon such terms as the Committee may determine in its sole discretion. 7. DILUTION AND OTHER ADJUSTMENTS. In the event of (i) any change in the outstanding shares of Common Stock by reason of any split, stock dividend, recapitalization, merger, reorganization, consolidation, combination or exchange of shares, (ii) any separation of a corporation (including a spin-off or other distribution of assets of the Company to its shareholders), (iii) any partial or complete liquidation, or (iv) other similar corporate change, such equitable adjustments shall be made in the Plan and the 4 5 awards thereunder as the Committee determines are necessary and appropriate, including, if necessary, an adjustment in the maximum number or kind of shares subject to the Plan or which may be or have been awarded to any participant (including the conversion of shares subject to awards from Common Stock to stock of another entity). Such adjustment shall be conclusive and binding for all purposes of the Plan. 8. MISCONDUCT. If the Committee or its delegate determines that a participant has, at any time prior to, or within twelve months after, the exercise of any option granted hereunder or the vesting of any other award made hereunder committed "Misconduct", then the Committee may, in its sole discretion: (i) cancel any outstanding option or other award granted hereunder and (ii) require the participant to pay to the Company any and all gains realized from any options or awards granted hereunder which were exercised, in the case of options, or vested, in the case of other awards, within the twelve month period immediately preceding the date of such cancellation (or if there is no cancellation, the date on which such claim for payment is made). A participant commits Misconduct if the Committee or its delegate determines that the participant: (a) Competed (as defined below) with the Company; (b) engaged in any act which is considered by the Committee to be contrary to the Company's best interests, including, but not limited to, recruiting or hiring away employees of the Company; (c) violated the Company's Code of Conduct or engaged in any other activity which constitutes gross misconduct; (d) engaged in unlawful trading in the securities of PBG or of any other company based on information gained as a result of his or her employment with the Company; or (e) disclosed to an unauthorized person or misused confidential information or trade secrets of the Company. This paragraph shall also apply in the case of a former Company employee (including, without limitation, a retired or disabled employee) who commits Misconduct after his or her employment with the Company terminated. "Competed" shall mean (i) worked for, managed, operated, controlled or participated in the ownership, arrangement, operation, or control of, or be connected with or served on the board of directors of any company or entity which engages in the production, marketing or sale of any product or service produced, marketed or sold by the Company; or (ii) any action or omission which is injurious to the Company or which diverts customers or suppliers from the Company. 9. MISCELLANEOUS PROVISIONS. (a) Rights as Shareholder. A participant in the Plan shall have no rights as a holder of Common Stock with respect to awards hereunder, unless and until certificates for shares of Common Stock are issued to such participant. 5 6 (b) Assignment or Transfer. Unless the Committee shall specifically determine otherwise, no award granted under the Plan or any rights or interests therein shall be assignable or transferable by a participant, except by will or the laws of descent and distribution. (c) Agreements. All awards granted under the Plan shall be evidenced by agreements in such form and containing such terms and conditions (not inconsistent with the Plan) as the Committee shall approve. (d) Requirements for Transfer. No share of Common Stock shall be issued or transferred under the Plan until all legal requirements applicable to the issuance or transfer of such shares have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any issuance of shares of Common Stock made to any participant upon such participant's written undertaking to comply with such restrictions on his subsequent disposition of such shares as the Committee or PBG shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and certificates representing such shares may be legended to reflect any such restrictions. (e) Withholding Taxes. PBG shall have the right to deduct from all awards hereunder paid in cash any federal, state, local or foreign taxes required by law to be withheld with respect to such awards, and with respect to awards paid in stock or upon exercise of stock options, to require the payment (through withholding from the participant's salary or otherwise) of any such taxes. The obligations of PBG to make delivery of awards in cash or Common Stock shall be subject to currency or other restrictions imposed by any government. (f) No Rights to Awards. Except as set forth herein, no employee or other person shall have any claim or right to be granted an award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company. (g) Costs and Expenses. The cost and expenses of administering the Plan shall be borne by PBG and not charged to any award nor to any employee receiving an award. (h) Funding of Plan. The Plan shall be unfunded. PBG shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan. 10. EFFECTIVE DATE, AMENDMENTS AND TERMINATION. 6 7 (a) Effective Date. The Plan was approved by the Board and shall be effective as of March 30, 1999. (b) Amendments. The Committee may at any time terminate or from time to time amend the Plan in whole or in part, but no such action shall adversely affect any rights or obligations with respect to any awards theretofore granted under the Plan. In the event the Plan is approved by shareholders of PBG after the date PBG becomes a separately held public company (the "initial approval"), then (unless prior approval by the shareholders of PBG is obtained) no amendment of the Plan adopted after such initial approval shall be effective which would (i) increase the maximum number of shares of Common Stock which may be delivered under the Plan or to any one individual, except to the extent such amendment is made pursuant to Section 7 hereof, (ii) extend the maximum period during which awards may be granted under the Plan or (iii) modify the requirements as to eligibility for participation in the Plan. The Committee may, at any time, amend outstanding agreements evidencing awards under the Plan in a manner not inconsistent with the terms of the Plan; provided, however, that if such amendment is adverse to the participant, the amendment shall not be effective unless and until the participant consents, in writing, to such amendment. (c) Termination. No awards shall be made under the Plan after December 31, 2004. 7 EX-10.10 6 PBG DIRECTORS' STOCK PLAN 1 EXHIBIT 10.10 THE PBG DIRECTORS' STOCK PLAN (Effective as of March 30, 1999) 1. PURPOSES The principal purposes of The PBG Directors' Stock Plan (the "Plan") are to provide compensation to those members of the Board of Directors of The Pepsi Bottling Group, Inc. ("PBG") who are not also employees of PBG, to assist PBG in attracting and retaining outside directors with experience and ability on a basis competitive with industry practices, and to associate more fully the interests of such directors with those of PBG's shareholders. 2. EFFECTIVE DATE The Plan was unanimously approved by the Board of Directors of PBG and became effective on March 30, 1999. 3. ADMINISTRATION The Plan shall be administered and interpreted by the Directors of PBG who are also employed by PBG ("Employee Directors"). The Employee Directors shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Employee Directors deem necessary or advisable. The Employee Directors' interpretations of the Plan, and all actions taken and determinations made by the Employee Directors pursuant to the powers vested in them hereunder, shall be conclusive and binding on all parties concerned, including PBG, its Directors and shareholders and any employee of PBG. The costs and expenses of administering the Plan shall be borne by PBG and not charged against any award or to any Non-Employee Director. 4. ELIGIBILITY Directors of PBG who are not employees of PBG ("Non-Employee Directors") are eligible to receive awards under the Plan. The Employee Directors are not eligible to participate in the Plan, but shall be eligible to participate in other PBG benefit and compensation plans. 5. INITIAL AWARD Under the Plan, each Non-Employee Director shall, on the first day of the month after commencing service as a Director of PBG, receive a formula grant of restricted stock ("Restricted Stock"); provided, however, that individuals serving as Non-Employee Directors on March 30, 1999 shall receive their initial award of Restricted Stock on March 30, 1999. The number of shares of Restricted Stock to be included in each such award shall be determined by dividing $25,000 by the Fair Market Value (as defined below) of a share of PBG Common Stock on the date of grant (the "Stock Grant Date"), or if such day is not a trading day on the New York Stock Exchange, on the immediately preceding trading day. The number of shares so determined shall be rounded to the nearest number of whole shares. If the recipient of the Restricted Stock continuously remains a Director of PBG, the Restricted Stock granted hereunder shall vest and any restrictions thereon shall lapse on the first anniversary of the Stock Grant Date; provided, however, that, in the event of a Non-Employee Director's death or Disability (as defined in Section 6(c)), the Restricted Stock granted to such Non-Employee Director shall vest and any restrictions thereon shall lapse immediately. Notwithstanding the foregoing, a Non-Employee Director may not sell or otherwise transfer any Restricted Stock granted to him or her prior to the date such Non-Employee Director ceases to serve 2 as a Director for any reason. The Non-Employee Director shall have all of the rights of a stockholder with respect to such Restricted Stock, including the right to receive all dividends or other distributions paid or made with respect to the stock. Any such dividends or distributions shall be subject to the same restrictions as the Restricted Stock in respect of which such dividends or distributions were made. Each Restricted Stock award shall be evidenced by an agreement setting forth the terms and conditions thereof, which terms and conditions shall not be inconsistent with those set forth in this Plan. 6. ANNUAL AWARD (a) Under the Plan, each Non-Employee Director shall receive an annual formula grant of options to purchase shares of PBG Common Stock ("Options") at a fixed price (the "Exercise Price"). Such grant shall be made annually on April 1; provided, however, that the grant to be made in 1999 grant shall be made on March 30, 1999 (the "Option Grant Date"); provided further, however, that each individual who becomes a Non-Employee Director after April 1, 1999 and in a month other than March shall receive a pro-rated annual formula grant of options (a "Pro-Rated Grant") on the first day of the month following the date he or she commences service as a Director of PBG (the "Pro-Rated Option Grant Date"). To receive a grant of Options, a Non-Employee Director must be actively serving as a Director of PBG on the Option Grant Date or the Pro-Rated Option Grant Date, as applicable. (b) The number of Options to be included in each option award shall be determined by dividing the Grant Amount (as defined below) by the Fair Market Value (as defined below) of a share of PBG Common Stock on the Option Grant Date or Pro-Rated Option Grant Date, as applicable, or if such day is not a trading day on the New York Stock Exchange, on the immediately preceding trading day. Grant Amount shall mean $225,000, except that, in the case of a Pro-Rated Grant, Grant Amount shall mean the following: (i) $168,750 in the case of an individual who commences service as a Director on or after April 2 and on or before June 30; (ii) $112,500 in the case of an individual who commences service as a Director on or after July 1 and on or before September 30; (iii) $56,250 in the case of an individual who commences service as a Director on or after October 1 and on or before December 31; and (iv) $0 in the case of an individual who commences service as a Director on or after January 1 and on or before March 31. The number of Options so determined shall be rounded to the nearest number of whole Options. "Fair Market Value" shall mean the average of the high and low per share sale prices for PBG Common Stock on the composite tape for securities listed on the New York Stock Exchange for the day in question, except that such average price shall be rounded up to the nearest one-fourth; provided, however, that "Fair Market Value" on March 30, 1999 shall mean $23.00, the initial offering price per share of PBG Common Stock. (c) Options shall vest and become immediately exercisable on the Option Grant Date or Pro-Rated Option Grant Date, as applicable; provided, however, that Options granted on March 30, 1999 shall vest on the earliest of (i) June 1, 1999, (ii) the Non-Employee Director's death, or (iii) the Non-Employee Director's Disability (as defined below). Each Option shall have an Exercise Price equal to the Fair Market Value of PBG Common Stock on the Option Grant Date or Pro-Rated Option Grant Date, as applicable, or if such day is not a trading day on the New York Stock Exchange, on the immediately preceding trading day. Each Option shall have a term of ten years; provided, however, in the event the holder thereof shall cease to be a director of PBG, or its successor, for a reason other than death or Disability (as defined below), such Options shall thereupon immediately terminate and expire. A Non-Employee Director has a "Disability" if he or she is totally and permanently disabled as determined using the standards PBG applies under its long term disability program. (d) Non-Employee Directors may exercise their Options by giving an exercise notice to PBG in the manner specified from time to time by the Employee Directors. Options may be exercised by using either a standard cash exercise procedure or a cashless exercise procedure. From time to time, the Board of Directors may change or adopt the procedures relating to Option exercises. If, at any time, a Non-Employee Director suffers a Disability or is otherwise incapable of exercising his or 2 3 her Options before the expiration thereof, the Employee Directors may take any steps they deem appropriate to prevent such Options from lapsing prior to being exercised. (e) Each Option award shall be evidenced by a written agreement setting forth the terms and conditions thereof, which terms and conditions shall not be inconsistent with those set forth in this Plan. (f) With respect to each Option award, Non-Employee Directors may elect to convert up to one hundred percent (100%) of their Options into shares of PBG Common Stock at the ratio of three Options for one share. The number of shares so determined shall be rounded to the nearest number of whole shares. If less than one hundred percent (100%) of the Options are converted, Options shall be converted in increments of thirty (30) Options. 7. SHARE AWARDS Each individual who is a Non-Employee Director as of March 30, 1999 shall be granted a share award of one share of PBG Common Stock on that date. Each individual who becomes a Non-Employee Director thereafter shall be granted a share award of one share of PBG Common Stock on the first day of the month following the date on which he or she commences service as a Director of PBG. 8. SHARES OF STOCK SUBJECT TO THE PLAN The shares that may be delivered under this Plan shall not exceed an aggregate of 200,000 shares of PBG Common Stock, adjusted, if appropriate, in accordance with Section 10 below. The shares granted or delivered under the Plan may be newly issued shares of Common Stock or treasury shares. 9. DEFERRAL Non-Employee Directors may elect to defer into PBG phantom stock units (i) all of the shares of Restricted Stock granted under Section 5 and/or (ii) all of the shares resulting from an election made under Section 6(f). Non-Employee Directors who elect to defer receipt of such shares shall be credited with a number of phantom stock units equal to that number of shares of Restricted Stock or PBG Common Stock which they would have received had they not elected to defer. During the deferral period, the value of the phantom stock units will fluctuate based on the market value of PBG Common Stock. Non-Employee Directors will be credited with dividends on phantom stock units at the same rate and time as dividends are declared on PBG Common Stock. Any such dividends shall be credited as additional phantom stock units. At the end of the deferral period, Non-Employee Directors will receive the aggregate value of the PBG phantom stock units credited to them. The value of PBG phantom stock units will be determined by multiplying the number of PBG phantom stock units by the Fair Market Value of PBG Common Stock on the last trading day of the deferral period. All payments of deferred awards shall, in the discretion of the Employee Directors, be made in cash, shares of PBG Common Stock or any combination thereof. Unless otherwise determined by the Employee Directors, (i) the deferral period with respect to shares of Restricted Stock granted under Section 5 shall equal the Non-Employee Director's period of service as a Director of PBG (i.e., such deferral period shall end on the date the Non-Employee Director ceases to be a Director of PBG), and (ii) the deferral period with respect to shares resulting from an election made under Section 6(f) shall not be less than two (2) years. 10. DILUTION AND OTHER ADJUSTMENTS The number and kind of shares of PBG Common Stock issuable under the Plan, or which may or have been awarded to any Non-Employee Director, may be adjusted proportionately by the 3 4 Employee Directors to reflect stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, any spin off or other distribution of assets of the Company to its shareholders, any partial or complete liquidation, or other similar corporate changes. Such adjustment shall be conclusive and binding for all purposes of the Plan. 11. EFFECT OF MISCONDUCT Notwithstanding anything to the contrary herein, if a Non-Employee Director commits "Misconduct," he or she shall forfeit all rights to any unexercised Options, Restricted Stock and phantom stock units credited to him or her under Section 9. For purposes of this Plan, Misconduct occurs if a majority of the Board of Directors determines that a Non-Employee Director has: (a) engaged in any act which is considered to be contrary to the Company's best interests; (b) violated the Company's Code of Conduct or engaged in any other activity which constitutes gross misconduct; (c) engaged in unlawful trading in the securities of PBG or of any other company based on information gained as a result of his or her service as a Director of PBG; or (d) disclosed to an unauthorized person or misused confidential information or trade secrets of the Company. 12. WITHHOLDING TAXES PBG shall have the right to require the payment (through withholding from any amount payable from PBG to the Non-Employee Director or otherwise) of any withholding taxes required by federal, state, local or foreign law in respect of any award. 13. RESALE RESTRICTIONS, ASSIGNMENT AND TRANSFER Options (unless the Board of Directors specifically determines otherwise), Restricted Stock and PBG phantom stock units may not be sold, transferred or assigned, except in the event of the Non-Employee Director's death, in which case his or her Options, Restricted Stock or PBG phantom stock units may be transferred by will or by the laws of descent and distribution. All restrictions on Restricted Stock granted to a Non-Employee Director shall lapse upon his or her death. Options may be exercised by the decedent's personal representative, or by whomever inherits the Options, at any time, through and including their original expiration date. Once awarded, the shares of PBG Common Stock received by Non-Employee Directors may be freely transferred, assigned, pledged or otherwise subjected to lien, subject to restrictions imposed by the Securities Act of 1933, as amended, and subject to the trading restrictions imposed by Section 16 of the Securities Exchange Act of 1934, as amended. PBG phantom stock units may not be transferred or assigned except by will or the laws of descent and distribution. 14. FUNDING The Plan shall be unfunded. PBG shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan. 15. DURATION, AMENDMENTS AND TERMINATIONS The Board of Directors may terminate or amend the Plan in whole or in part; provided, however, that the Plan may not be amended more than once every six (6) months, other than to comport with changes in the Internal Revenue Code or the rules and regulations thereunder; provided further, however, that no such action shall adversely affect any rights or obligations with respect to any awards theretofore granted under the Plan, unless consented to by the recipients of such awards. The Plan shall continue until terminated. 4 EX-10.11 7 PBG STOCK INCENTIVE PLAN 1 EXHIBIT 10.11 PBG STOCK INCENTIVE PLAN 1. Purposes. The principal purposes of the PBG Stock Incentive Plan (the "Plan") are: (a) to improve individual employee performance by providing long-term incentives and rewards to employees of the Company; (b) to assist the Company in attracting, retaining and motivating employees with experience and ability; and (c) to associate the interests of such employees with those of PBG's shareholders. 2. Definitions. Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth below: (a) "Award" means the grant of an Option, Restricted Stock or Share Award, or any or all of them. (b) "Board" means the Board of Directors of The Pepsi Bottling Group, Inc. (c) "Committee" means the Executive Development and Compensation Committee of the Board, as appointed from time to time by the Board, consisting of two or more members of the Board who are not eligible to participate in the Plan and who have not, within one year prior to their appointment to the Committee, participated in the Plan; provided, however, that prior to the date PBG becomes a separately held public company, the Compensation Committee of the Board of Directors of PepsiCo, Inc. shall serve as the Committee for purposes of this Plan. (d) "Common Stock" or "Stock" means PBG Common Stock, par value $0.01 per share. (e) "Company" means The Pepsi Bottling Group, Inc., its divisions, direct and indirect subsidiaries and affiliates. (f) "Fair Market Value" means an amount equal to the average of the high and low sales prices for Common Stock as reported on the composite tape for securities listed on The New York Stock Exchange, Inc. on the date in question (or, if no sales of Stock were made on said Exchange on such date, on the next preceding day on which sales were made on such Exchange), except that such average price shall be rounded up to the nearest one-fourth. (g) "Grant Date" means the date an Award is granted under the Plan. The date of grant of an Award shall be the date as of which the Committee determines that such Award shall become effective. (h) "Grantee" means an eligible employee of the Company who has been granted Restricted Stock or a Share Award under the Plan. (i) "Option" or "Stock Option" means a right granted under the Plan to an Optionee to purchase a share of Common Stock at a fixed price for a specified period of time. (j) "Option Exercise Price" means the price at which a share of Common Stock covered by an Option granted hereunder may be purchased. 2 (k) "Optionee" means an eligible employee of the Company who has received a Stock Option granted under the Plan. (l) "PBG" means The Pepsi Bottling Group, Inc., a Delaware corporation. (m) "Restricted Stock" means Stock issued to an eligible employee pursuant to Section 7 of this Plan. (n) "Retirement" means a termination of employment with the Company after the employee has (i) fulfilled the requirements for either a normal, early or disability retirement pension (as defined under the Company's retirement program applicable to such employee at the date of termination of employment) and (ii) affirmatively elected to retire from employment. (o) "Share Award" means Stock issued to an eligible employee pursuant to Section 8 of this Plan. (p) "Totally Disabled" shall have the meaning set forth in the Company's long-term disability program applicable to such employee. 3. Administration. The Plan shall be administered by the Committee, which shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan as the Committee deems necessary or advisable. The Committee's powers include, but are not limited to (subject to the specific limitations described herein), authority to determine the employees to be granted Awards under the Plan, to determine the size and applicable terms and conditions of grants to be made to such employees, to determine the time when Awards will be granted and to authorize grants to eligible employees. The Committee's interpretations of the Plan, and all actions taken and determinations made by the Committee concerning any matter arising under or with respect to the Plan or any Awards granted hereunder, shall be final, binding and conclusive on all interested parties, including PBG, its shareholders and all former, present and future employees of the Company. The Committee may delegate some or all of its power and authority hereunder to the Chief Executive Officer of PBG, such delegation to be subject to such terms and conditions as the Committee in its discretion shall determine. The Committee may as to all questions of accounting rely conclusively upon any determinations made by the independent public accountants of PBG. 4. Stock Available for Awards. The shares that may be delivered or purchased under the Plan shall not exceed an aggregate number of shares of Common Stock to be determined from time to time by the Committee, subject to any adjustments which may be made pursuant to Section 12 hereof. Shares of Stock used for purposes of the Plan may be either shares of authorized but unissued Common Stock or treasury shares or both. Stock covered by Awards which have terminated or expired prior to exercise or have been surrendered or canceled shall be available for further grants of Awards hereunder. 5. Eligibility. All those employees of the Company who shall be determined from time to time by the Committee to be eligible shall participate in the Plan; provided, however, that no employee may be granted Awards in the aggregate which, if exercised, would result in that employee receiving more than 10% of the maximum number of shares available for issuance under the Plan. 2 3 6. Options. Each Option granted hereunder shall be in writing and shall contain such terms and conditions as the Committee may determine, subject to the following: (a) Option Exercise Price. The Option Exercise Price shall be equal to the Fair Market Value of a share of Common Stock on the Grant Date; provided, however, that the Option Exercise Price of Options granted to eligible employees as of the date PBG becomes a separate publicly held company shall be the price per share at which Stock is initially offered for sale to the public. (b) Term and Exercise Dates. Options granted hereunder shall have a term of no longer than ten (10) years from the Grant Date and shall become exercisable in accordance with the terms of their grant. A grant of Options may become exercisable in installments. To the extent that Stock Options are not exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such Stock Options, subject to the provisions of Sections 6(e) and (f) hereof. (c) Exercise of Option. To exercise an Option, the holder thereof shall give notice of his or her exercise to PBG, or its agent, specifying the number of shares of Common Stock to be purchased and identifying the specific Options that are being exercised. The Committee may, from time to time, establish procedures relating to effecting such exercises. Stock Options must be exercised for full shares of Common Stock; no fractional shares shall be issued as a result of exercising an Option. Notwithstanding anything to the contrary herein, an employee of the Company shall be permitted to exercise his or her Options only if he or she is: (i) actively at work; (ii) on vacation; (iii) receiving disability benefits; (iv) receiving benefits from a severance plan which explicitly provides for the exercise of options; (v) on layoff; or (vi) on medical (including leave under the Family and Medical Leave Act), child care/parental, funeral, military or jury duty leave. An Option is exercisable during an Optionee's lifetime only by the Optionee; provided, however, that in the event the Optionee is incapacitated and unable to exercise Options, such Options may be exercised by such Optionee's legal guardian, legal representative, fiduciary or other representative who the Committee deems appropriate based on applicable facts and circumstances. (d) Payment of Option Exercise Price. The Option Exercise Price for the Options being exercised must be paid in full at time of issuance of the Common Stock. (e) Effect of Termination of Employment, Disability or Death. Unless the Committee shall determine otherwise, no Option may be exercised by an Optionee after the termination of his or her employment with the Company, except that: (i) if such termination occurs by reason of the Optionee's death, all Options then held by the Optionee shall become immediately exercisable as of the date of death and may be exercised by such Optionee's executor (or, if none, his or her legal representative) until the expiration of such Options in accordance with their terms; (ii) if such termination occurs by reason of the Optionee's becoming Totally Disabled, all Options then held by the Optionee shall continue to become exercisable and shall be able to be exercised by the Optionee (or his or her legal representative) in accordance with their terms; (iii) if such termination occurs by reason of the Optionee's Retirement, all Options then held by the Optionee shall become immediately exercisable as of the date of such Retirement and may be exercised by the Optionee until the expiration of such Options in accordance with their terms; and (iv) if such termination is voluntary by the employee or is by action of the Company (except as described in Section 6(f) hereof), all Options then held by the 3 4 Optionee which are exercisable at the date of termination shall continue to be exercisable by the Optionee until the earlier of ninety (90) calendar days after such date or the expiration of such Options in accordance with their terms. Unless the Committee shall determine otherwise, all Options which are not exercisable as of the date of the Optionee's termination of employment shall automatically terminate and lapse ninety (90) calendar days after such date of termination and shall not be permitted to vest during such ninety-day period, unless the registered owner is re-employed by the Company prior to the date on which such Options terminate and lapse. (f) Misconduct. In the event that an Optionee has (i) used for profit or disclosed to unauthorized persons, confidential information or trade secrets of the Company, (ii) breached any contract with or violated any fiduciary obligation to the Company, (iii) engaged in unlawful trading in the securities of PBG or of another company based on information gained as a result of that Optionee's employment with the Company, or (iv) committed a felony or other serious crime, then that Optionee shall forfeit all rights to any unexercised Options granted under the Plan and all of that Optionee's outstanding Options shall automatically terminate and lapse, unless the Committee shall determine otherwise. (g) Nontransferability of Options. During an Optionee's lifetime, his or her Options shall not be transferable and shall only be exercisable by the Optionee (or his or her legal representative) and any purported transfer shall be null and void. No Option shall be transferable other than by will or the laws of descent and distribution. (h) Buy Out of Option Gains. At any time after any Stock Option becomes exercisable, the Committee shall have the right to elect, in its sole discretion and without the consent of the holder thereof, to cancel such Option and to cause PBG to pay to the Optionee the excess of the Fair Market Value of the shares of Common Stock covered by such Option over the Option Exercise Price of such Option at the date the Committee provides written notice (the "Buy Out Notice") of its intention to exercise such right. Buy outs pursuant to this provision shall be effected by PBG as promptly as possible after the date of the Buy Out Notice. Payments of buy out amounts may be made in cash, in shares of Common Stock, or partly in cash and partly in Common Stock, as determined by the Committee in its discretion. To the extent payment is made in shares of Common Stock, the number of shares shall be determined by dividing the amount of the payment to be made by the Fair Market Value of a share of Common Stock at the date of the Buy Out Notice. In no event shall PBG be required to deliver a fractional share of Common Stock in satisfaction of this buy out provision. Payments of any such buy out amount shall be made net of any applicable foreign, federal (including FICA), state and local withholding taxes. (i) Employment by the Company. To the extent the vesting, exercise, or term of any stock option award is conditioned on employment by the Company, an award recipient whose Company employment terminates through a Company-approved transfer to an allied organization: (i) shall vest in and be entitled to exercise any stock option award immediately prior to the transfer, (ii) shall have employment with the allied organization treated as employment by the Company in determining the term of such award and the period for exercise, and (iii) shall have the allied organization considered part of the Company for purposes of applying the misconduct provisions of subsection (f) above. The Chief Personnel Officer shall specify the entities that are considered allied organizations as of any time. This subsection shall be given effect in applying the fourth sentence of subsection (c) above and notwithstanding subsection (e) above. 4 5 7. Restricted Stock. Each Award of Restricted Stock granted hereunder shall be in writing and shall contain such terms and conditions as the Committee may determine, subject to the following: (a) Rights of Grantee. Shares of Restricted Stock granted hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted provided that the Grantee has executed any and all documents which the Committee may, in its discretion, require as a condition to the issuance of Stock (e.g., an Award agreement, blank stock powers or an escrow agreement). At the discretion of the Committee, Stock issued in connection with a Restricted Stock Award shall be deposited together with the stock powers with an escrow agent (which may be the Company) designated by the Committee. Unless the Committee determines otherwise, upon delivery of the Stock to the escrow agent, the Grantee shall have all of the rights of a stockholder with respect to such Stock, including the right to vote the Stock and to receive all dividends or other distributions paid or made with respect to the Stock. (b) Non-Transferability. Until all restrictions upon the Restricted Stock awarded to a Grantee have lapsed in the manner set forth in Section 7(c), such Stock shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated. (c) Lapse of Restrictions. Restrictions upon Restricted Stock shall lapse at such time or times and on such terms and conditions as the Committee may determine. The written terms and conditions governing the Award shall set forth any such restrictions. Unless the Committee shall determine otherwise, such terms and conditions shall provide that upon a Grantee's termination of employment (including Retirement), all Restricted Stock held by the Grantee which remains subject to restrictions as of the date of termination shall be returned to, or canceled by, the Company and shall be deemed to have been forfeited by the Grantee, except that: (i) if such termination occurs by reason of the Grantee's death, all restrictions on such Restricted Stock shall lapse on the date of death; and (ii) if such termination occurs by reason of the Grantee's becoming Totally Disabled, all restrictions on such Restricted Stock shall continue to lapse in accordance with their terms. (d) Dividends. At the time an Award of Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Grantee of dividends declared or paid on such Stock by the Company shall be (i) deferred until the lapsing of the restrictions imposed upon such Restricted Stock and (ii) held by the Company for the account of the Grantee until such time. In the event that dividends are to be deferred, the Committee shall determine whether such dividends are to be reinvested in Stock (which shall be held as additional shares of Restricted Stock) or held in cash. If deferred dividends are to be held in cash, there may be credited periodically interest on the amount of the account at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends in respect of shares of Restricted Stock (whether in cash or additional Stock), together with interest accrued thereon, if any, shall be made upon the lapsing of restrictions imposed on the Restricted Stock in respect of which the deferred dividends were paid, and any dividends deferred (together with any interest accrued thereon) in respect of any Restricted Stock shall be forfeited upon the forfeiture of such Restricted Stock. (e) Delivery of Shares. Upon the lapse of restrictions on Restricted Stock, the Committee shall cause a stock certificate to be delivered to the Grantee with respect to such Stock, free of all restrictions hereunder. 5 6 8. Share Awards. The Committee may grant a Share Award to any eligible employee on such terms and conditions as the Committee may determine in its sole discretion. Share Awards may be made as additional compensation for services rendered by the eligible employee or may be in lieu of cash or other compensation to which the eligible employee is entitled from the Company. 9. Amendment. The Committee may, at any time, amend, suspend or terminate the Plan, in whole or in part, provided that no such action shall adversely affect any rights or obligations with respect to any Awards granted under the Plan prior to such action. The Committee may amend the terms and conditions of outstanding Awards; provided, however, that (i) no such amendment shall be adverse to the holders of the Awards, (ii) no such amendment shall extend the period for exercise of an Option, and (iii) the amended terms of the Award would be permitted under this Plan. 10. Foreign Employees. Without amending the Plan, the Committee may grant Awards to eligible employees who are foreign nationals on such terms and conditions different from those specified in this Plan as may in the judgment of the Committee be necessary or desirable to foster and promote achievement of the purposes of the Plan, and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries in which the Company operates or has employees. 11. Registration, Listing and Qualification of Shares. Each Award shall be subject to the requirement that, if at any time the Committee shall determine that the registration, listing or qualification of the shares covered thereby upon any securities exchange or under any foreign, federal, state or local law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the purchase of shares thereunder, no such Award may be exercised or sold unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. Any person exercising an Option shall make such representations and agreements and furnish such information as the Committee may request to assure compliance with the foregoing or any other applicable legal requirements. 12. Adjustment for Change in Stock Subject to Plan. In the event of any change in the outstanding shares of Common Stock by reason of any stock split, stock dividend, recapitalization, spin-off, merger, consolidation, combination or exchange of shares or other similar corporate change, such equitable adjustments may be made in the Plan and the Awards granted hereunder as the Committee determines are necessary or appropriate, including, if necessary, an adjustment in the number of shares applicable to Awards then outstanding, the Option Exercise Prices applicable to Options then outstanding and the number of shares which are reserved for issuance under the Plan. Any such adjustment shall be conclusive and binding for all purposes of the Plan. 13. No Rights to Awards or Employment. No employee or other person shall have any claim or right to be granted an Award under the Plan. Having received an Award under the Plan shall not give an employee any right to receive any other grant under the Plan. No person who has received an Award shall have any rights to or interest in any Award except as set forth herein. Neither the Plan nor any action taken hereunder shall be construed as giving any person any right to be retained in the employ of the Company. 14. Withholding. In order to enable the Company to meet any applicable foreign, federal (including FICA), state and local withholding tax requirements, an Optionee or Grantee shall be required to pay the amount of tax to be withheld at the time such Optionee or Grantee recognizes taxable income 6 7 in connection with the receipt of Stock or cash hereunder. No share of Stock shall be delivered to any Optionee or Grantee until all such amounts have been paid. 15. Rights as Shareholder. No Optionee or Grantee shall have any rights as a holder of Common Stock with respect to Awards granted hereunder, unless and until certificates for shares of Common Stock are issued to such Optionee or Grantee. 16. Other Actions. This Plan shall not restrict the authority of the Committee or of PBG, for proper corporate purposes, to grant or assume stock options, other than under the Plan, to or with respect to any employee or other person. 17. Costs and Expenses. Except as provided in Sections 6 and 14 hereof with respect to taxes and except for certain other fees and commissions related to the exercise of Options, the costs and expenses of administering the Plan shall be borne by PBG and shall not be charged to any Award nor to any Optionee or Grantee. 18. Plan Unfunded. The Plan shall be unfunded. Except for reserving a sufficient number of authorized shares to the extent required by law to meet the requirements of the Plan, PBG shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the delivery of Common Stock pursuant to an Award granted under the Plan. 19. Governing Law. This Plan shall be governed by and construed in accordance with the laws of the State of Delaware. 20. Effectiveness and Duration of the Plan. This Plan is effective as of March 30, 1999. No Award shall be granted hereunder after April 1, 2009. 7 EX-12 8 STATEMENT RE: COMPUTATION OF RATIOS 1 EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES We have calculated PBG's ratio of earnings to fixed charges in the following table by dividing earnings by fixed charges. For this purpose, earnings include pre-tax income plus fixed charges and losses recognized from equity investments reduced by undistributed income from equity investments. Fixed charges include interest expense, capitalized interest and one-third of net rent expense, which is the portion of rent deemed representative of the interest factor.
