-----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, O4Drl1homFjhjFnrubDrm7M2PIfsP3XdfuJ7XfakkDy/X8okU0JLSDWk46ADPVcO R3pd+vM8TFzZkbZwhaJYCg== 0001076405-04-000074.txt : 20040721 0001076405-04-000074.hdr.sgml : 20040721 20040721150119 ACCESSION NUMBER: 0001076405-04-000074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040612 FILED AS OF DATE: 20040721 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14893 FILM NUMBER: 04924234 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-Q 1 pbg2q10q2004.txt PEPSI BOTTLING GROUP (2ND QTR 10-Q 2004) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the quarterly period ended June 12, 2004 ------------- OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number 1-14893 ------- THE PEPSI BOTTLING GROUP, INC. ------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-4038356 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. employer incorporation or organization) Identification No.) One Pepsi Way, Somers, New York 10589 - ------------------------------------ ------------------ (Address of principal executive offices) (Zip Code) 914-767-6000 ------------ (Registrant's telephone number, including area code) N/A ----- (Former name, former address and former fiscal year, if changed since last report.) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --- --- Number of shares of Common Stock outstanding as of July 10, 2004: 254,345,509 The Pepsi Bottling Group, Inc. ------------------------------ Index
Page No. -------- Part I Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations - 12 and 24 weeks ended June 12, 2004 and June 14, 2003 2 Condensed Consolidated Statements of Cash Flows - 24 weeks ended June 12, 2004 and June 14, 2003 3 Condensed Consolidated Balance Sheets - June 12, 2004 and December 27, 2003 4 Notes to Condensed Consolidated Financial Statements 5-11 Report of Independent Registered Public Accounting Firm 12 Item 2. Management's Financial Review 13-19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Item 4. Controls and Procedures 20 Part II Other Information Item 1. Legal Proceedings 21 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 21-22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23
PART I - FINANCIAL INFORMATION Item 1. The Pepsi Bottling Group, Inc. Condensed Consolidated Statements of Operations in millions, except per share amounts, unaudited
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 ------ ------ ------ ------ Net revenues............................................................... $2,675 $2,532 $4,742 $4,406 Cost of sales.............................................................. 1,378 1,290 2,429 2,217 ------ ------ ------ ------ Gross profit............................................................... 1,297 1,242 2,313 2,189 Selling, delivery and administrative expenses.............................. 1,011 971 1,890 1,798 ------ ------ ------ ------ Operating income........................................................... 286 271 423 391 Interest expense, net...................................................... 53 57 108 110 Other non-operating expenses, net.......................................... 2 - 2 3 Minority interest.......................................................... 15 15 21 20 ------ ------ ------ ------ Income before income taxes................................................. 216 199 292 258 Income tax expense......................................................... 74 68 100 88 ------ ------ ------ ------ Income before cumulative effect of change in accounting principle.................................................................. 142 131 192 170 Cumulative effect of change in accounting principle, net of tax and minority interest.................................................. - - - 6 ------ ------ ------ ------ Net income................................................................. $ 142 $ 131 $ 192 $ 164 ====== ====== ====== ====== Basic earnings per share before cumulative effect of change in accounting principle.................................................... $ 0.55 $ 0.48 $ 0.74 $ 0.61 Cumulative effect of change in accounting principle........................ - - - (0.02) ------ ------ ------ ------ Basic earnings per share................................................... $ 0.55 $ 0.48 $ 0.74 $ 0.59 ====== ====== ====== ====== Weighted-average shares outstanding........................................ 258 273 259 276 Diluted earnings per share before cumulative effect of change in accounting principle.................................................... $ 0.53 $ 0.47 $ 0.72 $ 0.60 Cumulative effect of change in accounting principle........................ - - - (0.02) ------ ------ ------ ------ Diluted earnings per share................................................. $ 0.53 $ 0.47 $ 0.72 $ 0.58 ====== ====== ====== ====== Weighted-average shares outstanding........................................ 267 279 268 283
See accompanying notes to Condensed Consolidated Financial Statements. -2- The Pepsi Bottling Group, Inc. Condensed Consolidated Statements of Cash Flows in millions, unaudited
24 Weeks Ended -------------- June 12, June 14, 2004 2003 ------ ------ Cash Flows - Operations Net income................................................................ $ 192 $ 164 Adjustments to reconcile net income to net cash provided by operations: Depreciation............................................................ 258 244 Amortization............................................................ 6 4 Deferred income taxes................................................... 31 34 Cumulative effect of change in accounting principle..................... - 6 Other non-cash charges and credits, net................................. 122 142 Changes in operating working capital, excluding effects of acquisitions: Accounts receivable, net............................................... (242) (256) Inventories, net....................................................... (126) (68) Prepaid expenses and other current assets.............................. (8) (18) Accounts payable and other current liabilities......................... 121 (41) Income taxes payable................................................... 30 20 ------ ------ Net change in operating working capital ................................ (225) (363) ------ ------ Pension contributions.................................................. (51) - Other, net............................................................. (20) (16) ------ ------ Net Cash Provided by Operations............................................. 313 215 ------ ------ Cash Flows - Investments Capital expenditures...................................................... (270) (282) Acquisitions of bottlers.................................................. (7) (83) Sale of property, plant and equipment..................................... 5 2 ------ ------ Net Cash Used for Investments............................................... (272) (363) ------ ------ Cash Flows - Financing Short-term borrowings - three months or less.............................. 200 84 Proceeds from issuance of long-term debt.................................. 17 248 Repayments of long-term debt.............................................. (1,008) (3) Dividends paid............................................................ (5) (6) Proceeds from exercise of stock options................................... 65 21 Purchases of treasury stock............................................... (298) (228) ------ ------ Net Cash (Used for) Provided by Financing................................... (1,029) 116 ------ ------ Effect of Exchange Rate Changes on Cash and Cash Equivalents................ (2) 3 ------ ------ Net Decrease in Cash and Cash Equivalents................................... (990) (29) Cash and Cash Equivalents - Beginning of Period............................. 1,235 222 ------ ------ Cash and Cash Equivalents - End of Period................................... $ 245 $ 193 ====== ====== Supplemental Cash Flow Information Net third-party interest paid............................................... $ 130 $ 120 ====== ====== Income taxes paid........................................................... $ 39 $ 39 ====== ======
See accompanying notes to Condensed Consolidated Financial Statements. -3- The Pepsi Bottling Group, Inc. Condensed Consolidated Balance Sheets in millions, except per share amounts
(Unaudited) June 12, December 27, 2004 2003 ------- ------- Assets Current Assets Cash and cash equivalents.................................................. $ 245 $ 1,235 Accounts receivable, less allowance of $67 at June 12, 2004 and $72 at December 27, 2003.............................. 1,202 994 Inventories................................................................ 497 374 Prepaid expenses and other current assets.................................. 254 268 Investment in debt defeasance trust........................................ - 168 ------- ------- Total Current Assets.................................................... 2,198 3,039 Property, plant and equipment, net......................................... 3,399 3,423 Other intangible assets, net............................................... 3,525 3,562 Goodwill................................................................... 1,389 1,386 Other assets............................................................... 130 134 ------- ------- Total Assets............................................................ $10,641 $11,544 ======= ======= Liabilities and Shareholders' Equity Current Liabilities Accounts payable and other current liabilities............................. $ 1,346 $ 1,231 Short-term borrowings...................................................... 265 67 Current maturities of long-term debt....................................... 28 1,180 ------- ------- Total Current Liabilities............................................... 1,639 2,478 Long-term debt............................................................. 4,467 4,493 Other liabilities.......................................................... 906 875 Deferred income taxes...................................................... 1,420 1,421 Minority interest.......................................................... 413 396 ------- ------- Total Liabilities....................................................... 8,845 9,663 ------- ------- Shareholders' Equity Common stock, par value $0.01 per share: authorized 900 shares, issued 310 shares................................. 3 3 Additional paid-in capital................................................. 1,735 1,743 Retained earnings.......................................................... 1,648 1,471 Accumulated other comprehensive loss....................................... (440) (380) Deferred compensation...................................................... (4) (4) Treasury stock: 55 shares and 49 shares at June 12, 2004 and December 27, 2003, respectively....................................................... (1,146) (952) ------- ------- Total Shareholders' Equity.............................................. 1,796 1,881 ------- ------- Total Liabilities and Shareholders' Equity.............................. $10,641 $11,544 ======= =======