FISCAL YEAR ($ IN MILLIONS) 1999(B) 1998(B) 1997 1996 1995 ------- ------- ---- ---- ---- INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST .................................. $ 209 $(192) $ 115 $ 138 $ 110 Undistributed (income) loss from equity investments ......................................... -- 5 12 1 (3) Fixed charges excluding capitalized interest ........... 227 245 238 238 256 ----- ----- ----- ----- ----- EARNINGS AS ADJUSTED ................................... $ 436 $ 58 $ 365 $ 377 $ 363 ===== ===== ===== ===== ===== FIXED CHARGES: Interest expense .................................... $ 209 $ 230 $ 226 $ 224 $ 243 Capitalized interest ................................ 1 1 1 1 1 Interest portion of rental expense .................. 18 15 12 14 13 ----- ----- ----- ----- ----- TOTAL FIXED CHARGES .................................... $ 228 $ 246 $ 239 $ 239 $ 257 ===== ===== ===== ===== ===== RATIO OF EARNINGS TO FIXED CHARGES ..................... 1.91 (A) 1.53 1.58 1.41
(A) As a result of the losses incurred in the fiscal year ended December 26, 1998, PBG was unable to fully cover the indicated fixed charges. Earnings did not cover fixed charges by $188 million in 1998. (B) Excluding the impact of unusual impairment and other charges and credits of $16 million of income in 1999 and $222 million of expense in 1998, the ratio of earnings to fixed charges would have been 1.85 and 1.14 in 1999 and 1998, respectively. EX-13 9 PORTIONS OF 1999 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 MANAGEMENT'S FINANCIAL REVIEW OVERVIEW - -------- The Pepsi Bottling Group, Inc. (collectively referred to as "PBG," "we," "our" and "us") became a public company through an initial public offering of 100,000,000 shares on March 31, 1999, marking our separation from PepsiCo, Inc. and our beginning as a company focused solely on the bottling business. As an independent bottling company, we set objectives aimed at profitably growing our business and building shareholder value. We are proud to report that we have exceeded our goals for 1999: - We delivered 13% constant territory EBITDA growth in 1999, significantly higher than the 8-10% growth target we had set for ourselves at the time of our initial public offering. - We generated $161 million of operating cash flow in 1999, exceeding our original projections by approximately $200 million. - We delivered $0.71 in earnings per share, an increase of $0.54 over 1998 after adjusting for one-time items and the number of shares outstanding. - We made 142,000 net placements of cold drink equipment in North America, approximately 36,000 pieces ahead of prior year. - We increased our return on invested capital by 1% in 1999. - We made six acquisitions during the year for approximately $185 million in cash and assumed debt, increasing our share of Pepsi-Cola's North American market approximately 1% to more than 55%. The following discussion and analysis covers the key drivers behind our success in 1999 and is broken down into five major sections. The first two sections provide an overview and focus on items that affect the comparability of historical or future results. The next two sections provide an analysis of our results of operations and liquidity and financial condition. The last section contains a discussion of our market risks and cautionary statements. The discussion and analysis throughout management's financial review should be read in conjunction with the Consolidated Financial Statements and the related accompanying notes. 25 2 Constant Territory We believe that constant territory performance results are the most appropriate indicators of operating trends and performance, particularly in light of our stated intention of acquiring additional bottling territories, and are consistent with industry practice. Constant territory operating results are achieved by adjusting current year results to exclude current year acquisitions and adjusting prior year results to include the results of prior year acquisitions as if they had occurred on the first day of the prior fiscal year. Constant territory results also exclude any unusual impairment and other charges and credits. Use of EBITDA EBITDA, which is computed as operating income plus the sum of depreciation and amortization, is a key indicator management and the industry use to evaluate operating performance. It is not, however, required under generally accepted accounting principles and should not be considered an alternative to measurements required by GAAP such as net income or cash flows. In addition, EBITDA for 1999 and 1998 excludes the impact of the non-cash portion of the unusual impairment and other charges and credits discussed below and in Note 4 of the Consolidated Financial Statements. ITEMS THAT AFFECT HISTORICAL OR FUTURE COMPARABILITY - ---------------------------------------------------- Initial Public Offering PBG was incorporated in Delaware in January 1999 and, prior to our formation, we were an operating unit of PepsiCo. Our initial public offering consisted of 100,000,000 shares of common stock sold to the public, equivalent to 65% of our outstanding common stock, leaving PepsiCo the owner of the remaining 35% of outstanding common stock. PepsiCo's ownership has increased to 36.7% as a result of net repurchases of 5.3 million shares under our share repurchase program. In addition, in conjunction with our initial public offering, PBG and PepsiCo contributed bottling businesses and assets used in the bottling businesses to Bottling Group, LLC, our principal operating subsidiary. As a result of the contribution of these assets, PBG owns 92.9% of Bottling Group, LLC and PepsiCo owns the remaining 7.1%, giving PepsiCo economic ownership of 41.2% of our combined operations. We fully consolidate the results of Bottling Group, LLC and present PepsiCo's share as minority interest in our Consolidated Financial Statements. For the periods prior to our initial public offering we prepared our Consolidated Financial Statements as a "carve-out" from the financial statements of PepsiCo using the historical results of operations and assets and liabilities of our business. Certain costs reflected in the Consolidated Financial Statements may not necessarily be indicative of the costs that we would have incurred had we operated as an independent, stand-alone entity for all periods presented. These costs include an allocation of PepsiCo corporate overhead and interest expense, and income taxes: - We included corporate overhead related to PepsiCo's corporate administrative functions based on a specific identification of PepsiCo's administrative costs relating to the bottling operations and, to the extent that such identification was not practicable, based upon the percentage of our revenues to PepsiCo's consolidated net revenues. These costs are included in selling, delivery and administrative expenses in our Consolidated Statements of Operations. - We allocated $3.3 billion of PepsiCo debt to our business and charged interest expense on this debt using PepsiCo's weighted-average interest rate. Once we issued $3.3 billion of third-party debt in the first quarter of 1999, our actual interest rates were used to determine interest expense for the remainder of the year. - We reflected income tax expense in the Consolidated Financial Statements as if we had actually filed a separate income tax return. The amounts, by year, of the historical allocations described above are as follows:
1999* 1998 1997 ----- ---- ---- dollars in millions Corporate overhead expense........................... $ 3 $ 40 $ 42 Interest expense..................................... $ 28 $210 $205 PepsiCo weighted-average interest rate............... 5.8% 6.4% 6.2% * Prior to our initial public offering.
26 3 Unusual Impairment and Other Charges and Credits Our operating results were affected by the following unusual charges and credits in 1999 and 1998:
1999 1998* ---- ----- dollars in millions Non-cash compensation charge .............. $ 45 $ -- Vacation policy change .................... (53) -- Asset impairment and restructuring charges (8) 222 ----- ----- $ (16) $ 222 ===== ===== After minority interest and income taxes $ (9) $ 218 ===== =====
* Does not include tax settlement with the Internal Revenue Service discussed on this page. - - Non-cash Compensation Charge In connection with the completion of our initial public offering, PepsiCo vested substantially all non-vested PepsiCo stock options held by PBG employees. As a result, we incurred a $45 million non-cash compensation charge in the second quarter of 1999, equal to the difference between the market price of the PepsiCo capital stock and the exercise price of these options at the vesting date. - - Vacation Policy Change As a result of changes to our employee benefit and compensation plans, employees will now earn vacation time evenly throughout the year based upon service rendered. Previously, employees were fully vested at the beginning of each year. As a result of this change, we have reversed an accrual of $53 million into income. - - Asset Impairment and Restructuring Charges In the fourth quarter of 1998, we recorded $222 million of charges relating to the following: - A charge of $212 million for asset impairment of $194 million and other charges of $18 million related to restructuring our Russian operations. - A charge of $10 million for employee-related and other costs, mainly relocation and severance, resulting from the separation of Pepsi-Cola bottling and concentrate organizations. In the fourth quarter of 1999, $8 million of the remaining 1998 restructuring reserves was reversed into income, as actual costs incurred to renegotiate manufacturing and leasing contracts in Russia and to reduce the number of employees were less than the amounts originally estimated. - - Tax Settlement with the Internal Revenue Service In 1998, we settled a dispute with the Internal Revenue Service regarding the deductibility of the amortization of acquired franchise rights, resulting in a $46 million tax benefit. Comparability of our operating results may also be affected by the following: Concentrate Supply We buy concentrate, the critical flavor ingredient for our products, from PepsiCo, its affiliates and other brand owners who are the sole authorized suppliers. Concentrate prices are typically determined annually. In February 1999, PepsiCo announced an increase of approximately 5% in the price of U.S. concentrate. The cost of this increase was offset in substantial part with increases in the level of marketing support and funding we received from PepsiCo. PepsiCo has recently announced a further increase of approximately 7%, effective February 2000, which will be available for use by PepsiCo to support brand-building initiatives aimed at driving volume. Amounts paid or payable to PepsiCo and its affiliates for concentrate were $1,418 million, $1,283 million and $1,135 million in 1999, 1998 and 1997, respectively. Bottler Incentives PepsiCo and other brand owners provide us with various forms of marketing support. The level of this support is negotiated annually and can be increased or decreased at the discretion of the brand owners. This marketing support is intended to cover a variety of programs and initiatives, including direct marketplace support, capital equipment funding and shared media and advertising support. Direct marketplace support is primarily funding by PepsiCo and other brand owners of sales discounts and similar programs, and is recorded as an adjustment to net revenues. Capital equipment funding is designed to support the purchase and placement of marketing equipment and is recorded as a reduction to selling, delivery and administrative expenses. Shared media and advertising support is recorded as a 27 4 reduction to advertising and marketing expense within selling, delivery and administrative expenses. The total bottler incentives we received from PepsiCo and other brand owners were $563 million, $536 million and $463 million for 1999, 1998 and 1997, respectively. Of these amounts, we recorded $263 million, $247 million and $235 million for 1999, 1998 and 1997, respectively, in net revenues, and the remainder as a reduction to selling, delivery and administrative expenses. The amount of our bottler incentives received from PepsiCo was more than 90% of our total bottler incentives in each of the three years, with the balance received from the other brand owners. We negotiate the level of funding with PepsiCo and other brand owners as part of the annual planning process. Our Investment in Russia In recent years, we have invested in Russia to build infrastructure and to fund start-up manufacturing and distribution costs. During the first half of 1998, our volumes were growing at approximately 50% over 1997 levels. However, following the August 1998 devaluation of the ruble, we experienced a significant drop in demand, resulting in lower net revenues and increased operating losses. As a result of the economic crisis and the under-utilization of assets, we incurred a charge of $212 million in the fourth quarter of 1998 to write down our assets and reduce our fixed-cost structure. The economic conditions in 1999 have been more stable. However, volumes and revenues have not yet returned to levels achieved immediately prior to the devaluation as Russian consumers have switched from branded products to lower-cost alternatives. In response to this environment, we have focused on developing alternative means of leveraging our existing asset base while significantly reducing costs. Most notably, we have begun to distribute Frito-Lay(R) snack products throughout all of Russia, except Moscow. In addition, we have recently launched our own value brand beverage products. We anticipate that our Russian operations will continue to incur losses and require cash to fund operations for at least the fiscal year 2000. However, capital requirements will be minimal because our existing infrastructure is adequate for current operations. Cash requirements for investing activities and to fund operations were $45 million, $156 million and $71 million in 1999, 1998 and 1997, respectively. Volume in Russia accounted for 1%, 2% and 1% of our total volume in 1999, 1998 and 1997, respectively. We will continue to review our Russian operations on a regular basis and to consider changes in our distribution systems and other operations as circumstances dictate. Employee Benefit Plan Changes We are making several changes to our employee benefit plans that will take effect in fiscal year 2000. Our objective is to ensure that the overall compensation and benefit plans offered to our employees are competitive with our industry. The changes that have been made to our vacation policy, pension and retiree medical plans include some benefit enhancements as well as cost containment provisions. We do not believe that the net impact of these changes will be material to our financial results in fiscal year 2000. In addition, as previously disclosed at the time of our initial public offering, we are not continuing the broad-based stock option program provided by PepsiCo. In its place our Board of Directors has approved a matching company contribution to our 401(k) plan to begin in 2000. The match will be made in PBG stock and the amount will depend upon the employee's contribution and years of service. We anticipate that the matching company contribution will cost approximately $12 million in fiscal year 2000. Finally, in the fourth quarter of 1999 we recognized a $16 million compensation charge related to full-year 1999 performance. This expense is one-time in nature and is for the benefit of our management employees, reflecting our successful operating results as well as providing certain incentive-related features. Fiscal Year Our fiscal year ends on the last Saturday in December and, as a result, a fifty-third week is added every five or six years. Fiscal years 1999, 1998 and 1997 consisted of 52 weeks. Fiscal year 2000 will have 53 weeks. 28 5 THE PEPSI BOTTLING GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in millions, except per share data) Fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997
1999 1998 1997 ---- ---- ---- NET REVENUES ........................................ $ 7,505 $ 7,041 $ 6,592 Cost of sales ....................................... 4,296 4,181 3,832 ------- ------- ------- GROSS PROFIT ........................................ 3,209 2,860 2,760 Selling, delivery and administrative expenses ....... 2,813 2,583 2,425 Unusual impairment and other charges and credits .... (16) 222 -- ------- ------- ------- OPERATING INCOME .................................... 412 55 335 Interest expense, net ............................... 202 221 222 Foreign currency loss (gain) ........................ 1 26 (2) Minority interest ................................... 21 -- -- ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES ................... 188 (192) 115 Income tax expense (benefit) ........................ 70 (46) 56 ------- ------- ------- NET INCOME (LOSS) ................................... $ 118 $ (146) $ 59 ======= ======= ======= BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ......... $ 0.92 $ (2.65) $ 1.07 WEIGHTED-AVERAGE BASIC AND DILUTED SHARES OUTSTANDING 128 55 55 See accompanying notes to Consolidated Financial Statements.
Management's Financial Review RESULTS OF OPERATIONS - ---------------------
FISCAL 1999 VS. 1998 FISCAL 1998 VS. 1997 -------------------- -------------------- CONSTANT CONSTANT REPORTED TERRITORY REPORTED TERRITORY CHANGE CHANGE CHANGE CHANGE ------ ------ ------ ------ EBITDA................................ 25% 13% (7)% 0% Volume................................ 4% 0% 7 % 5% Net Revenue per Case.................. 3% 3% (1)% 0%
EBITDA Reported EBITDA was $901 million in 1999, representing a 25% increase over 1998. On a constant territory basis, EBITDA growth of 13% was driven by a strong pricing environment particularly in the U.S. take-home segment, solid volume growth in our higher-margin cold drink segment and reduced operating losses in Russia. In 1998, EBITDA declined 7% on a reported basis and was flat on a constant territory basis. Strong volume gains were more than offset by higher raw material costs in North America, increased selling and delivery expenses associated with our investment in the cold drink segment and higher losses in our Russian operations. The reported decline in 1998 was also impacted by $28 million of cash restructuring charges. VOLUME Our worldwide raw case volume grew 4% on a reported basis in 1999, and was flat on a constant territory basis. Raw cases are physical cases sold, regardless of the volume contained in these cases. In North America, which consists of the U.S. and Canada, constant territory volume improved 1%. Growth in our cold drink segment was offset by declines in the take-home business as we raised prices in the take-home segment. Outside North America, our constant territory volumes declined 6%, driven by the continued impact of the economic conditions in Russia, which began to deteriorate in August 1998 with the devaluation of the ruble. In 1998, worldwide case volume grew 7% compared to 1997, with North America increasing 6% and countries outside North America increasing 18%. Constant territory volume increased 5% in the North American markets, 6% outside North America and 5% worldwide. North American results were driven by solid growth in our cold drink segment, modest gains in the take-home segment and the favorable impact of the launch of Pepsi ONE in the fourth quarter of 1998. Constant territory volume growth outside North America was positive in all of our markets, led by Russia, which increased 21%. 29 6 NET REVENUES On a reported basis, net revenues were $7,505 million in 1999, representing a 7% increase over 1998. On a constant territory basis, net revenues increased 3%, with increases in North America offsetting a revenue decline outside North America. North American constant territory growth was driven by a 1% increase in volume and a 4% increase in net revenue per case. The net revenue per case increase was driven by strong pricing, led by advances in the take-home segment and an increased mix of higher-revenue cold drink volume. Initial volume declines partially offset the revenue impact of higher take-home pricing, although volumes rebounded in the fourth quarter of 1999. Outside North America, revenue declines were impacted by the August 1998 ruble devaluation in Russia. On a worldwide basis, constant territory revenue per physical case was up 3%. Worldwide net revenues grew 7% from 1997 to 1998 on a reported basis and 5% on a constant territory basis. Volume gains contributed five percentage points to constant territory revenue growth while pricing remained essentially flat. Flat pricing reflected an increased mix of higher-priced single-serve cold drink packages sold, offset by lower take-home package pricing in North American markets, and promotional pricing relating to the U.S. introduction of Pepsi ONE in the fourth quarter of 1998. COST OF SALES Cost of sales as a percentage of net revenues decreased from 59.4% in 1998 to 57.3% in 1999. This trend was driven by higher net revenue per case and relatively flat cost of sales per case as higher concentrate prices were offset by lower packaging costs and the favorable effect of renegotiating our raw material contracts in Russia to a ruble denomination instead of U.S. dollars. Cost of sales as a percentage of net revenues increased from 58.1% in 1997 to 59.4% in 1998. This increase was primarily a result of margin declines in the take-home segment and increases in concentrate costs. An increased mix of revenues in the higher-margin cold drink segment in 1998 was insufficient to offset margin declines in the take-home segment. SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES Selling, delivery and administrative expenses increased $230 million, or 9%, in 1999. This increase was driven by acquisitions and higher selling and delivery costs, which resulted from our continued investment in our North American cold drink infrastructure. Additional headcount, delivery routes and depreciation increases resulted from this initiative in 1999. We anticipate that the investments we are making in the cold drink business will be more than recovered through the resulting revenue growth in this higher-margin business. In addition, higher advertising and marketing spending was offset by reduced operating costs in Russia, as our cost structure benefited from our fourth quarter 1998 restructuring actions. Administrative costs were impacted by increased performance-related compensation due to our stronger operating results in 1999 compared to 1998. Excluding the impact of performance-related compensation, our administrative costs were relatively flat year-over-year. In 1998, selling, delivery and administrative expenses increased $158 million, or 7%. Selling and delivery costs grew at a rate faster than volume while our other administrative costs grew less than 1% in 1998. The costs associated with selling and delivery grew faster than volume largely because of our heavy investment in vending machines and coolers, consistent with our long-term strategy to increase our presence in the cold drink segment of the industry in North America. Spending on vending machines and coolers at customer locations in the North American markets was approximately 20% higher in 1998 than in 1997, driving increases in the costs associated with placing, depreciating and providing service for these assets. FOREIGN CURRENCY EXCHANGE GAINS/LOSSES Our foreign currency exchange gains and losses arise from our operations in Russia. Since Russia is considered a highly inflationary economy for accounting purposes, we are required to remeasure the net monetary assets of our Russian operations in U.S. dollars and reflect any resulting gain or loss in the Consolidated Statements of Operations. The August 1998 devaluation of the Russian ruble resulted in a significant foreign exchange loss in 1998. In 1999, foreign exchange losses have been minimized due to a more stable ruble exchange rate. 30 7 INTEREST EXPENSE, NET Net interest expense decreased by $19 million to $202 million in 1999, due primarily to a lower average interest rate on PBG's $3.3 billion of long-term debt. Our average interest rate decreased from 6.4% in 1998, when we used PepsiCo's average interest rate, to 6.1% in the current year when we issued our own debt in the first quarter of 1999. Our lower 1999 interest rates reflect market conditions at the time we issued our debt. In addition, we had reduced levels of external debt outside North America. In 1998, interest expense decreased $1 million compared to 1997, reflecting higher interest income in Spain, offset by an increase in PepsiCo's average borrowing rate from 6.2% to 6.4%. PROVISION FOR INCOME TAXES Our full-year effective tax rate for 1999 was an expense of 37.4%, compared to a benefit of 24.0% in 1998 and an expense of 48.7% in 1997. In 1999, the impact of non-deductible goodwill and other expenses on the effective tax rate was offset in part by lower tax rates in our markets outside the U.S., and by higher overall pre-tax income. In 1998, we settled a dispute with the Internal Revenue Service regarding the deductibility of the amortization of acquired franchise rights, resulting in a $46 million tax benefit in the fourth quarter. Also in 1998, our effective tax rate was increased due to the unusual charges relating to Russia restructuring and asset write-offs for which we did not recognize a tax benefit. The 1997 tax rate was driven by the effect of non-deductible goodwill and other expenses, offset in part by lower tax rates outside the U.S. Our effective tax rate, excluding the unusual impairment and other charges and credits, would have been 38.0%, 0.9% and 48.7% in 1999, 1998 and 1997, respectively. EARNINGS PER SHARE
1999 1998 1997 ---- ---- ---- Earnings (loss) per share on reported net income (loss)....... $0.92 $(2.65) $1.07 Average shares outstanding (millions)......................... 128 55 55
Our historical capital structure is not representative of our current structure due to our initial public offering. In 1999, immediately preceding the offering, and in 1998 and 1997, we had 55 million shares of common stock outstanding. In connection with the offering, we sold 100,000,000 shares of common stock to the public and used the $2.2 billion of proceeds to repay obligations to PepsiCo and to fund acquisitions. The table below sets forth earnings per share adjusted for the initial public offering and the impact of our unusual impairment and other charges and credits as previously discussed. In 1999, we assumed 155 million shares were outstanding from the beginning of the year and adjusted for our share repurchase program, which began in October and under which we made net repurchases of approximately 5.3 million shares. Similarly, the 1998 and 1997 earnings per share amounts in the table below have been adjusted, assuming 155 million shares had been outstanding for the entire period presented.
1999 1998 1997 ---- ---- ---- Earnings (loss) per share on reported net income (loss) $ 0.76 $ (0.94) $ 0.38 Unusual impairment and other charges and credits .......... (0.05) 1.41 -- Tax settlement ............................................ -- (0.30) -- ------- ------- ------- Adjusted earnings per share ............................... $ 0.71 $ 0.17 $ 0.38 ======= ======= ======= Assumed shares outstanding (millions) ..................... 155 155 155
31 8 THE PEPSI BOTTLING GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) Fiscal years ended December 25, 1999, December 1998 and December 27,1997
1999 1998 1997 ------- ------- ----- CASH FLOWS -- OPERATIONS Net income (loss) .................................... $ 118 $ (146) $ 59 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation ....................................... 374 351 316 Amortization ....................................... 131 121 123 Non-cash unusual impairment and other charges and credits........................................... (32) 194 -- Non-cash portion of tax settlement ................. -- (46) -- Deferred income taxes .............................. (27) 47 17 Other non-cash charges and credits, net ............ 141 88 12 Changes in operating working capital, excluding effects of acquisitions and dispositions: Trade accounts receivable ........................ (30) 46 26 Inventories ...................................... 3 (25) -- Prepaid expenses, deferred income taxes and other current assets ................................. 4 8 (54) Accounts payable and other current liabilities ... 41 39 63 Income taxes payable ............................. (5) (52) (14) ------- ------- ----- Net change in operating working capital ........ 13 16 21 ------- ------- ----- NET CASH PROVIDED BY OPERATIONS ...................... 718 625 548 ------- ------- ----- CASH FLOWS -- INVESTMENTS Capital expenditures ................................. (560) (507) (472) Acquisitions of bottlers and investments in affiliates (176) (546) (49) Sales of bottling operations and property, plant and equipment .......................................... 22 31 23 Other, net ........................................... (19) (24) (66) ------- ------- ----- NET CASH USED FOR INVESTMENTS ........................ (733) (1,046) (564) ------- ------- ----- CASH FLOWS -- FINANCING Short-term borrowings -- three months or less ........ (58) 52 (90) Proceeds from third-party debt ....................... 3,260 50 3 Replacement of PepsiCo allocated debt ................ (3,300) -- -- Net proceeds from initial public offering ............ 2,208 -- -- Payments of third-party debt ......................... (90) (72) (11) Dividends paid ....................................... (6) -- -- Treasury stock transactions, net ..................... (90) -- -- Increase (decrease) in advances from PepsiCo ......... (1,750) 340 161 ------- ------- ----- NET CASH PROVIDED BY FINANCING ....................... 174 370 63 ------- ------- ----- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ........................................ (5) 1 (1) ------- ------- ----- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . 154 (50) 46 CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR ....... 36 86 40 ------- ------- ----- CASH AND CASH EQUIVALENTS -- END OF YEAR ............. $ 190 $ 36 $ 86 ======= ======= ===== SUPPLEMENTAL CASH FLOW INFORMATION NON-CASH INVESTING AND FINANCING ACTIVITIES: Liabilities incurred and/or assumed in conjunction with acquisitions of bottlers .................. $ 65 $ 161 $ 3 ======= ======= =====
See accompanying notes to Consolidated Financial Statements. 32 9 THE PEPSI BOTTLING GROUP, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 25, 1999 and December 26, 1998
1999 1998 ------- ------- ASSETS CURRENT ASSETS Cash and cash equivalents .................................. $ 190 $ 36 Trade accounts receivable, less allowance of $48 and $46, in 1999 and 1998, respectively ....................... 827 808 Inventories ................................................ 293 296 Prepaid expenses, deferred income taxes and other current assets ........................................... 183 178 ------- ------- TOTAL CURRENT ASSETS ........................................ 1,493 1,318 Property, plant and equipment, net ......................... 2,218 2,055 Intangible assets, net ..................................... 3,819 3,806 Other assets ............................................... 89 143 ------- ------- TOTAL ASSETS ............................................. $ 7,619 $ 7,322 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and other current liabilities ............. $ 924 $ 904 Income taxes payable ....................................... -- 9 Short-term borrowings ...................................... 23 112 ------- ------- TOTAL CURRENT LIABILITIES ................................ 947 1,025 Allocation of PepsiCo long-term debt ....................... --- 3,300 Long-term debt due to third parties ........................ 3,268 61 Other liabilities .......................................... 385 367 Deferred income taxes ...................................... 1,178 1,202 Minority interest .......................................... 278 -- Advances from PepsiCo ...................................... -- 1,605 ------- ------- TOTAL LIABILITIES............................................. 6,056 7,560 SHAREHOLDERS' EQUITY Common stock, par value $.01 per share: Authorized 300 shares, issued 155 shares ................. 2 -- Treasury stock: 5 shares ................................... (90) -- Additional paid-in capital ................................. 1,736 -- Retained earnings .......................................... 138 -- Accumulated other comprehensive loss ....................... (223) (238) ------- ------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) ........................ 1,563 (238) ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $ 7,619 $ 7,322 ======= =======
See accompanying notes to Consolidated Financial Statements. 33 10 LIQUIDITY AND FINANCIAL CONDITION - --------------------------------- LIQUIDITY AND CAPITAL RESOURCES Liquidity Prior to our Separation from PepsiCo and our Initial Public Offering We financed our capital investments and acquisitions through cash flow from operations and advances from PepsiCo prior to our separation from PepsiCo and our initial public offering. Under PepsiCo's centralized cash management system, PepsiCo deposited sufficient cash in our bank accounts to meet our daily obligations, and withdrew excess funds from those accounts. These transactions are included in advances from PepsiCo in our Consolidated Balance Sheets and Consolidated Statements of Cash Flows. Liquidity After our Initial Public Offering Subsequent to our initial public offering, we have financed our capital investments and acquisitions substantially through cash flow from operations. We believe that our future cash flow from operations and borrowing capacity will be sufficient to fund capital expenditures, acquisitions, dividends and other working capital requirements. Financing Transactions On February 9, 1999, $1.3 billion of 5 5/8% senior notes and $1.0 billion of 5 3/8% senior notes were issued by Bottling Group, LLC and are guaranteed by PepsiCo. On March 8, 1999, we issued $1 billion of 7% senior notes, which are guaranteed by Bottling Group, LLC. During the second quarter of 1999, we executed an interest rate swap converting 3% of our fixed-rate debt to floating-rate debt. On March 31, 1999, we offered 100,000,000 shares of PBG common stock for sale to the public in an underwritten initial public offering generating $2.2 billion of net proceeds. In April 1999, we entered into a $500 million commercial paper program that is supported by a credit facility. The credit facility consists of two $250 million components, one of which is one year in duration and the other of which is five years in duration. There were no borrowings outstanding under this program at December 25, 1999. The proceeds from the above financing transactions were used to repay obligations to PepsiCo and fund acquisitions. Capital Expenditures We have incurred and will require capital for ongoing infrastructure, including acquisitions and investments in developing market opportunities. - - Our business requires substantial infrastructure investments to maintain our existing level of operations and to fund investments targeted at growing our business. Capital infrastructure expenditures totaled $560 million, $507 million and $472 million during 1999, 1998 and 1997, respectively. We believe that capital infrastructure spending will continue to be significant, driven by our investments in the cold drink segment. - - We intend to continue to pursue acquisitions of independent PepsiCo bottlers in the U.S. and Canada, particularly in territories contiguous to our own. These acquisitions will enable us to provide better service to our large retail customers, as well as to reduce costs through economies of scale. We also plan to evaluate international acquisition opportunities as they become available. Cash spending on acquisitions was $176 million, $546 million and $49 million in 1999, 1998 and 1997, respectively. CASH FLOWS Fiscal 1999 Compared to Fiscal 1998 Operating cash flow in 1999 grew $36 million, or 29%, to $161 million from 1998. Operating cash flow is defined as net cash provided by operations less net cash used for investments, excluding cash used for acquisitions of bottlers and investments in affiliates. Net cash provided by operations in 1999 improved to $718 million from $625 million in 1998, due primarily to strong growth in EBITDA and favorable working capital cash flows resulting from the timing of cash payments and our continued focus on working capital management. Net cash used for investments was $733 million in 1999 compared to $1,046 million in 1998. In 1999, $176 million was utilized for the acquisition of bottlers in the U.S., Canada and Russia, compared to $546 million in 1998. In addition, we continued to invest heavily in cold drink equipment in North America, resulting in increased capital spending from $507 million in 1998 to $560 million in 1999. 