See accompanying notes to Condensed Consolidated Financial Statements. -4- Notes to Condensed Consolidated Financial Statements Tabular dollars in millions, except per share data - -------------------------------------------------------------------------------- Note 1 - Basis of Presentation The Pepsi Bottling Group, Inc. ("PBG" or the "Company") is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages, consisting of bottling operations located in the United States, Mexico, Canada, Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, "PBG," "we," "our" and "us" each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC ("Bottling LLC"), our principal operating subsidiary. As of June 12, 2004, PepsiCo Inc.'s ("PepsiCo") ownership consisted of 41.5% of our outstanding common stock and 100% of our outstanding Class B common stock, together representing 46.7% of the voting power of all classes of our voting stock. PepsiCo also owns approximately 6.8% of the equity of Bottling Group, LLC, our principal operating subsidiary. The accompanying Condensed Consolidated Balance Sheet at June 12, 2004, the Condensed Consolidated Statements of Operations for the twelve and twenty-four weeks ended June 12, 2004 and June 14, 2003 and the Condensed Consolidated Statements of Cash Flows for the twenty-four weeks ended June 12, 2004 and June 14, 2003 have not been audited, but have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 27, 2003 as presented in our Annual Report on Form 10-K. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. Our U.S. and Canadian operations report using a fiscal year that consists of 52 weeks, ending on the last Saturday in December. Every five or six years a 53rd week is added. Our remaining countries report using a calendar-year basis. Accordingly, we recognize our quarterly business results as outlined below: Quarter U.S. & Canada Mexico & Europe ------- ------------- --------------- First Quarter 12 weeks January and February Second Quarter 12 weeks March, April and May Third Quarter 12 weeks June, July and August Fourth Quarter 16 weeks September, October, November and December Certain reclassifications were made in our Condensed Consolidated Financial Statements to 2003 amounts to conform to the 2004 presentation. Note 2 - Seasonality of Business The results for the second quarter are not necessarily indicative of the results that may be expected for the full year because of business seasonality. The seasonality of our operating results arises from higher sales in the second and third quarters versus the first and fourth quarters of the year, combined with the impact of fixed costs, such as depreciation and interest, which are not significantly impacted by business seasonality. -5- Note 3 - New Accounting Standards EITF 02-16 In January 2003, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," addressing the recognition and income statement classification of various cash consideration given by a vendor to a customer. The consensus requires that certain cash consideration received by a customer from a vendor is presumed to be a reduction of the price of the vendor's products, and therefore should be characterized as a reduction of cost of sales when recognized in the customer's income statement, unless certain criteria are met. EITF Issue No. 02-16 became effective beginning in our fiscal year 2003. Prior to 2003, we classified worldwide bottler incentives received from PepsiCo and other brand owners as adjustments to net revenues and selling, delivery and administrative expenses depending on the objective of the program. In accordance with EITF Issue No. 02-16, we have classified certain bottler incentives as a reduction of cost of sales beginning in 2003. During 2003, we recorded a transition adjustment of $6 million, net of taxes and minority interest of $1 million, for the cumulative effect on prior years. This adjustment reflects the amount of bottler incentives that can be attributed to our 2003 beginning inventory balances. FASB Staff Position FAS 106-2 During the second quarter, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position FAS 106-2, "Accounting and Disclosure Requirements Relating to the Medicare Prescription Drug, Improvement and Modernization Act of 2003". See Note 8 - Pension and Postretirement Benefit Plans for further details regarding the impact of FASB Staff Position FAS 106-2. Share-Based Payments The FASB has issued an exposure draft proposing to expense the fair value of share-based payments to employees beginning in 2005. We are currently evaluating the impact of this proposed standard on our financial statements. Note 4 - Stock-Based Compensation We measure stock-based compensation expense using the intrinsic value method in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. Accordingly, compensation expense for stock option grants to our 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. As allowed by Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," we have elected to continue to apply the intrinsic value-based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." If we had measured compensation cost for the stock awards granted to our employees under the fair-value based method prescribed by SFAS No. 123, net income would have been changed to the pro forma amounts set forth below: -6-
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 ----- ----- ----- ----- Net income: As reported..................................................... $ 142 $ 131 $ 192 $ 164 Add: Total stock-based employee compensation expense included in reported net income, net of taxes and minority interest......................................... 0 1 1 2 Less: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of taxes and minority interest................ (9) (10) (19) (20) ----- ----- ----- ----- Pro forma....................................................... $ 133 $ 122 $ 174 $ 146 ===== ===== ===== ===== Earnings per share: Basic - as reported.......................................... $0.55 $0.48 $0.74 $0.59 Basic - pro forma............................................ 0.52 0.44 0.67 0.53 Diluted - as reported........................................ $0.53 $0.47 $0.72 $0.58 Diluted - pro forma.......................................... 0.50 0.44 0.64 0.52
Pro forma compensation cost measured for stock options granted to employees is amortized using a straight-line basis over the vesting period, which is typically three years. 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:
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 ----- ----- ----- ----- Risk-free interest rate......................................... 3.1% 3.0% 3.2% 2.8% Expected life................................................... 6 years 6 years 6 years 6 years Expected volatility............................................. 35% 37% 35% 37% Expected dividend yield......................................... 0.66% 0.22% 0.68% 0.17% Note 5 - Inventories June 12, December 27, 2004 2003 ----- ----- Raw materials and supplies...................................... $ 178 $ 140 Finished goods.................................................. 319 234 ----- ----- $ 497 $ 374 ===== =====
-7-
Note 6 - Property, plant and equipment, net June 12, December 27, 2004 2003 ------- ------- Land............................................................ $ 253 $ 241 Buildings and improvements...................................... 1,211 1,185 Manufacturing and distribution equipment........................ 3,033 3,028 Marketing equipment............................................. 2,172 2,131 Other........................................................... 174 176 ------- ------- 6,843 6,761 Accumulated depreciation........................................ (3,444) (3,338) ------- ------- $ 3,399 $ 3,423 ======= ======= Note 7 - Other intangible assets, net and Goodwill June 12, December 27, 2004 2003 ------- ------- Intangibles subject to amortization: Gross carrying amount: Customer relationships and lists ...................... $ 45 $ 42 Franchise rights....................................... 24 23 Other identified intangibles........................... 28 27 ------- ------- 97 92 ------- ------- Accumulated amortization: Customer relationships and lists ...................... (4) (3) Franchise rights....................................... (12) (10) Other identified intangibles........................... (15) (12) ------- ------- (31) (25) ------- ------- Intangibles subject to amortization, net........................ 66 67 ------- ------- Intangibles not subject to amortization: Carrying amount: Franchise rights....................................... 2,883 2,908 Distribution rights.................................... 280 286 Trademarks............................................. 203 207 Other identified intangibles........................... 93 94 ------- ------- Intangibles not subject to amortization.................... 3,459 3,495 ------- ------- Total other intangible assets, net.............................. $ 3,525 $ 3,562 ======= ======= Goodwill........................................................ $ 1,389 $ 1,386 ======= =======
-8- For intangible assets subject to amortization, we calculate amortization expense on a straight-line basis over the period we expect to receive economic benefit. Total amortization expense was $6 million and $4 million for the twenty-four weeks ended June 12, 2004 and June 14, 2003, respectively. The weighted-average amortization period for each category of intangible assets and their estimated aggregate amortization expense expected to be recognized over the next five years are as follows:
Weighted-Average Estimated Aggregate Amortization Expense to be Incurred ---------------- ------------------------------------------------------- Amortization ------------ Period ------- Balance of Fiscal Year Ending ---------- ------------------ 2004 2005 2006 2007 2008 ---- ---- ---- ---- ---- Customer relationships and lists.......... 17-20 years $1 $3 $3 $3 $3 Franchise rights.......................... 5 years $2 $5 $2 $1 $- Other identified intangibles.............. 6 years $3 $4 $3 $2 $1
Note 8 - Pension and Postretirement Benefit Plans Pension Benefits Our U.S. employees participate in noncontributory defined benefit pension plans, which cover substantially all full-time salaried employees, as well as most hourly employees. 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 and not more than the maximum amount that can be deducted for U.S. income tax purposes. Our net pension expense for the defined benefit plans for our operations outside the U.S. was not significant and is not included in the tables presented below. Our U.S. employees are also eligible to participate in our 401(k) savings plans, which are voluntary defined contribution plans. We make matching contributions to the 401(k) savings plans on behalf of participants eligible to receive such contributions. If a participant has one or more but less than 10 years of eligible service, our match will equal $0.50 for each dollar the participant elects to defer up to 4% of the participant's pay. If the participant has 10 or more years of eligible service, our match will equal $1.00 for each dollar the participant elects to defer up to 4% of the participant's pay. -9- Components of our pension expense for the twelve and twenty-four weeks ended June 12, 2004 and June 14, 2003 are as follows:
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 ----- ----- ------ ------ Service cost................................................. $ 10 $ 9 $ 20 $ 17 Interest cost................................................ 16 14 32 29 Expected return on plan assets............................... (19) (16) (38) (31) Amortization of prior service cost........................... 2 2 3 3 Amortization of net loss..................................... 5 3 11 6 ---- ---- ---- ---- Net pension expense for the defined benefit plans............ 14 12 28 24 ---- ---- ---- ---- Defined contribution plans expense........................... 5 4 10 9 ---- ---- ---- ---- Total pension expense recognized in the Condensed Consolidated Statements of Operations........................ $ 19 $ 16 $ 38 $ 33 ==== ==== ==== ====
We expect to contribute $100 million to our pension plans in 2004. As of June 12, 2004, $51 million of contributions to our pension plans have been made. Postretirement Benefits Our postretirement plans provide medical and life insurance benefits principally to U.S. retirees and their dependents. 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. Components of our postretirement benefits expense for the twelve and twenty-four weeks ended June 12, 2004 and June 14, 2003 are as follows:
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 ----- ----- ----- ------ Service cost................................................. $ 1 $ 1 $ 2 $ 2 Interest cost................................................ 4 4 9 9 Amortization of net loss..................................... 1 1 2 1 --- --- ---- ---- Net postretirement benefits expense recognized in the Condensed Consolidated Statements of Operations.............. $ 6 $ 6 $ 13 $ 12 === === ==== ====
On May 19, 2004, FASB Staff Position No. FAS 106-2 ("FSP") was issued by FASB to provide guidance relating to the prescription drug subsidy provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("Act"). We currently provide postretirement benefits to a group of retirees (employees who retired prior to 1993) with little or no cost sharing. For these retirees, the prescription drug benefit provided by us would be considered to be actuarially equivalent to the benefit provided under the Act. Therefore, we have retroactively applied the FSP to the date of enactment. As a result: o The obligation (Accumulated Projected Benefit Obligation) decreased by $11.7 million, and -10- o The net periodic postretirement benefits cost decreased by $0.3 million for twelve and twenty-four weeks ended June 12, 2004 We also provide postretirement benefits to another group of retirees (employees who retired after 1992) with cost sharing. At present, due to the lack of clarifying regulations related to the Act, we cannot determine if the benefit provided by us would be considered actuarially equivalent to the benefit provided under the Act. Note 9 - Geographic Data We operate in one industry, carbonated soft drinks and other ready-to-drink beverages. We conduct business in all or a portion of the United States, Mexico, Canada, Spain, Russia, Greece and Turkey.
Net Revenues 12 Weeks Ended 24 Weeks Ended - ------------ -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 -------- -------- -------- -------- U.S.......................................................... $ 1,909 $ 1,797 $ 3,535 $ 3,293 Mexico....................................................... 276 308 434 465 Other countries.............................................. 490 427 773 648 ------- ------- ------- ------- $ 2,675 $ 2,532 $ 4,742 $ 4,406 ======= ======= ======= ======= Long-Lived Assets June 12, December 27, - ----------------- 2004 2003 -------- -------- U.S.......................................................... $ 5,715 $ 5,723 Mexico....................................................... 1,422 1,432 Other countries.............................................. 1,306 1,350 ------- ------- $ 8,443 $ 8,505 ======= =======
Note 10 - Comprehensive Income
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 ------ ------ ------- ------ Net income................................................... $ 142 $ 131 $ 192 $ 164 Currency translation adjustment.............................. (59) 166 (57) 142 Cash flow hedge adjustment (a) (b)........................... (4) - (3) 7 ----- ----- ----- ----- Comprehensive income......................................... $ 79 $ 297 $ 132 $ 313 ===== ===== ===== =====
(a) Net of minority interest and taxes of $4 and $0 for the 12 weeks ended June 12, 2004 and June 14, 2003, respectively. (b) Net of minority interest and taxes of $3 and $6 for the twenty-four weeks ended June 12, 2004 and June 14, 2003, respectively. Note 11 - Contingencies We are subject to various claims and contingencies related to lawsuits, taxes and 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. -11- Report of Independent Registered Public Accounting Firm ------------------------------------------------------- The Board of Directors & Shareholders of The Pepsi Bottling Group, Inc: We have reviewed the accompanying condensed consolidated balance sheet of The Pepsi Bottling Group, Inc. and subsidiaries as of June 12, 2004, the related condensed consolidated statements of operations for the twelve week and twenty-four week periods ended June 12, 2004 and June 14, 2003, respectively, and the related condensed consolidated statements of cash flows for the twenty- four week periods ended June 12, 2004 and June 14, 2003. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Pepsi Bottling Group, Inc. and subsidiaries as of December 27, 2003, and the related consolidated statements of operations, cash flows and changes in shareholders' equity, for the fiscal year then ended not presented herein; and in our report dated January 27, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 27, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG LLP New York, New York July 8, 2004 -12- Item 2. Management's Financial Review Tabular dollars in millions, except per share data OVERVIEW - -------- The Pepsi Bottling Group, Inc. ("PBG" or the "Company") is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages. We have the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of the United States, Mexico, Canada, Spain, Greece, Russia and Turkey. When used in these Condensed Consolidated Financial Statements, "PBG," "we," "our" and "us" each refers to The Pepsi Bottling Group, Inc. and, where appropriate, to Bottling Group, LLC ("Bottling LLC"), our principal operating subsidiary . Management's Financial Review should be read in conjunction with the accompanying unaudited financial statements and our Annual Report on Form 10-K for the fiscal year ended December 27, 2003, which include additional information about our accounting policies, practices and the transactions that underlie our financial results. Financial Performance Summary - -----------------------------
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, % June 12, June 14, % 2004 2003 Change 2004 2003 Change ------- ------- ------ ------- ------- ------ Net revenues....................... $2,675 $2,532 6% $4,742 $4,406 8% Operating income................... 286 271 6% 423 391 8% Income before cumulative effect of change in accounting principle 1........................ 142 131 9% 192 170 13% Net income......................... 142 131 9% 192 164 17% Diluted earnings per share before cumulative effect of change in accounting principle 1, 2..................... $ 0.53 $ 0.47 14% $ 0.72 $ 0.60 20% Diluted earnings per share 2....... $ 0.53 $ 0.47 14% $ 0.72 $ 0.58 24%
1 - Cumulative effect of change in accounting principle for the twenty-four weeks ended June 14, 2003, reflects the impact of adoption of EITF Issue No. 02-16. See Note 3 - New Accounting Standards in the Notes to Condensed Consolidated Financial Statements for more information. 2 - Percentage change for diluted earnings per share and diluted earnings per share before cumulative effect of change in accounting principle is calculated by using earnings per share data that is expanded to the fourth decimal place. For the second quarter, diluted earnings per share increased 14% to $0.53 and operating income grew 6% to $286 million, reflecting strong topline results in the United States. This growth was driven by both volume and net revenue per case improvements. Worldwide volume increased 2% in the second quarter reflecting solid volume growth in the U.S. and Europe, partially offset by -13- volume declines in Mexico. Worldwide net revenue per case growth increased 4% in the second quarter, exceeding our expectations. We have remained committed to our pricing principles, and continue to seek opportunities for net revenue per case gains by leveraging both rate and mix strategies. Due to the solid earnings growth in the first half of the year, we have raised our full-year earnings expectations for 2004 to a range of $1.68 to $1.74. For the full year of 2004, operating income is expected to grow in the mid-single digits driven by volume growth of 2% to 3% and net revenue per case growth of 2% to 3%. Our cost of goods sold per case is expected to grow 3% to 5% for the full year of 2004. We expect our full year outlook of operating profits for Mexico to be at the lower end of our guidance of $75 million to $85 million. Volume 12 Weeks Ended 24 Weeks Ended June 12, 2004 vs. June 12, 2004 vs. June 14, 2003 June 14, 2003 ----------------- ----------------- World- Outside World- Outside wide U.S. the U.S. wide U.S. the U.S ------ ------ -------- ------ ------ ------- Volume change ..... 2 % 3 % 1 % 3 % 4 % 2 % Our reported worldwide physical case volume increased 2% in the second quarter and 3% in the first twenty-four weeks of 2004, when compared with similar periods of 2003. The increase in reported worldwide volume was driven by strong growth in the U.S. and Europe, partially offset by volume declines in Mexico. In the U.S., our reported volume increased by 3% in the second quarter and 4% on a year-to-date basis due to growth in both the cold-drink and take-home channels of our business. As consumers continue to seek a greater variety of beverages, we have seen corresponding growth in our non-carbonated beverage portfolios, driven by AQUAFINA and TROPICANA juice drinks. Additionally, Trademark PEPSI has continued to show positive results reflecting solid contributions from our diet portfolio as well as the addition of PEPSI VANILLA. In Europe, volume grew 10% in the second quarter and 12% on a year-to-date basis, driven by strong performances in Russia and Turkey. In Russia, we had solid growth in our core brands, coupled with contributions from new product introductions, including TROPICANA juice drinks and LIPTON ICED TEAS. In Turkey, there was continued improved execution in the marketplace, particularly with our large format customers, resulting primarily from an improvement in our selling and distribution capabilities. Excluding the impact of acquisitions, Mexico's volume declined 7% in the second quarter and 5% on a year-to-date basis, which was below our expectations. Mexico's volume declines were driven primarily by softness in our jug water business. As jug water comprises 40% of Mexico's volume, one of our priorities is to develop this key component our business. There were also declines in our carbonated soft drink volume in Mexico, however, we saw continued positive trends in our eight-ounce equivalent case volume (one eight-ounce case is equal to 192 U.S. fluid ounces of finished beverages), resulting from the upsizing initiatives of the 2.5-liter carbonated soft drink package. Our worldwide volume in the second half of 2004 is expected to grow 2%, reflecting growth in the United States of 1% and a continued strong performance in Europe. In Mexico, for the second half of 2004, we expect physical case volume declines in the low single digits. -14- Net Revenues
12 Weeks Ended 24 Weeks Ended June 12, 2004 vs. June 12, 2004 vs. June 14, 2003 June 14, 2003 ----------------- ----------------- World- Outside World- Outside wide U.S. the U.S. wide U.S. the U.S. ----- ---- -------- ----- ----- -------- Volume impact......................... 2 % 3 % 1 % 3 % 4 % 2 % Net price per case impact (rate/mix).. 4 % 3 % 2 % 4 % 3 % 3 % Effect of currency translations....... 0 % 0 % 1 % 1 % 0 % 3 % ----- ----- ----- ----- ----- ----- Total Net Revenues change......... 6 % 6 % 4 % 8 % 7 % 8 % ===== ===== ===== ===== ===== =====
Net revenues were $2.7 billion for the second quarter and $4.7 billion for the first twenty-four weeks in 2004, a 6% and 8% respective increase over similar periods in 2003. The increases in net revenues for the quarter and on a year-to-date basis were driven by improvements in volume and growth in net revenue per case of 4%. In the U.S., net revenues increased 6% in the second quarter and 7% for the first twenty-four weeks of 2004, when compared with the similar periods of 2003. The increases in net revenues in the U.S. were driven by growth in both volume and net price per case. The 3% increase in net price per case in the U.S. for the quarter and on a year-to-date basis was due to a combination of rate increases and mix benefits. Net price per case in the U.S. continues to benefit from the strong cold drink growth, which is our most profitable business. This growth was driven by the additional space we allocated to our core soft drinks, as well as the introduction of new products including the launch of TROPICANA juice drinks and PEPSI VANILLA. Net revenues outside the U.S. grew approximately 4% in the second quarter and 8% for the first twenty-four weeks of 2004. The increases in net revenues outside the U.S. for the quarter and on a year-to-date basis were driven by volume and net price per case growth in Europe and Canada coupled with the favorable impact of foreign exchange. This growth was partially offset by a 10% and 7% decline in net revenues in Mexico for the quarter and the first twenty-four weeks of 2004, respectively, due primarily to decreases in volume and the devaluation of the Mexican peso. In the second quarter, approximately 71% of our net revenues was generated in the U.S., 10% of our net revenues was generated in Mexico and the remaining 19% was generated outside the U.S. and Mexico. On a year-to-date basis, approximately 75% of our net revenues was generated in the U.S., 9% of our net revenues was generated in Mexico and the remaining 16% was generated outside the U.S. and Mexico. We expect our worldwide net revenue per case to grow about 2% in the second half of the year in 2004, driven by 2% to 3% net revenue per case growth in the United States as we leverage both our rate and mix strategies. -15- Cost of Sales
12 Weeks Ended 24 Weeks Ended June 12, 2004 vs. June 12, 2004 vs. June 14, 2003 June 14, 2003 ----------------- ----------------- World- Outside World- Outside wide U.S. the U.S. wide U.S. the U.S. ------ ----- --------- ------ ----- --------- Volume impact......................... 2 % 3 % 1 % 3 % 4 % 2 % Costs per case impact................. 4 % 4 % 5 % 5 % 5 % 5 % Currency translation.................. 1 % 0 % 1 % 2 % 0 % 4 % ----- ----- ----- ----- ---- ---- Total Cost of Sales change....... 7 % 7 % 7 % 10 % 9 % 11 % ===== ===== ===== ===== ===== ====