34 11 Net cash provided by financing decreased by $196 million from $370 million to $174 million during 1999, mainly due to the net pay-down of $58 million of short-term borrowings in 1999, the payment in the first quarter of 1999 of borrowings in Russia related to the purchase of Pepsi International Bottlers, LLC and $90 million of share repurchases in the fourth quarter of 1999. Net IPO proceeds of $2.2 billion and proceeds from the issuance of third-party debt of $3.3 billion were used to repay obligations to PepsiCo and fund acquisitions. Fiscal 1998 Compared to Fiscal 1997 Net cash provided by operations in 1998 improved to $625 million from $548 million in 1997 due primarily to the favorable effect of a three-year insurance prepayment to a PepsiCo affiliate in 1997, and our continued focus on working capital management. Net cash used for investments was $1,046 million in 1998 compared to $564 million in 1997. In 1998, $546 million was utilized for the acquisition of bottlers and investments in affiliates in the U.S., Canada and Russia, compared to $49 million in 1997. In addition, we continued to increase our investment in cold drink equipment in North America. The net cash used for financing in 1998 was provided by normal operating activities, advances from PepsiCo and proceeds from short-term borrowings. The total net cash from financing activities in 1998 was $370 million. MARKET RISKS AND CAUTIONARY STATEMENTS - -------------------------------------- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks including commodity prices, interest rates on our debt and foreign exchange rates. Commodity Price Risk We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. We use futures contracts and options on futures in the normal course of business to hedge anticipated purchases of certain raw materials used in our manufacturing operations. Currently we have various contracts outstanding for aluminum purchases in 2000, which establish our purchase price within defined ranges. Interest Rate Risk Historically, we have had no material interest rate risk associated with debt used to finance our operations due to limited third-party borrowings. We intend to manage our interest rate exposure using both financial derivative instruments and a mix of fixed and floating interest rate debt. During the second quarter of 1999, we executed an interest rate swap converting 3% of our fixed-rate debt to floating-rate debt. Foreign Currency Exchange Rate Risk Operating in international markets involves exposure to movements in currency exchange rates. Currency exchange rate movements typically also affect economic growth, inflation, interest rates, government actions and other factors. These changes can cause us to adjust our financing and operating strategies. The discussion below of changes in currency exchange rates does not incorporate these other economic factors. For example, the sensitivity analysis presented in the foreign exchange discussion below does not take into account the possibility that the impact of an exchange rate movement may or may not be offset by the impact of changes in other categories. Operations outside the U.S. constitute approximately 15% of our net revenues. As currency exchange rates change, translation of the statements of operations of our international businesses into U.S. dollars affects year-over-year comparability. We have not hedged translation risks because cash flows from international operations have generally been reinvested locally, nor historically have we entered into hedges to minimize the volatility of reported earnings. We estimate that a 10% change in foreign exchange rates would affect reported operating income by less than $10 million. Foreign exchange gains and losses reflect transaction and translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. Russia is considered a highly inflationary economy for accounting purposes and all foreign exchange gains and losses are included in the Consolidated Statements of Operations. 35 12 The table below presents information on contracts outstanding at December 25, 1999:
NOTIONAL CARRYING FAIR AMOUNT AMOUNT VALUE -------- -------- ----- dollars in millions Raw material futures contracts............ $91 $-- $6 Raw material options...................... 61 1 12 Interest rate swap........................ 100 -- (2)
EURO On January 1, 1999, eleven member countries of the European Union established fixed conversion rates between existing currencies and one common currency, the Euro. Beginning in January 2002, new Euro-denominated bills and coins will be issued, and existing currencies will be withdrawn from circulation. Spain is one of the member countries that instituted the Euro, and we have established plans to address the issues raised by the Euro currency conversion. These issues include, among others, the need to adapt computer and financial systems, business processes and equipment such as vending machines to accommodate Euro-denominated transactions and the impact of one common currency on cross-border pricing. Since financial systems and processes currently accommodate multiple currencies, we do not expect the system and equipment conversion costs to be material. Due to numerous uncertainties, we cannot reasonably estimate the long-term effects one common currency may have on pricing, costs and the resulting impact, if any, on our financial condition or results of operations. YEAR 2000 Over the past three years, we have taken a number of steps to minimize any potential disruption from the transition of computerized systems and microprocessors to the Year 2000. Such steps included the inventory and assessment of our key information technology systems, together with any necessary remediation and testing. In addition, we contacted and surveyed suppliers critical to our production process and significant customers as to their compliance status. Finally, we established an Event Management Center to monitor the status of key business processes during and after the year-end crossover. The Center was available to all of our locations and key suppliers and customers in the event of any breakdown in processing. We are pleased to report that as a result of these precautions, we experienced no disruption to our business in any of the countries in which we operate. This included no external infrastructure issues such as disruption to utilities and telecommunications, nor any indication of problems with any of our key suppliers or customers. Our own production and selling activities commenced in the new year as originally scheduled. We have spent $51 million in costs directly related to Year 2000 issues. This included $18 million in 1999, $26 million in 1998 and $7 million in 1997. These costs did not necessarily increase our normal level of spending on information technology due to the deferral of other projects that enabled us to focus on Year 2000 remediation. Consequently, in fiscal year 2000, resources dedicated to Year 2000 projects are now being redirected to support initiatives that had previously been postponed. Any carryover costs to fiscal year 2000 for expenses such as the Event Management Center are not expected to be significant. CAUTIONARY STATEMENTS Except for the historical information and discussions contained herein, statements contained in this annual report on Form 10-K may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available competitive, financial and economic data and PBG's operating plans. These statements involve a number of risks, uncertainties and other factors that could cause actual results to be materially different. Among the events and uncertainties that could adversely affect future periods are lower-than-expected net pricing resulting from marketplace competition, material changes from expectations in the cost of raw materials and ingredients, an inability to achieve the expected timing for returns on cold drink equipment and related infrastructure expenditures, material changes in expected levels of marketing support payments from PepsiCo, an inability to meet projections for performance in newly acquired territories, unexpected costs associated with conversion to the common European currency and unfavorable interest rate and currency fluctuations. 36 13 THE PEPSI BOTTLING GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in millions) Fiscal years ended December 25, 1999 December 26 ,1998 and December 27, 1997
ACCUMULATED ADDITIONAL OTHER COMMON TREASURY PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE STOCK STOCK CAPITAL EARNINGS LOSS TOTAL INCOME/(LOSS ------- -------- ---------- -------- ------------- -------- -------------- BALANCE AT DECEMBER 28, 1996 . $ -- $ -- $ -- $ -- $(102) $ (102) Comprehensive income: Net income ............... -- -- -- -- -- -- $ 59 Currency translation adjustment ............. -- -- -- -- (82) (82) (82) ------- ------- ------- ----- ----- ------- ----- Total comprehensive loss ... $ (23) ===== BALANCE AT DECEMBER 27, 1997 . -- -- -- -- (184) (184) Comprehensive loss: Net loss ................. -- -- -- -- -- -- $(146) Currency translation adjustment.............. -- -- -- -- (35) (35) (35) Minimum pension liability adjustment ............. -- -- -- -- (19) (19) (19) ------- ------- ------- ----- ----- ------- ----- Total comprehensive loss ... $(200) ===== BALANCE AT DECEMBER 26, 1998 . -- -- -- -- (238) (238) Comprehensive income: Net loss before IPO ...... -- -- -- -- -- -- $ (29) Net income after IPO ..... -- -- -- 147 -- 147 147 Currency translation adjustment.............. -- -- -- -- (4) (4) (4) Minimum pension liability adjustment ............. -- -- -- -- 19 19 19 ----- Total comprehensive income . $ 133 ===== Initial public offering (100 shares) net of settlement of advances from PepsiCo . 2 -- 1,736 -- -- 1,738 Treasury stock transactions, net (5 shares) ........... -- (90) -- -- -- (90) Cash dividends declared on common stock ............. -- -- -- (9) -- (9) ------- ------- ------- ----- ----- ------- BALANCE AT DECEMBER 25, 1999 . $ 2 $ (90) $ 1,736 $ 138 $(223) $ 1,563 ======= ======= ======= ===== ===== =======
See accompanying notes to Consolidated Financial Statements. 37 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollars in millions, except per share data) NOTE 1 -- BASIS OF PRESENTATION The Pepsi Bottling Group, Inc. ("PBG") consists of bottling operations located in the United States, Canada, Spain, Greece and Russia. These bottling operations manufacture, sell and distribute Pepsi-Cola beverages including Pepsi-Cola, Diet Pepsi, Mountain Dew and other brands of carbonated soft drinks and other ready-to-drink beverages. Approximately 90% of PBG's 1999 net revenues were derived from the sale of Pepsi-Cola beverages. References to PBG throughout these Consolidated Financial Statements are made using the first-person notations of "we," "our" and "us." Prior to our formation, we were an operating unit of PepsiCo, Inc. ("PepsiCo"). On March 31, 1999, we offered 100,000,000 shares of PBG common stock for sale at $23 per share in an initial public offering generating $2,208 million in net proceeds. These proceeds were used to fund acquisitions and repay obligations to PepsiCo. Subsequent to the offering, PepsiCo owned and continues to own 55,005,679 shares of common stock, consisting of 54,917,329 shares of common stock and 88,350 shares of Class B common stock. PepsiCo's ownership at December 25, 1999, represents 36.7% of the outstanding common stock and 100% of the outstanding Class B common stock, together representing 44.8% of the voting power of all classes of our voting stock. Subsequent to the offering, PepsiCo also owns 7.1% of the equity of Bottling Group, LLC, our principal operating subsidiary, giving PepsiCo economic ownership of 41.2% of our combined operations at December 25, 1999. The 154,917,354 common shares and 88,350 Class B common shares are substantially identical, except for voting rights. Holders of our common stock are entitled to one vote per share and holders of our Class B common stock are entitled to 250 votes per share. Each share of Class B common stock held by PepsiCo is, at PepsiCo's option, convertible into one share of common stock. Holders of our common stock and holders of our Class B common stock share equally on a per share basis in any dividend distributions. The accompanying Consolidated Financial Statements include information that has been presented on a "carve-out" basis for the periods prior to our initial public offering. This information includes the historical results of operations and assets and liabilities directly related to PBG, and has been prepared from PepsiCo's historical accounting records. Certain estimates, assumptions and allocations were made in determining such financial statement information. Therefore, these Consolidated Financial Statements may not necessarily be indicative of the results of operations, financial position or cash flows that would have existed had we been a separate, independent company from the first day of all periods presented. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Our preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of net revenues and expenses during the reporting period. Actual results could differ from our estimates. BASIS OF CONSOLIDATION The accounts of all of our wholly and majority-owned subsidiaries are included in the accompanying Consolidated Financial Statements. We have eliminated intercompany accounts and transactions in consolidation. FISCAL YEAR Our fiscal year ends on the last Saturday in December and, as a result, a fifty-third week is added every five or six years. Fiscal years 1999, 1998 and 1997 consisted of 52 weeks. Fiscal year 2000 will have 53 weeks. REVENUE RECOGNITION We recognize revenue when goods are delivered to customers. Sales terms do not allow a right of return unless product freshness dating has expired. Reserves for returned product were $2 million at fiscal year-end 1999, 1998 and 1997, respectively. ADVERTISING AND MARKETING COSTS We are involved in a variety of programs to promote our products. We include advertising and marketing costs in selling, delivery and administrative expenses and expense such costs in the year incurred. Advertising and marketing costs were $298 million, $233 million and $210 million in 1999, 1998 and 1997, respectively. BOTTLER INCENTIVES PepsiCo and other brand owners, at their sole discretion, provide us with various forms of marketing support. This marketing support is intended to cover a variety of programs and initiatives, including direct marketplace support, capital equipment funding and shared media and advertising support. Based on the objective of the programs and initiatives, we record marketing support 38 15 as an adjustment to net revenues or as a reduction of selling, delivery and administrative expenses. Direct marketplace support is primarily funding by PepsiCo and other brand owners of sales discounts and similar programs and is recorded as an adjustment to net revenues. Capital equipment funding is designed to support the purchase and placement of marketing equipment and is recorded as a reduction to selling, delivery and administrative expenses. Shared media and advertising support is recorded as a reduction to advertising and marketing expense within selling, delivery and administrative expenses. There are no conditions or other requirements that could result in a repayment of marketing support received. The total bottler incentives we received from PepsiCo and other brand owners, were $563 million, $536 million and $463 million for 1999, 1998 and 1997, respectively. Of these amounts, we recorded $263 million, $247 million and $235 million for 1999, 1998 and 1997, respectively, in net revenues, and the remainder as a reduction to selling, delivery and administrative expenses. The amount of our bottler incentives received from PepsiCo was more than 90% of our bottler incentives in each of the three years, with the balance received from the other brand owners. STOCK-BASED EMPLOYEE COMPENSATION We measure stock-based compensation expense in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees," and its related interpretations. Accordingly, compensation expense for stock option grants to PBG employees is measured as the excess of the quoted market price of common stock at the grant date over the amount the employee must pay for the stock. Our policy is to grant stock options at fair value on the date of grant. CASH EQUIVALENTS Cash equivalents represent funds we have temporarily invested with original maturities not exceeding three months. INVENTORIES We value our inventories at the lower of cost computed on the first-in, first-out method or net realizable value. PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment ("PP&E") at cost, except for PP&E that has been impaired, for which we write down the carrying amount to estimated fair-market value, which then becomes the new cost basis. INTANGIBLE ASSETS Intangible assets include both franchise rights and goodwill arising from the allocation of the purchase price of businesses acquired. Goodwill represents the residual purchase price after allocation of all identifiable net assets. Franchise rights and goodwill are evaluated at the date of acquisition and amortized on a straight-line basis over their estimated useful lives, which in most cases is between 20 to 40 years. RECOVERABILITY OF LONG-LIVED ASSETS We review all long-lived assets, including intangible assets, when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, we write down an impaired asset to its estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. MINORITY INTEREST PBG and PepsiCo contributed bottling businesses and assets used in the bottling businesses to Bottling Group, LLC, our principal operating subsidiary, in connection with the formation of Bottling Group, LLC. As a result of the contribution of these assets, PBG owns 92.9% of Bottling Group, LLC and PepsiCo owns the remaining 7.1%. Accordingly, the Consolidated Financial Statements reflect PepsiCo's share of consolidated net income of Bottling Group, LLC as minority interest in our Consolidated Statements of Operations, and PepsiCo's share of consolidated net assets of Bottling Group, LLC as minority interest in our Consolidated Balance Sheets from our initial public offering through the end of the year. TREASURY STOCK We record the repurchase of shares of our common stock at cost and classify these shares as treasury stock within shareholders' equity. Repurchased shares are included in our authorized shares but not included in our shares outstanding. We record shares reissued using an average cost. During 1999, our Board of Directors authorized the repurchase of 10 million shares of common stock under which we made net repurchases of 5.3 million shares for $90 million. 