Cost of sales was $1.4 billion in the second quarter and $2.4 billion for the first twenty-four weeks of 2004, a 7% and 10% respective increase over similar periods in 2003. The growth in cost of sales on a quarter and year-to-date basis was driven primarily by volume and costs per case increases, coupled with the negative impact of foreign currency translation. In the U.S., cost of sales grew 7% in the second quarter and 9% for the first twenty-four weeks of 2004, due to volume growth and increases in costs per case. The increases in costs per case resulted from the impact of higher priced products, including our non-carbonated products, coupled with higher commodity costs. Cost of sales outside the U.S. grew approximately 7% in the second quarter and 11% for the first twenty-four weeks of 2004, reflecting increases in costs per case in Europe and Mexico, coupled with volume growth in Europe and the negative impact from foreign currency translation. Costs per case increases outside the U.S. were driven by a mix shift into higher priced products and packages, coupled with increases in certain commodity costs. For the full year of 2004, we expect our worldwide cost of sales per case to grow 3% to 5% as we continue to sell higher cost products. Selling, Delivery and Administrative Expenses
12 Weeks Ended 24 Weeks Ended June 12, 2004 vs. June 12, 2004 vs. June 14, 2003 June 14, 2003 ----------------- ------------------ World- Outside World- Outside wide U.S. the U.S. wide U.S. the U.S. ------ ----- -------- ------ ----- --------- Cost impact........................... 4 % 3 % 6 % 4 % 3 % 6 % Currency translation.................. 0 % 0 % 2 % 1 % 0 % 4 % ---- ---- ---- ---- ---- ---- Total SD&A change................ 4 % 3 % 8 % 5 % 3 % 10 % ==== ==== ==== ==== ==== ====
Selling, delivery and administrative expenses were $1.0 billion in the second quarter and $1.9 billion for the first twenty-four weeks of 2004, a 4% and 5% respective increase over similar periods in 2003. The increase in selling, delivery and administrative expenses in the U.S. resulted from additional variable costs associated with volume growth, partially offset by lower casualty insurance expenses. The increases in selling, delivery and administrative expenses outside the U.S. -16- were driven primarily by higher operating costs in Mexico, Russia and Turkey, coupled with the negative impact of foreign currency translation. Selling, delivery and administrative expenses for the full year is expected to grow in the low-single digits. Operating Income Operating income was $286 million in the second quarter and $423 million for the first twenty-four weeks of 2004, a 6% and 8% respective increase over similar periods in 2003. Growth in operating income was driven by a 16% and 15% increase in the U.S. for the quarter and the first twenty-four weeks of 2004, respectively. Operating income increases in the U.S. were due to strong topline growth, partially offset by higher cost of sales and selling, delivery and administrative expenses. This growth was partially offset by operating income declines in Mexico due primarily to decreases in volume for both the quarter and on a year-to-date basis. Operating profit for the full year in 2004 is expected to increase in the mid-single digits driven by the continued strong topline growth in the U.S., Europe and Canada. Interest Expense, net Interest expense, net decreased by $4 million in the second quarter and $2 million for the first twenty-four weeks of 2004, when compared with similar periods of 2003, largely due to lower effective interest rates achieved on our long-term debt. For the full year of 2004, we expect interest expense, net to be between $240 million to $245 million. Income Tax Expense Our effective tax rate for the twenty-four weeks ended 2004 and 2003 was 34.3% and 34.25%, respectively. Liquidity and Financial Condition - --------------------------------- Cash Flows Net operating cash provided by operations grew by $98 million to $313 million in the first half of 2004 due to higher profits, lapping of payments related to the settlement of our New Jersey wage and hour litigation in 2003 and working capital improvements. These upsides were partially offset by the timing of pension contributions during 2004. Net cash used for investments decreased by $91 million to $272 million, principally reflecting lower acquisition spending. Net cash used for financing increased by $1,145 million to $1,029 million driven primarily by the repayment of our $1.0 billion note in February 2004 and lower proceeds from long-term borrowings, coupled with higher share repurchases. For the full year in 2004, we expect to achieve net cash provided by operations of more than $1.2 billion. In addition, we expect capital expenditures to be between $675 million and $700 million. Liquidity and Capital Resources We believe that our future cash flows from operations and borrowing capacity will be sufficient to fund capital expenditures, acquisitions, dividends and working capital requirements for the foreseeable future. Additionally, we are currently in compliance with all debt covenants in our indenture agreements and credit facilities. -17- During the first quarter we repaid our $1 billion 5.38% senior notes with the proceeds we received from debt issued in the prior year. We have a $500 million commercial paper program that is supported by a credit facility, which is guaranteed by Bottling Group, LLC. During the second quarter, we have renegotiated our two $250 million credit facilities into one $500 million credit facility, which expires in April 2009. At June 12, 2004, we had $115 million outstanding in commercial paper. Due to the nature of our business, we require insurance coverage for certain casualty risks. Given the rapidly increasing costs associated with obtaining third-party insurance coverage for our casualty risks in the U.S., we moved to a self-insurance program in 2002. In 2004, we are self-insured for workers' compensation and automobile risks for occurrences up to $10 million, and product and general liability risks for occurrences up to $5 million. For losses exceeding these self-insurance thresholds, we purchase casualty insurance from a third-party provider. During the second quarter, we repaid our $160 million 9.75% senior notes by liquidating our investments in our debt defeasance trust. On June 22, 2004, we signed a letter of intent to purchase the Auburn, Maine-based Pepsi bottling operation of Seltzer and Rydholm, Inc. We expect to close in the fall of 2004. Contractual Obligations As of June 12, 2004, there have been no material changes outside the normal course of business in the contractual obligations disclosed in Exhibit 13 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2003, under the caption "Contractual Obligations," other than the repayment of our long-term debt as discussed above. -18- Cautionary Statements - --------------------- Except for the historical information and discussions contained herein, statements contained in this Form 10-Q 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 our 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: o changes in our relationship with PepsiCo that could have a material adverse effect on our business and financial results; o restrictions imposed by PepsiCo on our raw material suppliers that could increase our costs; o decreased demand for our product resulting from changes in consumers' preferences; o an inability to achieve volume growth through product and packaging initiatives; o lower-than-expected net pricing resulting from marketplace competition and competitive pressures that may cause channel and product mix to shift from more profitable cold drink channels and packages; o material changes from expectations in the cost of raw materials and ingredients; o an inability to achieve cost savings; o an inability to achieve the expected timing for returns on cold drink equipment and related infrastructure expenditures; o material changes in expected levels of bottler incentive payments from PepsiCo; o changes in product category consumption; o unfavorable weather conditions in our markets; o unforeseen economic and political changes; o possible recalls of our products; o an inability to meet projections for performance in newly acquired territories; o changes in laws and regulations, including restrictions on the sale of carbonated soft drinks in schools, changes in food and drug laws, transportation regulations, employee safety rules, labor laws, accounting standards, taxation requirements (including unfavorable outcomes from audits performed by various tax authorities) and environmental laws; o changes in our debt ratings; and o material changes in expected interest and currency exchange rates and unfavorable market performance of our pension plan assets. -19- Item 3. Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- The overall risks to our international businesses include changes in foreign governmental policies, and other political or economic developments. These developments may lead to new product pricing, tax or other policies and monetary fluctuations, which may adversely impact our business. In addition, our results of operations and the value of the foreign assets are affected by fluctuations in foreign currency exchange rates. Foreign currency gains and losses reflect transaction gains and losses as well as translation gains and losses arising from the re-measurement into U.S. dollars of the net monetary assets of businesses in highly inflationary countries. Item 4. Controls and Procedures - ----------------------- PBG's management carried out an evaluation (the "Evaluation"), as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report on Form 10-Q. Based upon the Evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to PBG and its consolidated subsidiaries required to be included in our Exchange Act reports filed with the SEC. In addition, there were no changes in our internal control over financial reporting identified in connection with the Evaluation that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. -20- PART II - OTHER INFORMATION Item 1. Legal Proceedings - ----------------- On July 14, 2004, Bottling LLC accepted three criminal misdemeanor pleas from the Onondaga District Attorney's Office and from the State of New York Attorney General's Office relating to allegations that certain of Bottling LLC's warehouses and distribution centers improperly discharged certain substances into either storm drain systems or into publicly owned treatment works without the requisite permits. The substances consisted of fountain syrup, outdated beverage products, water used to wash vehicles, waste water from cleaning floors or spills from vehicle maintenance activities. The pleas provided for a $200,000 penalty and the funding of an existing environmental program to remediate Lake Onondaga for the benefit of that community in the amount of $2.78 million. Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities - -------------------------------------------------------------------------------- PBG Purchases of Equity Securities - ----------------------------------- In the second quarter of 2004, we repurchased approximately 7.3 million shares. Since the inception of our share repurchase program in October 1999, 73.4 million shares of PBG common stock have been repurchased. Our share repurchases for the second quarter of, 2004, are as follows:
Maximum Number (or Total Number of Total Number of Shares (or Approximate Dollar Value) Shares (or Average Price Units) Purchased as Part of of Shares (or Units) that Units) Paid per Share Publicly Announced Plans or May Yet Be Purchased Period Purchased 1 (or Unit)2 Programs 3 Under the Plans or Programs 3 - -------------------------------------------------------------------------------------------------------------------- Period 4 1,925,000 $29.56 1,925,000 31,897,400 - -------- 03/21/04- 04/17/04 - -------------------------------------------------------------------------------------------------------------------- Period 5 2,450,900 $29.34 2,450,900 29,446,500 - -------- 04/18/04- 05/15/04 - -------------------------------------------------------------------------------------------------------------------- Period 6 2,887,500 $28.97 2,887,500 26,559,000 - -------- 05/16/04- 06/12/04 - -------------------------------------------------------------------------------------------------------------------- Total 7,263,400 $29.25 7,263,400 26,559,000
1 Shares have only been repurchased through publicly announced programs. -21- 2 Average share price excludes brokerage fees. 3 The PBG Board has authorized the repurchase of shares of common stock on the open market and through negotiated transactions as follows:
Date Share Repurchase Program was Publicly Announced Number of Shares Authorized to be Repurchased October 14, 1999....................................................... 20,000,000 July 13, 2000.......................................................... 10,000,000 July 11, 2001.......................................................... 20,000,000 May 28, 2003........................................................... 25,000,000 March 25, 2004......................................................... 25,000,000 ---------- Total shares authorized to be repurchased as of June 12, 2004.......... 100,000,000 ===========