39 16 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT We use futures contracts and options on futures to hedge against the risk of adverse movements in the price of certain commodities used in the manufacture of our products. In order to qualify for deferral hedge accounting of unrealized gains and losses, such instruments must be designated and effective as a hedge of an anticipatory transaction. Changes in the value of instruments that we use to hedge commodity prices are highly correlated to the changes in the value of the purchased commodity. We review the correlation and effectiveness of these financial instruments on a periodic basis. Gains and losses on futures contracts that are designated and effective as hedges of future commodity purchases are deferred and included in the cost of the related raw materials when purchased. Financial instruments that do not meet the criteria for hedge accounting treatment are marked-to-market with the resulting unrealized gain or loss recorded as other income and expense within selling, delivery and administrative expenses. Realized gains and losses that result from the early termination of financial instruments used for hedging purposes are deferred and are included in cost of sales when the anticipated transaction actually occurs. Premiums paid for the purchase of options on futures are recorded as a prepaid expense in the Consolidated Balance Sheets and are amortized as an adjustment to cost of sales over the duration of the contract. From time to time, we utilize interest rate swaps to hedge our exposure to fluctuations in interest rates. The interest differential to be paid or received on an interest rate swap is recognized as an adjustment to interest expense as the differential occurs. The interest differential not yet settled in cash is reflected in the accompanying Consolidated Balance Sheets as a receivable or payable within the appropriate current asset or liability captions. If we terminate an interest rate swap position, the gain or loss realized upon termination would be deferred and amortized to interest expense over the remaining term of the underlying debt instrument it was intended to modify, or would be recognized immediately if the underlying debt instrument was settled prior to maturity. FOREIGN EXCHANGE GAINS AND LOSSES We translate the balance sheets of our foreign subsidiaries that do not operate in highly inflationary economies at the exchange rates in effect at the balance sheet date, while we translate the statements of operations at the average rates of exchange during the year. The resulting translation adjustments of our foreign subsidiaries are recorded directly to accumulated other comprehensive loss. Foreign exchange gains and losses reflect transaction and translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. Russia is considered a highly inflationary economy for accounting purposes and we include all foreign exchange gains and losses in the Consolidated Statements of Operations. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for hedging activities and derivative instruments, including certain derivative instruments embedded in other contracts, which are collectively referred to as derivatives. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We are currently assessing the effects of adopting SFAS 133, and have not yet made a determination of the impact on our financial position or results of operations. In July 1999, the FASB issued Statement of Financial Accounting Standard 137, delaying the implementation of SFAS 133 for one year. SFAS 133 will now be effective for our first quarter of fiscal year 2001. EARNINGS PER SHARE We compute basic earnings per share by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock that would then share in net income. NOTE 3 -- INITIAL PUBLIC OFFERING AND COMPARABILITY OF RESULTS For the periods prior to our initial public offering, our Consolidated Financial Statements have been carved out from the financial statements of PepsiCo using the historical results of operations and assets and liabilities of our 40 17 business. The Consolidated Financial Statements reflect certain costs that may not necessarily be indicative of the costs we would have incurred had we operated as an independent, stand-alone entity for all periods presented. These costs include an allocation of PepsiCo corporate overhead and interest expense, and income taxes. - We included corporate overhead related to PepsiCo's corporate administrative functions based on a specific identification of PepsiCo's administrative costs relating to the bottling operations and, to the extent that such identification was not practicable, based upon the percentage of our revenues to PepsiCo's consolidated net revenues. These costs are included in selling, delivery and administrative expenses in our Consolidated Statements of Operations. - We allocated $3.3 billion of PepsiCo debt to our business. We charged interest expense on this debt using PepsiCo's weighted-average interest rate. Once we issued $3.3 billion of third-party debt in the first quarter of 1999, our actual interest rates were used to determine interest expense for the remainder of the year. - We reflected income tax expense in our Consolidated Financial Statements as if we had actually filed a separate income tax return. The amounts, by year, of the historical allocations described above are as follows:
1999* 1998 1997 ----- ---- ---- Corporate overhead expense............................... $ 3 $ 40 $ 42 Interest expense......................................... $ 28 $210 $205 PepsiCo weighted-average interest rate................... 5.8% 6.4% 6.2% *Prior to our initial public offering.
In addition, our historical capital structure is not representative of our current structure due to our initial public offering. In 1999, immediately preceding the offering and in 1998 and 1997, we had 55,000,000 shares of common stock outstanding. In connection with the offering, we sold 100,000,000 shares to the public. NOTE 4 -- UNUSUAL IMPAIRMENT AND OTHER CHARGES AND CREDITS
1999 1998* ---- ----- Non-cash compensation charge............................ $ 45 $ -- Vacation policy change.................................. (53) -- Asset impairment and restructuring charges.............. (8) 222 ---- ---- $(16) $222 ==== ==== After minority interest and income taxes.................. $ (9) $218 ==== ====
*Does not include tax settlement with the Internal Revenue Service discussed on the next page. The 1999 unusual items comprise the following: - In connection with the completion of our initial public offering, PepsiCo vested substantially all non-vested PepsiCo stock options held by PBG employees. As a result, we incurred a $45 million non-cash compensation charge in the second quarter, equal to the difference between the market price of the PepsiCo capital stock and the exercise price of these options at the vesting date. - Employees will now earn vacation time evenly throughout the year based upon service rendered. Previously, employees were fully vested for the current year at the beginning of each year. As a result of this change, we have reversed an accrual of $53 million into income. - In the fourth quarter, $8 million of the remaining 1998 restructuring reserve was reversed into income, as actual costs incurred to renegotiate manufacturing and leasing contracts in Russia and to reduce the number of employees were less than the amounts originally estimated. The 1998 unusual items comprise the following: - A fourth-quarter charge of $212 million for asset impairment of $194 million and other charges of $18 million related to the restructuring of our Russian bottling operations. The economic turmoil in Russia, which accompanied the devaluation of the ruble in August 1998, had an 41 18 adverse impact on our operations. Consequently, in the fourth quarter we experienced a significant drop in demand, resulting in lower net revenues and increased operating losses. Additionally, since net revenues in Russia are denominated in rubles, whereas a substantial portion of costs and expenses at that time were denominated in U.S. dollars, our operating margins were further eroded. In response to these conditions, we reduced our cost structure primarily through closing four of our 26 distribution facilities, renegotiating manufacturing and leasing contracts and reducing the number of employees, primarily in sales and operations, from approximately 4,500 to 2,000. We also evaluated the resulting impairment of long-lived assets, triggered by the reduction in utilization of assets caused by the lower demand, the adverse change in the business climate and the expected continuation of operating losses and cash deficits in that market. The impairment charge reduced the net book value of these assets from $245 million to $51 million, their estimated fair market value based primarily on values paid for similar assets in Russia. A fourth-quarter charge of $10 million for employee-related and other costs, mainly relocation and severance, resulting from the separation of Pepsi-Cola North America's concentrate and bottling organizations. At year-end 1999, $3 million remained in accounts payable and other current liabilities relating to remaining lease termination costs on facilities and employee costs to be paid in 2000. - We recognized an income tax benefit of $46 million in the fourth quarter of 1998 upon the settlement of a disputed claim with the Internal Revenue Service relating to the deductibility of the amortization of acquired franchise rights. The settlement also resulted in the reduction of goodwill and income taxes payable by $194 million. NOTE 5 -- INVENTORIES
1999 1998 ---- ---- Raw materials and supplies........... $ 110 $ 120 Finished goods....................... 183 176 ----- ----- $ 293 $ 296 ===== =====
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT, NET
1999 1998 ------- ------- Land .............................. $ 145 $ 151 Buildings and improvements ........ 852 813 Production and distribution equipment ......................... 2,112 1,989 Marketing equipment ............... 1,596 1,368 Other ............................. 84 95 ------- ------- 4,789 4,416 Accumulated depreciation .......... (2,571) (2,361) ------- ------- $ 2,218 $ 2,055 ======= =======
We calculate depreciation on a straight-line basis over the estimated lives of the assets as follows: Building and improvements............................. 20-33 years Production equipment.................................. 10 years Distribution equipment................................ 5-8 years Marketing equipment................................... 3-7 years
NOTE 7 -- INTANGIBLE ASSETS, NET
1999 1998 ------- ------- Franchise rights and other identifiable intangibles $ 3,565 $ 3,460 Goodwill ........................................... 1,582 1,539 ------- ------- 5,147 4,999 Accumulated amortization ........................... (1,328) (1,193) ------- ------- $ 3,819 $ 3,806 ======= =======
Identifiable intangible assets arise principally from the allocation of the purchase price of businesses acquired, and consist primarily of territorial franchise rights. Our franchise rights are typically perpetual in duration, subject to compliance with the underlying franchise agreement. We assign amounts to such identifiable intangibles based on their estimated fair value at the date of acquisition. Goodwill represents the residual purchase price after allocation to all identifiable net assets. NOTE 8 -- ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
1999 1998 ---- ---- Accounts payable ............................... $334 $328 Accrued compensation and benefits .............. 147 174 Trade incentives ............................... 201 163 Accrued interest ............................... 69 -- Other current liabilities ...................... 173 239 ---- ---- $924 $904 ==== ====
42 19 NOTE 9 -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
1999 1998 ------ ------ Short-term borrowings Current maturities of long-term debt .............. $ 10 $ 48 Borrowings under lines of credit .................. 13 64 ------ ------ $ 23 $ 112 ====== ====== Long-term debt due to third parties 5 5/8% senior notes due 2009 ...................... $1,300 $ -- 5 3/8% senior notes due 2004 ...................... 1,000 -- 7% senior notes due 2029 .......................... 1,000 -- Other ............................................. 13 102 ------ ------ 3,313 102 Capital lease obligations ......................... 2 7 ------ ------ 3,315 109 Less: Unamortized discount ........................ 37 -- Current maturities of long-term debt ........ 10 48 ------ ------ $3,268 $ 61 ====== ====== Allocation of PepsiCo long-term debt ................. $ -- $3,300
====== ====== Maturities of long-term debt as of December 25, 1999 are: 2000 -- $9 million, 2001 -- $1 million, 2002 -- $0, 2003 -- $0, 2004 -- $1,000 million and thereafter, $2,303 million. The $1.3 billion of 5 5/8% senior notes and the $1.0 billion of 5 3/8% senior notes were issued on February 9, 1999, by our subsidiary Bottling Group, LLC and are guaranteed by PepsiCo. We issued the $1.0 billion of 7% senior notes, which are guaranteed by Bottling Group, LLC, on March 8, 1999. During the second quarter we executed an interest rate swap converting 3% of our fixed-rate debt to floating-rate debt. We allocated $3.3 billion of PepsiCo long-term debt in our financial statements prior to issuing the senior notes referred to above. Our interest expense includes the related allocated interest expense of $28 million in 1999, $210 million in 1998 and $205 million in 1997, and is based on PepsiCo's weighted-average interest rate of 5.8%, 6.4% and 6.2% in 1999, 1998 and 1997, respectively. In April 1999, we entered into a $500 million commercial paper program that is supported by a credit facility. The credit facility consists of two $250 million components, one of which is one year in duration and the other of which is five years in duration. There were no borrowings outstanding under this program at December 25, 1999. We have available short-term bank credit lines of approximately $121 million and $95 million at December 25, 1999 and December 26, 1998, respectively. These lines are denominated in various foreign currencies to support general operating needs in their respective countries. The weighted-average interest rate of these lines of credit outstanding at December 25, 1999, December 26, 1998 and December 27, 1997 was 12.0%, 8.7% and 8.6%, respectively. Amounts paid to third parties for interest were $108 million, $20 million and $21 million in 1999, 1998 and 1997, respectively. In 1998 and 1997, allocated interest expense was deemed to have been paid to PepsiCo, in cash, in the period in which the cost was incurred. NOTE 10 -- LEASES We have noncancellable commitments under both capital and long-term operating leases. Capital and operating lease commitments expire at various dates through 2023. Most leases require payment of related executory costs, which include property taxes, maintenance and insurance. Our future minimum commitments under noncancellable leases are set forth below:
COMMITMENTS -------------------- CAPITAL OPERATING ------- --------- 2000................................................. $ 1 $ 33 2001................................................. -- 29 2002................................................. -- 25 2003................................................. -- 14 2004................................................. -- 12 Later years.......................................... 3 58 ---- ---- $ 4 $171 ==== ====
At December 25, 1999, the present value of minimum payments under capital leases was $2 million, after deducting $2 million for imputed interest. Our rental expense was $55 million, $45 million and $35 million for 1999, 1998 and 1997, respectively. 43 20 NOTE 11 -- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT As of December 25, 1999, our use of derivative instruments was limited to interest rate swaps entered into with financial institutions, and commodity futures and options contracts traded on national exchanges. Our corporate policy prohibits the use of derivative instruments for trading purposes, and we have procedures in place to monitor and control their use. FAIR VALUE Financial assets with carrying values approximating fair value include cash and cash equivalents and trade accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other accrued liabilities and short-term debt. The carrying value of these financial assets and liabilities approximates fair value due to the short maturity of our financial assets and liabilities, and since interest rates approximate fair value for short-term debt. Long-term debt at December 25, 1999 has a carrying value and fair value of $3.3 billion and $3.0 billion, respectively. COMMODITY PRICES We use futures contracts and options on futures in the normal course of business to hedge anticipated purchases of certain raw materials used in our manufacturing operations. Deferred gains and losses at year-end 1999 and 1998, as well as gains and losses recognized as part of the cost of sales in 1999, 1998 and 1997, were not significant. At year-end 1999 and 1998, we had commodity contracts involving notional amounts of $152 million and $71 million outstanding, respectively. These notional amounts do not represent amounts exchanged by the parties and thus are not a measure of our exposure; rather, they are used as the basis to calculate the amounts due under the agreements. INTEREST RATE RISK Prior to the initial public offering, we had minimal external interest rate risk to manage. Subsequent to the offering, as interest rate risk has grown, we have begun to manage interest rate exposure through the use of an interest rate swap, which converted 3% of our fixed-rate debt to floating-rate debt. Credit risk from the swap agreement is dependent both on the movement in interest rates and the possibility of non-payment by the swap counterparty. We mitigate credit risk by only entering into swap agreements with high credit-quality counterparties and by netting swap payments within each contract.
AT DECEMBER 25, 1999 -------------------------------- NOTIONAL CARRYING FAIR AMOUNT AMOUNT VALUE -------- -------- ----- Raw material futures contracts ......... $ 91 $ -- $ 6 Raw material options ................... 61 1 12 Interest rate swap ..................... 100 -- (2)
NOTE 12 -- PENSION AND POSTRETIREMENT BENEFIT PLANS PENSION BENEFITS Prior to the initial public offering, our U.S. employees participated in PepsiCo sponsored noncontributory defined benefit pension plans, which covered substantially all full-time salaried employees, as well as most hourly employees. In conjunction with the offering, we assumed the sponsorship of the PepsiCo plan covering most hourly employees and established a plan for the salaried employees mirroring the PepsiCo-sponsored plan. In 2000, the related pension assets will be transferred from the PepsiCo trust to a separate trust for our pension plans. Benefits generally are based on years of service and compensation, or stated amounts for each year of service. All of our qualified plans are funded and contributions are made in amounts not less than minimum statutory funding requirements nor more than the maximum amount that can be deducted for U.S. income tax purposes. Our net pension expense for the defined benefit pension plans for our operations outside the U.S. was not significant. POSTRETIREMENT BENEFITS PepsiCo has historically provided postretirement health care benefits to eligible retired employees and their dependents, principally in the United States. Employees are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. The plans are not funded and since 1993 have included retiree cost sharing. With our initial public offering, we have assumed the related obligations from PepsiCo for our employees, as we are providing benefits similar to those previously provided by PepsiCo. 44 21
PENSION -------------------------- Components of net periodic benefit costs 1999 1998 1997 ---- ---- ---- Service cost .................................. $ 30 $ 24 $ 22 Interest cost ................................. 42 37 35 Expected return on plan assets ................ (49) (45) (41) Amortization of transition asset .............. -- (2) (4) Amortization of net loss ...................... 4 -- -- Amortization of prior service amendments ...... 5 4 4 ---- ---- ---- Net periodic benefit cost ..................... 32 18 16 Settlement loss ............................... -- 1 -- ---- ---- ---- Net periodic benefit cost including settlements $ 32 $ 19 $ 16 ==== ==== ====
POSTRETIREMENT -------------------------- Components of net periodic benefit costs: 1999 1998 1997 ---- ---- ---- Service cost .................................. $ 4 $ 4 $ 3 Interest cost ................................. 12 12 15 Expected return on plan assets ................ -- -- -- Amortization of transition asset .............. -- -- -- Amortization of net loss ...................... -- -- -- Amortization of prior service amendments ...... (5) (5) (5) ---- ---- ---- Net periodic benefit cost ..................... 11 11 13 Settlement loss ............................... -- -- -- ---- ---- ---- Net periodic benefit cost including settlements $ 11 $ 11 $ 13 ==== ==== ====
We amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits.
PENSION POSTRETIREMENT ----------------- ----------------- Changes in the benefit obligation: 1999 1998 1999 1998 ----- ----- ----- ----- Obligation at beginning of year $ 648 $ 545 $ 187 $ 164 Service cost ................... 30 24 4 4 Interest cost .................. 42 37 12 12 Plan amendments ................ 3 5 -- -- Actuarial (gain)/loss .......... (57) 78 14 19 Benefit payments ............... (38) (36) (11) (12) Acquisitions and other ......... 19 -- -- -- Settlement gain ................ -- (5) -- -- ----- ----- ----- ----- Obligation at end of year ...... $ 647 $ 648 $ 206 $ 187 ===== ===== ===== =====
PENSION POSTRETIREMENT ---------------- --------------- Changes in the fair value of assets: 1999 1998 1999 1998 ----- ----- ---- ---- Fair value at beginning of year ... $ 541 $ 602 $ -- $ -- Actual return on plan assets ...... 85 (26) -- -- Employer contributions ............ -- 5 11 12 Benefit payments .................. (38) (36) (11) (12) Acquisitions and other ............ 9 -- -- -- Settlement gain ................... -- (4) -- -- ----- ----- ---- ---- Fair value at end of year ......... $ 597 $ 541 $ -- $ -- ===== ===== ==== ====
Selected information for the plans with accumulated benefit obligations in excess of plan assets:
PENSION POSTRETIREMENT ----------------- ----------------- 1999 1998 1999 1998 ----- ---- ---- ----- Projected benefit obligation ............ $ (32) $(648) $(206) $(187) Accumulated benefit obligation .......... (12) (575) (206) (187) Fair value of plan assets ............... -- 541 -- --
Funded status recognized on the Consolidated Balance Sheets:
PENSION POSTRETIREMENT ----------------- ----------------- 1999 1998 1999 1998 ----- ----- ----- ----- Funded status at end of year ............ $ (50) $(107) $(206) $(187) Unrecognized prior service cost ......... 33 34 (17) (22) Unrecognized (gain)/loss ................ (14) 84 35 20 Unrecognized transition asset ........... -- (1) -- -- Unrecognized special termination benefits (2) (2) -- -- Employer contributions .................. -- -- 3 -- ----- ----- ----- ----- Net amounts recognized .................. $ (33) $ 8 $(185) $(189) ===== ===== ===== =====
45 22 The weighed-average assumptions used to compute the above information are set forth below:
PENSION ---------------------------- 1999 1998 1997 ---- ---- ---- Discount rate for benefit obligation ....... 7.8% 6.8% 7.2% Expected return on plan assets ............. 10.0 10.0 10.0 Rate of compensation increase .............. 4.3 4.8 4.8
POSTRETIREMENT ---------------------------- 1999 1998 1997 ---- ---- ---- Discount rate for benefit obligation ....... 7.8% 6.9% 7.4%
COMPONENTS OF PENSION ASSETS The pension plan assets are principally invested in stocks and bonds. HEALTH CARE COST TREND RATES We have assumed an average increase of 6.0% in 2000 in the cost of postretirement medical benefits for employees who retired before cost sharing was introduced. This average increase is then projected to decline gradually to 5.5% in 2005 and thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical plans. A one-percentage point change in assumed health care costs would have the following effects:
1% 1% INCREASE DECREASE -------- -------- Effect on total fiscal year 1999 service and interest cost components.............. $ 1 $(1) Effect on the fiscal year 1999 accumulated postretirement benefit obligation....... 6 (6)
OTHER EMPLOYEE BENEFIT PLANS In the fourth quarter of 1999, we contributed $16 million to a defined contribution plan as a one-time payment for the benefit of management employees. The amount was based on full-year 1999 performance and included other incentive-related features. Our Board of Directors has also approved a matching company contribution to our 401(k) plan to begin in 2000. The match will be made in PBG stock and the amount will depend upon the employee's contribution and years of service. We anticipate that the matching company contribution will cost approximately $12 million in fiscal year 2000. NOTE 13 -- EMPLOYEE STOCK OPTION PLANS In connection with the completion of our initial public offering, PepsiCo vested substantially all non-vested PepsiCo stock options held by PBG employees. As a result, we incurred a $45 million non-cash compensation charge in the second quarter, equal to the difference between the market price of the PepsiCo capital stock and the exercise price of these options at the vesting date. Also at the time of our initial public offering, we issued a one-time founders' grant of options to all full-time non-management employees to purchase 100 shares of PBG stock. These options have an exercise price equal to the initial public offering price of $23 per share, are exercisable after three years, and expire in 10 years. At December 25, 1999, approximately 3 million options were outstanding. In addition, we have adopted a long-term incentive stock option plan for middle and senior management employees. We issued an option grant to middle and senior management employees that varied according to salary and level within PBG. These options' exercise prices range from $19.25 per share to $23 per share and, with the exception of our chairman's options, are exercisable after three years and expire in 10 years. Our chairman's options are exercisable ratably over the three years following our initial public offering date. At December 25, 1999, approximately 8.2 million options were outstanding. 46 23 The following table summarizes option activity during 1999:
1999 ---------------------- WEIGHTED- AVERAGE (OPTIONS IN MILLIONS) EXERCISE OPTIONS PRICE ------- --------- Outstanding at beginning of year ............................. -- $ -- Granted ................................................... 12.1 22.98 Exercised ................................................. -- -- Forfeited ................................................. (0.9) 23.33 ------ ------ Outstanding at end of year ................................... 11.2 $22.98 ====== ====== Exercisable at end of year ................................... -- $ -- ====== ====== Weighted-average fair value of options granted during the year $10.29 ======
We adopted the disclosure provisions of Statement of Financial Accounting Standard 123, "Accounting for Stock-Based Compensation," but continue to measure stock-based compensation cost in accordance with the Accounting Principles Board Opinion 25 and its related interpretations. If we had measured compensation cost for the stock options granted to our employees in 1999 under the fair value based method prescribed by SFAS 123, net income would have been changed to the pro forma amounts set forth below:
1999 ---- Net Income Reported.......................................................... $ 118 Pro forma......................................................... 102
The fair value of PBG stock options used to compute pro forma net income disclosures was estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted-average assumptions:
1999 ------- Risk-free interest rate.............................................. 5.8% Expected life........................................................ 7 years Expected volatility.................................................. 30% Expected dividend yield.............................................. 0.09%
NOTE 14 -- INCOME TAXES The details of our income tax provision are set forth below:
1999 1998 1997 ---- ---- ---- Current: Federal ............... $ 79 $(84) $ 31 Foreign ............... (1) 4 3 State ................. 19 (13) 5 ---- ---- ---- 97 (93) 39 ---- ---- ---- Deferred: Federal ............. (17) 45 17 Foreign ............. -- (5) (2) State ............... (10) 7 2 ---- ---- ---- (27) 47 17 ---- ---- ---- $ 70 $(46) $ 56 ==== ==== ====
Our U.S. and foreign income (loss) before income taxes is set forth below:
1999 1998 1997 ---- ---- ---- U.S. ..................... $ 188 $ 116 $ 177 Foreign .................. -- (308) (62) ---- ---- ---- $ 188 $(192) $ 115 ==== ==== ====
Our reconciliation of income taxes calculated at the U.S. federal statutory rate to our provision for income taxes is set forth below:
1999 1998 1997 ---- ----- ---- Income taxes computed at the U.S. federal statutory rate 35.0% (35.0)% 35.0% State income tax, net of federal tax benefit ........... 3.2 -- 4.4 Impact of foreign results .............................. (9.1) (12.2) (9.5) U.S. goodwill and other nondeductible expenses ......... 7.8 7.5 14.8 U.S. franchise rights tax settlement ................... -- (24.0) -- Unusual impairment and other charges and credits ....... (0.6) 38.7 -- Other, net ............................................. 1.1 1.0 4.0 ---- ----- ---- Total effective income tax rate ........................ 37.4% (24.0)% 48.7% ==== ===== ====
47 24 The details of our 1999 and 1998 deferred tax liabilities (assets) are set forth below:
1999 1998 ------- ------- Intangible assets and property, plant and equipment ............ $ 1,231 $ 1,252 Other .......................................................... 90 112 ------- ------- Gross deferred tax liabilities ................................. 1,321 1,364 ------- ------- Foreign net operating loss carryforwards ....................... (132) (123) Employee benefit obligations ................................... (77) (85) Bad debts ...................................................... (21) (20) Various liabilities and other .................................. (157) (164) ------- ------- Gross deferred tax assets ...................................... (387) (392) Deferred tax asset valuation allowance ......................... 147 135 ------- ------- Net deferred tax assets ........................................ (240) (257) ------- ------- Net deferred tax liability ..................................... $ 1,081 $ 1,107 ======= ======= Included in: Prepaid expenses, deferred income taxes and other current assets $ (97) $ (95) Deferred income taxes .......................................... 1,178 1,202 ------- ------- $ 1,081 $ 1,107 ======= =======
We have net operating loss carryforwards totaling $465 million at December 25, 1999, which are available to reduce future taxes in Spain, Greece and Russia. Of these carryforwards, $37 million expire in 2000 and $428 million expire at various times between 2001 and 2006. We have established a full valuation allowance for these net operating loss carryforwards based upon our projection that these losses will expire before they can be used. Our valuation allowances, which reduce deferred tax assets to an amount that will more likely than not be realized, have increased by $12 million and $55 million in 1999 and 1998, respectively. Amounts paid to taxing authorities for income taxes were $111 million in 1999. In 1998 and 1997 our allocable share of income taxes was deemed to have been paid to PepsiCo, in cash, in the period in which the cost was incurred. NOTE 15 -- GEOGRAPHIC DATA We operate in one industry, carbonated soft drinks and other ready-to-drink beverages. We do business in 41 states and the District of Columbia in the U.S. Outside the U.S., we do business in eight Canadian provinces, Spain, Greece and Russia.
NET REVENUES ------------------------------------ 1999 1998 1997 ------ ------ ------ U.S. .............................. $6,352 $5,886 $5,584 Other countries ................... 1,153 1,155 1,008 ------ ------ ------ $7,505 $7,041 $6,592 ====== ====== ======
LONG-LIVED ASSETS ------------------------------------ 1999 1998 1997 ------ ------ ------ U.S. .............................. $5,139 $5,024 $4,918 Other countries ................... 987 980 934 ------ ------ ------ $6,126 $6,004 $5,852 ====== ====== ======
We have included in other assets on the Consolidated Balance Sheets $2 million, $1 million and $64 million of investments in joint ventures at December 25, 1999, December 26, 1998 and December 27, 1997, respectively. Our equity loss in such joint ventures was $0 million, $5 million and $12 million in 1999, 1998 and 1997, respectively, which is included in selling, delivery and administrative expenses. NOTE 16 -- RELATIONSHIP WITH PEPSICO At the time of the initial public offering we entered into a number of agreements with PepsiCo. The most significant agreements that govern our relationship with PepsiCo consist of: (1) the master bottling agreement for cola beverages bearing the "Pepsi-Cola" and "Pepsi" trademark, including Pepsi, Diet Pepsi and Pepsi ONE in the United States; bottling and distribution agreements for non-cola products in the United States, including Mountain Dew; and a master fountain syrup agreement in the United States; 48 25 (2) agreements similar to the master bottling agreement and the non-cola agreements for each specific country, including Canada, Spain, Greece and Russia, as well as a fountain syrup agreement similar to the master syrup agreement for Canada; (3) a shared services agreement whereby PepsiCo provides us with certain administrative support, including procurement of raw materials, transaction processing, such as accounts payable and credit and collection, certain tax and treasury services, and information technology maintenance and systems development. Beginning in 1998, a PepsiCo affiliate has provided casualty insurance to us; and (4) transition agreements that provide certain indemnities to the parties, and provide for the allocation of tax and other assets, liabilities and obligations arising from periods prior to the initial public offering. Under our tax separation agreement, PepsiCo maintains full control and absolute discretion for any combined or consolidated tax filings for tax periods ending on or before the initial public offering. PepsiCo has contractually agreed to act in good faith with respect to all tax audit matters affecting us. In addition, PepsiCo has agreed to use their best efforts to settle all joint interests in any common audit issue on a basis consistent with prior practice. We purchase concentrate from PepsiCo that is used in the production of carbonated soft drinks and other ready-to-drink beverages. We also produce or distribute other products and purchase finished goods and concentrate through various arrangements with PepsiCo or PepsiCo joint ventures. We reflect such purchases in cost of sales. We share a business objective with PepsiCo of increasing the availability and consumption of Pepsi-Cola beverages. Accordingly, PepsiCo provides us with various forms of marketing support to promote its beverages. This support covers a variety of initiatives, including marketplace support, marketing programs, capital equipment investment and shared media expense. Based on the objective of the programs and initiatives, we record marketing support as an adjustment to net revenues or as a reduction of selling, delivery and administrative expense. We manufacture and distribute fountain products and provide fountain equipment service to PepsiCo customers in some territories in accordance with the Pepsi beverage agreements. We pay a royalty fee to PepsiCo for the AQUAFINA trademark. The Consolidated Statements of Operations include the following income (expense) amounts as a result of transactions with PepsiCo and its affiliates:
1999 1998 1997 ------- ------- ------- Net revenues .................................. $ 236 $ 228 $ 216 Cost of sales ................................. (1,488) (1,396) (1,235) Selling, delivery and administrative expenses . 285 260 254
We are not required to make any minimum fees or payments to PepsiCo, nor are we obligated to PepsiCo under any minimum purchase requirements. There are no conditions or requirements that could result in the repayment of any marketing support payments received by us from PepsiCo. Net amounts receivable from PepsiCo and its affiliates were $5 million and net amounts payable to PepsiCo and its affiliates were $23 million at December 25, 1999 and December 26, 1998, respectively. Such amounts are recorded within accounts payable and other current liabilities in our Consolidate Balance Sheets. NOTE 17 -- CONTINGENCIES We are subject to various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. We believe that the ultimate liability arising from such claims or contingencies, if any, in excess of amounts already recognized is not likely to have a material adverse effect on our results of operations, financial condition or liquidity. 49 26 NOTE 18 -- ACQUISITIONS During 1999 and 1998, we acquired the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages from several independent PepsiCo franchise bottlers. These acquisitions were accounted for by the purchase method. During 1999, the following acquisitions occurred for an aggregate purchase price of $185 million in cash and assumed debt: - - Jeff Bottling Company, Inc. of New York in January. - - Pepsi-Cola General Bottlers of Princeton, Inc. and Pepsi-Cola General Bottlers of Virginia, Inc. of West Virginia and Virginia in March. - - Pepsi-Cola General Bottlers of St. Petersburg, Russia in March. - - Leader Beverage Corporation of Connecticut in April. - - Guillemette & Frere, Ltee. of Quebec, Canada in September. - - The Pepsi-Cola Bottling Company of Bainbridge, Inc. of Georgia in December. During 1998, the following acquisitions occurred for an aggregate cash purchase price of $546 million: - - The remaining 75% interest in our Russian bottling joint venture, Pepsi International Bottlers, LLC in February. - - Gray Beverages, Inc. of Alberta and British Columbia, Canada in May. - - Pepsi-Cola Allied Bottlers, Inc. of New York and Connecticut in November. The 1999 and 1998 aggregate purchase price exceeded the fair value of net assets acquired, including the resulting tax effect, by approximately $174 million and $474 million, respectively. The excess was recorded in intangible assets. The following table presents the unaudited pro forma consolidated results of PBG and the acquisitions noted above as if they had occurred at the beginning of the year in which they were acquired. The pro forma information does not necessarily represent what the actual results would have been for these periods and is not intended to be indicative of future results.
Unaudited ---------------- 1999 1998 ------ ------- Pro forma net revenues ..................................... $7,522 $ 7,248 ====== ======= Pro forma net income (loss) ................................ 117 (135) ====== ======= Pro forma earnings (loss) per share (155 million shares) ... 0.76 (0.87) ====== =======
NOTE 19 -- COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
(shares in thousands) 1999 1998 1997 -------- -------- -------- Number of shares on which basic earnings (loss) per share is based: Average outstanding during period ............... 128,426 55,000 55,000 Add - Incremental shares under stock compensation plans ............................ -- -- -- -------- -------- -------- Number of shares on which diluted earnings (loss) per share is based .............. 128,426 55,000 55,000 Basic and diluted net earnings (loss) applicable to common shareholders ............................ $ 118 $ (146) $ 59 Basic and diluted earnings (loss) per share ....... $ 0.92 $(2.65) $ 1.07
We issued a one-time founders' grant of options in connection with our initial public offering to all non-management employees to purchase 100 shares of PBG common stock. We also issued options during the second quarter to all management employees as part of our long-term incentive plan. In October, our Board of Directors authorized the repurchase of up to 10 million shares of our common stock. As of December 25, 1999, we made net repurchases of approximately 5.3 million shares. 50 27 NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH 1999 QUARTER QUARTER QUARTER QUARTER FULL YEAR - ---- ------- ------- ------- ------- --------- Net revenues .... $ 1,452 $ 1,831 $ 2,036 $ 2,186 $ 7,505 Gross profit .... 617 785 874 933 3,209 Operating income 42 92(1) 205 73(2) 412 Net income (loss) (3) 20 92 9 118
FIRST SECOND THIRD FOURTH 1998 QUARTER QUARTER QUARTER QUARTER FULL YEAR - ---- ------- ------- ------- ------- --------- Net revenues .......... $ 1,340 $ 1,686 $ 1,963 $ 2,052 $ 7,041 Gross profit .......... 563 696 794 807 2,860 Operating income (loss) 39 103 156 (243)(3) 55 Net income (loss) ..... (6) 22 45 (207)(4) (146)
(1) Includes a $45 million non-cash compensation charge ($29 million after tax). (2) Includes $61 million of income for vacation policy changes and restructuring accrual reversal ($38 million after tax). (3) Includes $222 million for asset impairment and restructuring costs ($218 million after tax). (4) Includes a $46 million tax benefit as a result of reaching final agreement to settle a disputed claim with the Internal Revenue Service. The first, second and third quarters of each year consist of 12 weeks, while the fourth quarter consists of 16 weeks. See Note 4 of the Consolidated Financial Statements for further information regarding unusual impairment and other charges and credits included in the table above. 51 28 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS To Our Shareholders: We are responsible for the preparation, integrity and fair presentation of the Consolidated Financial Statements, related notes and other information included in this annual report. The Consolidated Financial Statements were prepared in accordance with generally accepted accounting principles and include certain amounts based upon our estimates and assumptions, as required. Other financial information presented in the annual report is derived from the Consolidated Financial Statements. We maintain a system of internal control over financial reporting, designed to provide reasonable assurance as to the reliability of the Consolidated Financial Statements, as well as to safeguard assets from unauthorized use or disposition. The system is supported by formal policies and procedures, including an active Code of Conduct program intended to ensure employees adhere to the highest standards of personal and professional integrity. Our internal audit function monitors and reports on the adequacy of and compliance with the internal control system, and appropriate actions are taken to address significant control deficiencies and other opportunities for improving the system as they are identified. The Consolidated Financial Statements have been audited and reported on by our independent auditors, KPMG LLP, who were given free access to all financial records and related data, including minutes of the meetings of the Board of Directors and Committees of the Board. We believe that management representations made to the independent auditors were valid and appropriate. The Audit Committee of the Board of Directors, which is composed solely of outside directors, provides oversight to our financial reporting process and our controls to safeguard assets through periodic meetings with our independent auditors, internal auditors and management. Both our independent auditors and internal auditors have free access to the Audit Committee. Although no cost-effective internal control system will preclude all errors and irregularities, we believe our controls as of December 25, 1999 provide reasonable assurance that our assets are safeguarded. John T. Cahill Peter A. Bridgman Executive Vice President Senior Vice President and Chief Financial Officer and Controller 52 29 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders The Pepsi Bottling Group, Inc. We have audited the accompanying Consolidated Balance Sheets of The Pepsi Bottling Group, Inc. as of December 25, 1999 and December 26, 1998 and the related Consolidated Statements of Operations, Cash Flows and Changes in Shareholders' Equity for each of the fiscal years in the three-year period ended December 25, 1999. These Consolidated Financial Statements are the responsibility of management of The Pepsi Bottling Group, Inc. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the financial position of The Pepsi Bottling Group, Inc. as of December 25, 1999 and December 26, 1998, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended December 25, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP New York, New York January 25, 2000 53 30 SELECTED FINANCIAL AND OPERATING DATA (in millions, except per share data)
FISCAL YEARS ENDED 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Net Revenues ........................................ $ 7,505 $ 7,041 $ 6,592 $ 6,603 $ 6,393 Cost of sales ....................................... 4,296 4,181 3,832 3,844 3,771 ------- ------- ------- ------- ------- Gross profit ........................................ 3,209 2,860 2,760 2,759 2,622 Selling, delivery and administrative expenses ....... 2,813 2,583 2,425 2,392 2,273 Unusual impairment and other charges and credits (1) (16) 222 -- -- -- ------- ------- ------- ------- ------- Operating income .................................... 412 55 335 367 349 Interest expense, net ............................... 202 221 222 225 239 Foreign currency loss (gain) ........................ 1 26 (2) 4 -- Minority interest ................................... 21 -- -- -- -- ------- ------- ------- ------- ------- Income (loss) before income taxes ................... 188 (192) 115 138 110 Income tax expense (benefit) (2) .................... 70 (46) 56 89 71 ------- ------- ------- ------- ------- Net income (loss) ................................... $ 118 $ (146) $ 59 $ 49 $ 39 ======= ======= ======= ======= ======= PER SHARE DATA: Basic and diluted earnings (loss) per share ......... $ 0.92 $ (2.65) $ 1.07 $ 0.89 $ 0.71 Cash dividend per share ............................. $ 0.06 -- -- -- -- Weighted-average basic and diluted shares outstanding 128 55 55 55 55 OTHER FINANCIAL DATA: EBITDA (3) .......................................... $ 901 $ 721 $ 774 $ 792 $ 767 Cash provided by operations ......................... 718 625 548 451 431 Capital expenditures ................................ (560) (507) (472) (418) (358) BALANCE SHEET DATA (AT PERIOD END): Total assets ........................................ $ 7,619 $ 7,322 $ 7,188 $ 7,052 $ 7,082 Long-term debt: Allocation of PepsiCo long-term debt ............. -- 3,300 3,300 3,300 3,300 Due to third parties ............................. 3,268 61 96 127 131 ------- ------- ------- ------- ------- Total long-term debt ........................... 3,268 3,361 3,396 3,427 3,431 Minority interest ................................... 278 -- -- -- -- Advances from PepsiCo ............................... -- 1,605 1,403 1,162 1,251 Accumulated other comprehensive loss ................ (223) (238) (184) (102) (66) Shareholders' equity (deficit) ...................... 1,563 (238) (184) (102) (66)
(1) Unusual impairment and other charges and credits is comprised of the following: - - $45 million non-cash compensation charge in the second quarter of 1999. - - $53 million vacation accrual reversal in the fourth quarter of 1999. - - $8 million restructuring reserve reversal in the fourth quarter of 1999. - - $222 million charge related to the restructuring of our Russian bottling operations and the separation of Pepsi-Cola North America's concentrate and bottling organizations in the fourth quarter of 1998. (2) 1998 includes a $46 million income tax benefit in the fourth quarter for the settlement of a disputed claim with the Internal Revenue Service relating to the deductibility of the amortization of acquired franchise rights. (3) Excludes the non-cash component of unusual impairment and other charges and credits. 54 EX-21 10 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 Subsidiaries of The Pepsi Bottling Group, Inc.
Jurisdiction of Name of Subsidiary Incorporation - ------------------ ---------------- AJN Holdings, Inc. Delaware Alistar Beverages Corporation Washington Allied Acquisition Company of Delaware, Inc. Delaware Arrobi, S.L. Spain Atlantic Holding Company California Atlantic Soft Drink Company, Inc. South Carolina Beverage Products Corporation Oklahoma Bottling Group Holdings, Inc. Delaware Bottling Group, LLC Delaware C & I Leasing, Inc. Maryland Canada Bottling Group Holdings ULC Nova Scotia Catalana de Bebidas Carbonicas, S.A. Spain Centran, Inc. Pennsylvania Centro-Mediterranea de Bebidas Carbonicas PepsiCo S.A. Spain Compania de Bebidas PepsiCo, S.A. Spain CSD Sawgrass, Inc. Florida Desormeau Vending Corp. New York Dornfell Ireland GB Russia, LLC Delaware General Cinema Beverages of North Florida, Inc. Delaware General Cinema Beverages of Virginia, Inc. Delaware
2 General Cinema Beverages of Washington, D.C., Inc. Delaware Graves Beverages, Inc. Delaware Gray Bern Holdings, Inc. Delaware Grayhawk Leasing Company Delaware Hillwood Bottling, LLC Delaware International Bottlers Employment Co. LLC Delaware International Bottlers LLC Delaware International Bottlers Management Co. LLC Delaware KAS, S.L. Spain Neva Holdings, LLC Delaware New Bern Transport Corporation Delaware PBG Canada Finance, LLC Delaware PBG Canada Global Holdings ULC Nova Scotia PBG Canada Holdings, Inc. Delaware PBG Commerce, Inc. Delaware PBG Spirituosen Holdings, LLC Delaware PepsiCo IVI S.A. Greece PepsiCo Holdings OOO Russia PepsiCo Ventas Andalucia, S.A. Spain Pepsi-Cola Allied Bottlers, Inc. Delaware Pepsi-Cola Bottling Finance B.V. Netherlands Pepsi-Cola Bottling Global B.V. Netherlands Pepsi-Cola Commodities, Inc. Delaware Pepsi-Cola de Espana, S.L. Spain
2 3 Pepsi-Cola General Bottlers of Princeton, Inc. West Virginia Pepsi-Cola General Bottlers of Virginia, Inc. Virginia Pepsi-Cola Laurel Bottling Company Pennsylvania Pepsi-Cola Russia Beteiligungs Gmbh Germany Pepsi-Cola Soft Drink Factory of Sochi Russia Pepsi International Bottlers LLC Delaware Pepsi International Bottlers (Novosibirsk) Russia Pepsi International Bottlers (Ekaterinburg) Russia Pepsi International Bottlers (Samara) Russia Pet-Iberia, S.A. Spain Rice Bottling Enterprises, Inc. Tennessee Seven-Up Espana S.A. Spain Spirituosen e Compania Comercio E Distribucas de Bebidas Portugal Spirituosen, S.A. Spain TGCC, Inc. Delaware The Pepsi Bottling Group (Canada), Co. Canada The Pepsi Bottling Group NRO Ltd. Canada White Co., Inc. Delaware
3 EX-24 11 POWER OF ATTORNEY 1 Exhibit 24 POWER OF ATTORNEY The Pepsi Bottling Group, Inc. ("PBG") and each of the undersigned officers or directors of PBG do hereby appoint Pamela C. McGuire and Steven M. Rapp, as true and lawful attorneys-in-fact to execute and file on behalf of PBG and the undersigned, any amendment or supplement to PBG's Annual Report on Form 10-K for the fiscal year ended December 25, 1999, with the Securities and Exchange Commission, any stock exchange or any governmental official or agency, with all exhibits thereto and other documents in connection therewith, and each of such attorneys-in-fact shall have the power to act hereunder with or without the other. IN WITNESS WHEREOF, the undersigned has executed this instrument as of March 3, 2000. The Pepsi Bottling Group, Inc. By: /s/ Pamela C. McGuire Pamela C. McGuire Senior Vice President, General Counsel and Secretary /s/ Craig E. Weatherup/s/ Thomas W. Jones Craig E. Weatherup Thomas W. Jones Chairman and Chief Executive Officer Director /s/ Peter A. Bridgman /s/Thomas H. Kean Peter A. Bridgman Thomas H. Kean Senior Vice President and Controller Director (Chief Accounting Officer) /s/ John T. Cahill /s/ Susan D. Kronick John T. Cahill Susan D. Kronick Executive Vice President, Chief Director Financial Officer and Director /s/ Linda G. Alvarado__ /s/ Robert F. Sharpe, Jr. Linda G. Alvarado Robert F. Sharpe, Jr. Director Director /s/ Barry H. Beracha /s/ Karl M. von der Heyden Barry H. Beracha Karl M. von der Heyden Director Director EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PEPSI BOTTLING GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001076405 THE PEPSI BOTTLING GROUP, INC. 1,000,000 YEAR DEC-25-1999 DEC-25-1999 190 0 875 48 293 1,493 4,789 2,571 7,619 947 3,268 0 0 2 1,561 7,619 7,505 7,505 4,296 4,296 0 6 202 188 70 118 0 0 0 118 .92 .92
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