Unless terminated by resolution of the PBG Board, each share repurchase program expires when we have repurchased all shares authorized for repurchase thereunder. Item 4. Submission of Matters to a Vote of Security Holders - ---------------------------------------------------- (a) Annual Meeting of Shareholders of PBG was held on May 26, 2004. (b) The names of all directors are set forth below. The proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There were no solicitations in opposition to the nominees as listed in the proxy and all such nominees were elected. (c) A brief description of each matter voted on and the approximate number of votes cast are as follows: Number of Votes (millions) -------------------------- Withheld/ Broker Description of Proposals For Against Abstain Non-votes - ------------------------ --- ------- -------- --------- 1) Election of Directors: Linda G. Alvarado 252 N/A 10 N/A Barry H. Beracha 253 N/A 9 N/A John T. Cahill 258 N/A 3 N/A Ira D. Hall 253 N/A 9 N/A Thomas H. Kean 254 N/A 8 N/A Susan D. Kronick 253 N/A 9 N/A Blythe J. McGarvie 253 N/A 9 N/A Margaret D. Moore 259 N/A 3 N/A Rogelio Rebolledo 256 N/A 6 N/A Clay G. Small 259 N/A 3 N/A 2) 2004 Long-Term Incentive Plan 175 75 1 10 3) Approval of the appointment of KPMG LLP as independent auditors 258 3 1 N/A -22- Item 5. Other Information - ------------------ The financial statements of Bottling LLC, included in Bottling LLC's Quarterly Report on Form 10-Q and filed with the SEC on July 21, 2004, are hereby incorporated by reference as required by the SEC as a result of Bottling LLC's guarantee of up to $1,000,000,000 aggregate principal amount of our 7% Senior Notes due in 2029. Item 6. Exhibits and Reports on Form 8-K - -------------------------------- ITEM 6 (a). EXHIBITS - -------------------- Exhibit No. - ----------- 4.1 U.S. $500,000,000 5-Year Credit Agreement dated as of April 28, 2004 among The Pepsi Bottling Group Inc., Bottling Group, LLC, JP Morgan Chase Bank as Agent, Banc of America Securities LLC and Citigroup Global Markets Inc., as Joint Lead Arrangers and Book Managers and Bank of America, N.A., Citicorp USA, Inc., Credit Suisse First Boston and Deutsche Bank Securities Inc., as Syndication Agents 10.1 PBG 2004 Long-Term Incentive Plan which is incorporated herein by reference to Appendix B to PBG's Proxy Statement for the 2004 Annual Meeting of Shareholders 11.1 Computation of Basic and Diluted Earnings Per Share 15.1 Accountants' Acknowledgement 31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ITEM 6 (b). REPORTS ON FORM 8-K - ------------------------------- On March 30, 2004, we announced our preliminary results for the first quarter ended March 20, 2004, and also affirmed our full year 2004 forecast. On April 13, 2004, we announced our results for the first quarter ended March 20, 2004, our second quarter 2004 forecast and also affirmed our full year 2004 forecast. -23- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PEPSI BOTTLING GROUP, INC. ----------------------------- (Registrant) Date: July 21, 2004 /s/ Andrea L. Forster ------------- --------------------- Andrea L. Forster Vice President and Controller Date: July 21, 2004 /s/ Alfred H. Drewes ------------- -------------------- Alfred H. Drewes Senior Vice President and Chief Financial Officer EX-4 2 pbg5yrcreditagreement2004.txt 5 YRS CREDIT AGREEMENT Exhibit 4.1 EXECUTION COUNTERPART ________________________________________________________________________________ U.S. $500,000,000 5-YEAR CREDIT AGREEMENT Dated as of April 28, 2004 among THE PEPSI BOTTLING GROUP, INC. BOTTLING GROUP, LLC THE LENDERS NAMED HEREIN JPMORGAN CHASE BANK, as Agent, BANC OF AMERICA SECURITIES LLC and CITIGROUP GLOBAL MARKETS INC., as Joint Lead Arrangers and Book Managers and BANK OF AMERICA, N.A., Citicorp USA, Inc., CREDIT SUISSE FIRST BOSTON and DEUTSCHE BANK SECURITIES INC., as Syndication Agents ________________________________________________________________________________ NY3:#7330584v6 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING..........................................1 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.................................13 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 and Extension of Termination Date.........21 SECTION 2.07. Interest on Revolving Credit Advances.......................23 SECTION 2.08. Interest Rate Determination.................................23 SECTION 2.09. Optional Conversion of Revolving Credit Advances............24 SECTION 2.10. Optional Prepayments of Revolving Credit Advances...........25 SECTION 2.11. Increased Costs.............................................25 SECTION 2.12. Illegality..................................................26 SECTION 2.13. Payments and Computations...................................26 SECTION 2.14. Taxes.......................................................27 SECTION 2.15. Sharing of Payments, Etc....................................30 SECTION 2.16. Use of Proceeds.............................................30 SECTION 2.17. Borrowings by Borrowing Subsidiaries; Substitution of Borrower..................................30 SECTION 2.18. Mitigation Obligations......................................31 ARTICLE III CONDITIONS TO EFFECTIVENESS AND ARTICLE II.......................32 SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and 2.03.................................32 SECTION 3.02. Conditions Precedent to Each Revolving Credit Borrowing.....34 SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing......34 SECTION 3.04. Determinations Under Section 3.01...........................35 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES................35 SECTION 4.01. Representations and Warranties of the Loan Parties..........35 ARTICLE V COVENANTS..........................................................36 SECTION 5.01. Affirmative Covenants.......................................36 SECTION 5.02. Negative Covenants..........................................38 SECTION 5.03. Financial Covenants.........................................39 ARTICLE VI EVENTS OF DEFAULT.................................................40 SECTION 6.01. Events of Default...........................................40 ARTICLE VII THE AGENT........................................................42 ARTICLE VIII MISCELLANEOUS...................................................44 SECTION 8.01. Amendments, Etc.............................................44 SECTION 8.02. Notices, Etc................................................44 SECTION 8.03. No Waiver; Remedies.........................................45 -i- NY3:#7330584v6 Page ---- SECTION 8.04. Costs and Expenses..........................................45 SECTION 8.05. Right of Set-off............................................46 SECTION 8.06. Binding Effect..............................................46 SECTION 8.07. Assignments and Participations..............................47 SECTION 8.08. Confidentiality.............................................50 SECTION 8.09. Governing Law...............................................50 SECTION 8.10. Execution in Counterparts...................................50 SECTION 8.11. Jurisdiction, Etc...........................................50 SECTION 8.12. WAIVER OF JURY TRIAL........................................51 SECTION 8.13. USA PATRIOT Act.............................................51 ARTICLE IX COMPANY GUARANTEE.................................................51 SECTION 9.01. Company Guarantee...........................................51 ARTICLE X SUBSIDIARY GUARANTEE...............................................53 SECTION 10.01. Subsidiary Guarantee........................................53 SECTION 10.02. Limitation of Guarantor's Liability.........................54 SCHEDULE 1 - Lending Offices SCHEDULE 2 - Pricing Schedule 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-1 - Form of Opinion of General Counsel of the Company and the Guarantor EXHIBIT C-2 - Form of Opinion of Special New York Counsel for the Agent EXHIBIT D - Form of Designation Letter EXHIBIT E - Form of Substitution Letter EXHIBIT F - Form of Termination Letter -ii- NY3:#7330584v6 CREDIT AGREEMENT Dated as of April 28, 2004 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 JPMORGAN CHASE BANK ("JPMorgan"), as administrative agent (in such capacity, the "Agent") for the Lenders (as hereinafter defined), agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING 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 JPMorgan 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 Facility Fee Rate" means, for any Rating Level Period, the rate per annum set forth in Schedule 2 opposite the reference to such Rating Level Period under the heading "Applicable Facility Fee Rate". Each change in the Applicable Facility Fee Rate resulting from a Rating Level Change shall be effective on the date of such Rating Level Change. "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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 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, for any Rating Level Period, the rate per annum set forth in Schedule 2 opposite the reference to such Rating Level Period under the heading "Applicable Margin". Each change in the Applicable Margin resulting from a Rating Level Change shall be effective on the date of such Rating Level 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. "Applicable Utilization Fee Rate" means, for any Rating Level Period, the rate per annum set forth in Schedule 2 opposite the reference to such Rating Level Period under the heading "Applicable Utilization Fee Rate". Each change in the Applicable Utilization Fee Rate resulting from a Rating Level Change shall be effective on the date of such Rating Level Change. "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 JPMorgan in New York, New York, from time to time, as JPMorgan's prime 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. "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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -2- "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, as amended, 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 loss of power to direct or cause the direction of the management or policies of such Borrower by any Person or group other than [Ambac Financial]. "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. The Company shall cause the Guarantor at all times to remain a Consolidated Subsidiary. "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 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -3- 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, its Restricted Subsidiaries and 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, its Restricted Subsidiaries and the Guarantor (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, its Restricted Subsidiaries and the Guarantor, all as set forth on the then most recent Consolidated balance sheet of the Company, its Restricted Subsidiaries and the Guarantor, 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. "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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -4- "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 (e) 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. "Declining Lender" has the meaning assigned to that term in Section 2.06(c). "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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -5- "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 S&P or Moody's 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 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -6- 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. "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. "Fixed Rate Advances" has the meaning specified in Section 2.03(b). "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 Company's independent public accountants) with the most recent audited Consolidated financial statements of the Company 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, ordi- 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -7- nance, 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 2004 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: (1) the Company may not select any Interest Period that ends after the Termination Date; (2) 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; (3) 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 (4) 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(b). 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -8- "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. "Margin Stock" means margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. "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. "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 promissory note or (c) the ability of the Company to perform its obligations under this Agreement or any promissory 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 amended, as such rule is in effect as of the date hereof. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "Moody's Rating" means, at any time, the rating of the Company's Index Debt then most recently announced by Moody's. "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 2.03(b). "Notice of Revolving Credit Borrowing" has the meaning specified in Section 2.02(a). 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -9- "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, a Restricted Subsidiary or the Guarantor 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, its Restricted Subsidiaries and the Guarantor as an entirety. "Rating" means the Moody's Rating or the S&P Rating, as the case may be. "Rating Level Change" means a change in the Moody's Rating or the S&P Rating that results in a change from one Rating Level Period to another, which Rating Level Change shall be deemed to take effect on the date on which the relevant change in rating is first announced by Moody's or S&P. "Rating Level Period" means a Rating Level 1 Period, a Rating Level 2 Period, a Rating Level 3 Period, a Rating Level 4 Period or a Rating Level 5 Period; provided that: (i) "Rating Level 1 Period" means a period during which the Moody's Rating is at or above Aa3 or the S&P Rating is at or above AA-; (ii) "Rating Level 2 Period" means a period that is not a Rating Level 1 Period, during which the Moody's Rating is at or above A1 or the S&P Rating is at or above A+; (iii) "Rating Level 3 Period" means a period that is not a Rating Level 1 Period or a Rating Level 2 Period, during which the Moody's Rating is at or above A2 or the S&P Rating is at or above A; (iv) "Rating Level 4 Period" means a period that is not a Rating Level 1 Period, a Rating Level 2 Period or a Rating Level 3 Period, during which the Moody's Rating is at or above A3 or the S&P Rating is at or above A-; and (v) "Rating Level 5 Period" means a period that is not a Rating Level 1 Period, a Rating Level 2 Period, a Rating Level 3 Period or a Rating Level 4 Period; and provided, further, that if the Moody's rating and the S&P Rating differ by more than one Rating Level, then the applicable Rating Level Period shall be one Rating Level lower than the Rating Level resulting from the application of the higher of such ratings (for which purpose 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -10- Rating Level 1 is the highest and Rating Level 5 is the lowest); and provided, further, that any period during which there is no Moody's Rating or there is no S&P Rating shall be a Rating Level 5 Period. "Reference Banks" means JPMorgan, Citibank, N.A. and Bank of America, N.A. (and any successors thereof). "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. "S&P Rating" means, at any time, the rating of the Company's Index Debt then most recently announced by S&P. "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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -11- "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 28, 2009 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(c), 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). "Type" has the meaning specified in the definition of "Revolving Credit Advance." "Unrestricted Subsidiary" means (a) any Subsidiary of the Company (not at the time designated a Restricted Subsidiary) (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 and (b) the Guarantor. 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 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -12- ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Revolving Credit Advances. (a) 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(d), 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"). (b) 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. (c) 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 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -13- a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Revolving Credit Advance and (v) 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 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -14- 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). (b) 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 (i) the date of such proposed Competitive Bid Borrowing, (ii) the aggregate amount of such proposed Competitive Bid Borrowing, (iii) 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), (iv) the interest payment date or dates relating thereto, (v) the name of the Borrower, and (vi) 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 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. (c) 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), 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -15- 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 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. (d) 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 (c) 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 (c) 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 (c) above by giving the Agent notice to that effect. If the Company accepts any offers made by Lenders pursuant to paragraph (c) 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 paragraph (c) above. The Company may not accept offers in excess of the amount specified in accordance with paragraph (a) above. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -16- (e) If the Company notifies the Agent that such Competitive Bid Borrowing is cancelled pursuant to paragraph (d)(x) above, the Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (f) If the Company accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (d)(y) above, the Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (c) 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 (c) 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. (g) 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 paragraph (a) above. (h) 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 subsection (j) 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. (i) 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 paragraph (b) 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -17- 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 paragraph (b) above and set forth in the promissory note, if any, evidencing such Competitive Bid Advance. (j) 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 paragraph (c) 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 paragraph (b) above, as provided in the promissory note, if any, evidencing such Competitive Bid Advance. (k) 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. (l) 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 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 other Lender until the Termination Date (on a daily basis), at the Applicable Facility Fee Rate, payable in arrears quarterly on the last day of each March, June, September and December and on the Termination Date, commencing June 30, 2004. (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) Utilization Fee. The Company shall pay to the Agent for the account of each Lender a utilization fee on the aggregate outstanding principal amount of such Lender's Advances for each day on which the aggregate outstanding amount of the Advances exceeds 50% 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), 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -18- at the Applicable Utilization Fee rate, payable on each day on which interest is payable under Section 2.07, and 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 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 Eligible Assignees 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: (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 $800,000,000. (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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -19- 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 of $25,000,000 or an integral multiple of $1,000,000 in excess thereof; 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 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(d)) 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 Lend- 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -20- ers (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. (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)(v)) that such increases in the Commitments, and borrowings thereunder, have been duly authorized. SECTION 2.06. Repayment of Revolving Credit Advances, Evidence of Indebtedness and 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -21- 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, 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 said 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 Termination Date theretofore in effect 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 Termination Date in effect at the time the Company requests such extension, and (ii) no Default shall have occurred and be continuing immediately prior to said Termination 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -22- than 30 days prior to the Termination Date then in effect 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 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. (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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -23- 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. (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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -24- 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 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -25- 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. 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(d)) 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -26- (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. (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; 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 W-8BEN or W-8ECI, 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -27- 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 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 Internal Revenue 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -28- 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 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 Internal Revenue 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -29- 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(d)) 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -30- (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. 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -31- 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 Advances 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 ARTICLE II 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 27, 2003 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. (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). 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -32- (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 C. McGuire, Esq., General Counsel of each of the Company and the Guarantor, substantially in the form of Exhibit C-1 hereto and as to such other matters as any Lender through the Agent may reasonably request. (vi) A favorable opinion of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel for the Agent, substantially in the form of Exhibit C-2 hereto. (vii) Evidence of the termination of the Commitments as defined in the $250,000,000 5-Year Credit Agreement dated as of April 30, 2003 and the $250,000,000 364-Day Credit Agreement dated as of April 30, 2003, each among the Company, the Guarantor, certain lenders and JPMorgan, as Agent, and of the payment in full of any and all amounts payable thereunder. (viii) The Agent shall have received such other approvals, opinions or documents as any Lender through the Agent may reasonably request. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -33- 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 (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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -34- 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 OF THE LOAN PARTIES 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. (e) The Consolidated balance sheet of the Company and its Subsidiaries as at December 27, 2003, and the related Consolidated statements of operations and cash flows of the Company and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of KPMG Peat Marwick, independent public accountants, fairly present the Consolidated financial condition of the Company and its Subsidiaries as at such date and the Consolidated results of the operations of the Company and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied. Since December 27, 2003, there has been no Material Adverse Change that has not been publicly disclosed. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -35- (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 and no proceeds of any Advance will be used for the purpose (whether immediate, incidental or ultimate) of buying or carrying any Margin Stock or to extend credit to others for the purpose (whether immediate, individual or ultimate) of buying 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. 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 to so 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -36- 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 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -37- 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 or the Guarantor 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 or the Guarantor unless such Loan Party or such Restricted Subsidiary secures or causes such Restricted Subsidiary or the Guarantor 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; (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 and not created with a view to circumventing the restrictions of this Section 5.02(a); (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: 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -38- (i) Debt of the Borrowing Subsidiaries, if any, created hereunder; (ii) Debt existing on the Effective Date; (iii) Debt of any Subsidiary to any Loan Party or any other Subsidiary; (iv) 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; (v) any refinancing, refunding or replacement of any Debt permitted under clause (ii) through (iv) above; and (vi) other Debt in an aggregate principal amount not exceeding 15% of Consolidated Net Tangible Assets, computed as of the last day of the then most recently concluded fiscal quarter of the Company, at any time outstanding. (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, (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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -39- (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. 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 any Advance within five days after the same becomes due and payable; or any Borrower shall fail to pay any interest, fees or any other amount under this Agreement within five Business 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) 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) Any 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 $75,000,000 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -40- (e) Any 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), 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 $75,000,000 shall be rendered against any 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -41- 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 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -42- 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 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -43- None of the Persons identified on the cover page hereof as Joint Lead Arrangers and Book Managers or Syndication Agents shall, in their roles as such, have any responsibilities or liabilities under this Agreement. 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 1 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 Assignment and Acceptance pursuant to which it became a Lender; and if to the Agent, at JPMorgan Chase Bank, Loan & Agency Services, 1111 Fannin, Floor 10, Houston, Texas 77002, Attention: Cherry Arnaez, Telecopier No. (713) 750-2782, with a copy to JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017, Attention: Buddy Wuthrich, Telecopier No. (212) 270-5100; 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, respectively, 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -44- 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. 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. In no event shall any party hereto be liable on any theory of liability for any special, indirect, consequential or punitive damages (including, without limitation, any loss of profits, business or anticipated savings). (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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -45- 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 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -46- 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, if greater, shall be in an integral multiple of $1,000,000 in excess thereof) 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 (other than any Borrower) 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). (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, 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -47- 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 (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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -48- 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 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -49- 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 and (d) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking. Notwithstanding the foregoing and any other provision herein, the Loan Parties and any Lender (and each employee, representative or other agent of the Loan Parties and any Lender) may disclose to any and all Persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure, if any, of the transactions contemplated by this Agreement (the "Transactions"), other than information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws. For the purposes of this Section 8.08, "tax structure" is limited to any fact relevant to understanding the U.S. federal income tax treatment of the Transactions and does not include information relating to the identity of the Loan Parties. SECTION 8.09. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law 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 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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -50- (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. SECTION 8.13. USA PATRIOT Act. Each Lender hereby notifies each Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of the Borrowers and other information that will allow such Lender to identify the Borrowers in accordance with the Act. 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -51- 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 Article VI hereof for the purposes hereof, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -52- 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 Person") to proceed against the Company or any other Person or to proceed against or exhaust any security held by a Benefitted Person 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 Person 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 Guarantor, the Company, any Benefitted Person, 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 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -53- upon an election of remedies by a Benefitted Person, 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 Person'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. 5-Year Credit Agreement ----------------------- NY3:#7330584v6 -54- 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/ Nicholas J. D'Alessandro ---------------------------- Name: Nicholas J. D'Alessandro Title: Vice President and Treasurer BOTTLING GROUP, LLC, as Guarantor By: /s/ Nicholas J. D'Alessandro ---------------------------- Name: Nicholas J. D'Alessandro Title: Managing Director-Delegatee JPMORGAN CHASE BANK, as Agent By: /s/ Laura J. Cumming -------------------- Name: Laura J. Cumming Title: Vice President 5-Year Credit Agreement ----------------------- NY3:#7330584v6 COMMITMENT INITIAL LENDERS - ---------- --------------- $50,000,000 BANK OF AMERICA, N.A. By: /s/David L. Catherall --------------------- Name: David L. Catherall Title: Vice President $50,000,000 CITICORP USA, INC. By: /s/ Judith Green ---------------- Name: Judith Green Title: Vice President $50,000,000 CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH By: /s/ Karl Studer --------------- Name: Karl Studer Title: Director By: /s/ Daniel Ludwig ----------------- Name: Daniel Ludwig Title: Assistant Vice President $50,000,000 DEUTSCHE BANK AG NEW YORK BRANCH By: /s/ Thomas A. Foley ------------------- Name: Thomas A. Foley Title: Director By: /s/ Sonja K. Satl ----------------- Name: Sonia K. Satl Title: Vice President Initial Lenders --------------- NY3:#7330584v6 $50,000,000 JPMORGAN CHASE BANK By: /s/ Laura J. Cumming -------------------- Name: Laura J. Cumming Title: Vice President $40,000,000 LEHMAN BROTHERS BANK, FSB By: /s/ Gary T. Taylor ------------------ Name: Gary T. Taylor Title: Vice President $40,000,000 THE NORTHERN TRUST COMPANY By: /s/ John A. Konstantos ---------------------- Name: John A. Konstantos Title: Vice President $35,000,000 BANCO BILBAO VIZCAYA ARGENTARIA By: /s/ Anne-Maureen Sarfati ------------------------ Name: Anne-Maureen Sarfati Title: Vice President Global Corporate Banking By: /s/ John Martini ---------------- Name: John Martini Title: Vice President Corporate Banking Initial Lenders --------------- NY3:#7330584v6 -2- $35,000,000 HSBC BANK USA By: /s/ William B. Murray --------------------- Name: William B. Murray Title: Senior Vice President $25,000,000 THE BANK OF NEW YORK By: /s/ Joanna S. Bellocq --------------------- Name: Joanna S. Bellocq Title: Vice President $25,000,000 ROYAL BANK OF CANADA By: --------------------- Name: Title: By: /s/ Suzanne Kaicher --------------------- Name: Suzanne Kaicher Title: Attorney-in-Fact $20,000,000 STATE STREET BANK AND TRUST COMPANY By: /s/ Juan G. Sierra ------------------ Name: Juan G. Sierra Title: Assistant Vice President $15,000,000 COMERICA BANK By: /s/ Stacey V. Judd ------------------ Name: Stacey V. Judd Title: Assistant Vice President $15,000,000 WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Caroline Gates ------------------ Name: Caroline Gates Title: Vice President $500,000,000 TOTAL OF THE COMMITMENTS Initial Lenders --------------- NY3:#7330584v6 -3- SCHEDULE 1 LENDING OFFICES --------------- ==================== ============================= ============================= Lender Domestic Lending Office Eurodollar Lending Office - -------------------- ----------------------------- ----------------------------- BANK OF AMERICA, N.A 901 Main Street, 14th Floor 901 Main Street, 14th Floor Dallas, Texas 75202 Dallas, Texas 75202 - -------------------- ----------------------------- ----------------------------- Citicorp USA, Inc. 399 Park Avenue 399 Park Avenue New York New York 10043 New York New York 10043 - -------------------- ----------------------------- ----------------------------- CREDIT SUISSE 11 Madison Avenue Credit Suisse First FIRST BOSTON, New York, New York, 10010 Boston Cayman Islands Branch CAYMAN ISLANDS c/-11 Madison Avenue BRANCH New York, New York 10010 - -------------------- ----------------------------- ----------------------------- DEUTSCHE BANK AG 90 Hudson Street 90 Hudson Street NEW YORK BRANCH Mailstop JCY05-0511 Mailstop JCY05-0511 Jersey City, NJ 07302 Jersey City, NJ 07302 - -------------------- ----------------------------- ----------------------------- JPMORGAN CHASE BANK 270 Park Avenue 270 Park Avenue New York, New York 10017 New York, New York 10017 - -------------------- ----------------------------- ----------------------------- THE NORTHERN 50 South La Salle Street 50 South La Salle Street TRUST COMPANY Chicago, Illinois 60675 Chicago, Illinois 60675 - -------------------- ----------------------------- ----------------------------- LEHMAN BROTHERS 745 7th Avenue, 16th Floor 745 7th Avenue, 16th Floor BANK, FSB New York, NY 10019 New York, NY 10019 - -------------------- ----------------------------- ----------------------------- BANCO BILBAO 1345 Avenue of the Americas 1345 Avenue of the Americas VIZCAYA ARGENTARIA New York, New York 10105 New York, New York 10105 - -------------------- ----------------------------- ----------------------------- HSBC BANK USA 452 Fifth Avenue 452 Fifth Avenue New York, New York 10018 New York, New York 10018 - -------------------- ----------------------------- ----------------------------- THE BANK OF NEW YORK One Wall Street One Wall Street New York, New York 10286 New York, New York 10286 - -------------------- ----------------------------- ----------------------------- ROYAL BANK OF CANADA One Liberty Plaza One Liberty Plaza New York, NY 10006-1404 New York, NY 10006-1404 - -------------------- ----------------------------- ----------------------------- STATE STREET BANK 225 Franklin Street 225 Franklin Street AND TRUST COMPANY Boston, MA 02110 Boston, MA 02110 - -------------------- ----------------------------- ----------------------------- COMERICA BANK 500 Woodward Avenue, 500 Woodward Avenue, 9th Floor 9th Floor MC 3279 MC 3279 Detroit, Michigan 48275-3279 Detroit, Michigan 48275-3279 - -------------------- ----------------------------- ----------------------------- WELLS FARGO BANK, 70 E. 55th Street 70 E. 55th Street NATIONAL ASSOCIATION New York, New York 10022 New York, New York 10022 ==================== ============================= ============================= Schedule I ---------- NY3:#7330584v6 SCHEDULE 2 PRICING SCHEDULE - -------------------------------------------------------------------------------- Applicable Applicable Facility Utilization Fee Rating Level Period Fee Rate Applicable Margin Rate 1 - -------------------------------------------------------------------------------- 1 6.0 bps 14.0 bps 5.0 bps - -------------------------------------------------------------------------------- 2 7.0 bps 18.0 bps 5.0 bps - -------------------------------------------------------------------------------- 3 8.0 bps 22.0 bps 5.0 bps - -------------------------------------------------------------------------------- 4 9.0 bps 26.0 bps 10.0 bps - -------------------------------------------------------------------------------- 5 12.5 bps 37.5 bps 10.0 bps - -------------------------------------------------------------------------------- __________________________________ 1 Applicable if utilization exceeds 50% of Commitment amount. Schedule 2 ---------- NY3:#7330584v6 EXHIBIT A-1 [FORM OF NOTICE OF REVOLVING CREDIT BORROWING] JPMorgan Chase Bank, as Agent for the Lenders parties to the 5-Year Credit Agreement referred to below Loan & Agency Services 1111 Fannin, Floor 10 Houston, TX 77002 Attention: Cherry Arnaez With a copy to: 270 Park Avenue New York, NY 10017 Attention: Buddy Wuthrich [Date] Ladies and Gentlemen: The undersigned, The Pepsi Bottling Group, Inc. (the "Company"), refers to the 5-Year Credit Agreement, dated as of April 28, 2004 (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 JPMorgan Chase 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].] Form of Notice of Revolving Credit Borrowing -------------------------------------------- NY3:#7330584v6 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) 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: _______________________________ Name: Title: Form of Notice of Revolving Credit Borrowing -------------------------------------------- NY3:#7330584v6 -2- EXHIBIT A-2 [FORM OF NOTICE OF COMPETITIVE BID BORROWING] JPMorgan Chase Bank, as Agent for the Lenders parties to the 5-Year Credit Agreement referred to below Loan & Agency Services 1111 Fannin, Floor 10 Houston, TX 77002 Attention: Cherry Arnaez With a copy to: 270 Park Avenue New York, NY 10017 Attention: Buddy Wuthrich [Date] Ladies and Gentlemen: The undersigned, The Pepsi Bottling Group, Inc. (the "Company"), refers to the 5-Year Credit Agreement, dated as of April 28, 2004 (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 JPMorgan Chase 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: Form of Notice of Competitive Bid Borrowing ------------------------------------------- NY3:#7330584v6 (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 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(b) of the Credit Agreement. Very truly yours, THE PEPSI BOTTLING GROUP, INC. By:___________________________ Name: Title: Form of Notice of Competitive Bid Borrowing ------------------------------------------- NY3:#7330584v6 -2- EXHIBIT A-3 [FORM OF EXTENSION AGREEMENT] The Pepsi Bottling Group, Inc. One Pepsi Way Somers, New York 10589 Attention: Treasurer JPMorgan Chase Bank, as Agent under the 5-Year Credit Agreement referred to below Loan & Agency Services 1111 Fannin, Floor 10 Houston, TX 77002 Attention: Cherry Arnaez With a copy to: 270 Park Avenue New York, NY 10017 Attention: Buddy Wuthrich [DATE] Ladies and 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 5-Year Credit Agreement dated as of April 28, 2004 (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 JPMorgan Chase Bank, as administrative agent for the Lenders, to [one year 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] Form of Extension Agreement --------------------------- NY3:#7330584v6 EXHIBIT B FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the 5-Year Credit Agreement dated as of April 28, 2004 (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 JPMorgan Chase 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 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) Form of Assignment and Acceptance --------------------------------- NY3:#7330584v6 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 law 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. Form of Assignment and Acceptance --------------------------------- NY3:#7330584v6 -2- Schedule 1 to Assignment and Acceptance Percentage interest assigned: ___% Assignee's Commitment: $__________ Aggregate outstanding principal amount of Revolving Credit Advances assigned: $__________ Effective Date 2: _______________, ____ [NAME OF ASSIGNOR], as Assignor By Title: Dated: , [NAME OF ASSIGNEE], as Assignee By Title: Dated: , Domestic Lending Office: [Address] Eurodollar Lending Office: [Address] __________________________________ 2 This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent. Schedule 1 to Assignment and Acceptance --------------------------------------- NY3:#7330584v6 Accepted and Approved this ____ day of ________, ____ JPMORGAN CHASE BANK, as Agent By: ___________________________________ Name: Title: Approved this ____ day of ________, ____ THE PEPSI BOTTLING GROUP, INC. By: ___________________________________ Name: Title: Schedule 1 to Assignment and Acceptance --------------------------------------- NY3:#7330584v6 -2- EXHIBIT C-1 [FORM OF OPINION OF GENERAL COUNSEL OF THE COMPANY AND THE GUARANTOR] [Effective Date] To each of the Lenders parties to the 5-Year Credit Agreement dated as of April 28, 2004 among The Pepsi Bottling Group, Inc., said Lenders and JPMorgan Chase Bank, as Agent for said Lenders, and to JPMorgan Chase 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 28, 2004 (the "Credit Agreement"), among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC, (the "Guarantor"), the Lenders parties thereto and JPMorgan Chase 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 $500,000,000. 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"). Form of Opinion of General Counsel for the Company and the Guarantor -------------------------------------------------------------------- NY3:#7330584v6 (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 _______________, 2004, 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 _________, 2004, 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 April 26, 1999 and September 5, 2002. (10) Resolutions of the Managing Directors of the Guarantor adopted on June 4, 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. (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 Form of Opinion of General Counsel for the Company and the Guarantor -------------------------------------------------------------------- NY3:#7330584v6 -2- 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: (1) 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. (2) 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). (3) 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 enforcement of the Credit Agreement may be sought that limits the rates of interest that such Lender may charge or collect. (4) I express no opinion as to the effect of Section 548 of the United States Bankruptcy Code or any similar provision of State law. In all respects and for all 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, Form of Opinion of General Counsel for the Company and the Guarantor -------------------------------------------------------------------- NY3:#7330584v6 -3- EXHIBIT C-2 [Form of Opinion of Special New York Counsel for the Agent] April 28, 2004 To each of the Banks and the Agent party to the Credit Agreement referred to below Ladies and Gentlemen: We have acted as special New York counsel to JPMorgan Chase Bank, as administrative agent (in such capacity, the "Agent") in connection with the 5-Year Credit Agreement dated as of April 28, 2004 (the "Credit Agreement"), among The Pepsi Bottling Group, Inc. (the "Borrower"), Bottling Group, LLC (the "Guarantor" and, together with the Borrower, the "Credit Parties"), the banks and other financial institutions from time to time parties thereto (the "Banks") and the Agent. This opinion is furnished to you pursuant to Section 3.01(g)(vi) of the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. In arriving at the opinions expressed below, we have examined and relied on the Credit Agreement and we have made such investigations of law as we have deemed appropriate for purposes of this opinion. In our examination, we have assumed the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies. When relevant facts were not independently established, we have relied upon representations made in or pursuant to the Credit Agreement. In rendering the opinions expressed below, we have assumed, with respect to the Credit Agreement, that: (i) the Credit Agreement has been duly authorized by, has been duly executed and delivered by, and (except to the extent set forth in the opinions below as to the Credit Form of Opinion of Special New York Counsel for the Agent --------------------------------------------------------- NY3:#7330584v6 Parties) constitutes the legal, valid, binding and enforceable obligation of, all of the parties thereto; (ii) all signatories to the Credit Agreement have been duly authorized; (iii) all of the parties to the Credit Agreement are duly organized and validly existing under the laws of their respective jurisdictions of incorporation and have the power and authority (corporate or other) to execute, deliver and perform the Credit Agreement. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that the Credit Agreement constitutes the legal, valid and binding obligation of each of the Credit Parties party thereto, enforceable against such Credit Party in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability thereof is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. The foregoing opinions are subject to the following comments and qualifications: (A) The enforceability of Section 8.04(b) of the Credit Agreement may be limited by (i) laws rendering unenforceable indemnification contrary to Federal or state securities laws and the public policy underlying such laws and (ii) laws limiting the enforceability of provisions releasing, exculpating or exempting a party, or requiring indemnification of a party for, liability for its own action or inaction, to the extent the action or inaction involves gross negligence, recklessness, wilful misconduct or unlawful conduct. (B) The enforceability of provisions in the Credit Agreement to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. (C) We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Bank is located (other than the State of New York) that limit the interest, fees or other charges such Bank may impose, (ii) Section 8.05 of the Credit Agreement to the extent it purports to grant a right of set-off, (iii) Section 8.11(a) of the Credit Agreement, insofar as it relates to the subject matter jurisdiction of any court of the United States of America sitting in New York City to adjudicate any controversy related to the Credit Agreement, (iv) Section 8.11(b) of the Credit Agreement insofar as it relates to inconvenient forum with respect to any Federal court and (v) Section 10.02 of the Credit Agreement. (D) We express no opinion as to the applicability to the obligations of the Guarantor under Article X of the Credit Agreement (or the enforceability of such obligations under) Section 548 of the Bankruptcy Code, Article 10 of the New York Debtor and Creditor Form of Opinion of Special New York Counsel for the Agent --------------------------------------------------------- NY3:#7330584v6 -2- Law or any other provision of law relating to fraudulent conveyances, transfers or obligations, or the provisions of the law of the jurisdiction of incorporation of the Guarantor restricting dividends, loans or other distributions by a corporation for the benefit of its stockholders. The foregoing opinions are limited to matters involving the Federal laws of the United States of America and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction. This opinion letter is, pursuant to Section 3.01(g)(vi) of the Credit Agreement, provided to you by us in our capacity as special New York counsel to the Agent and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent. Very truly yours, WFC/RJW Form of Opinion of Special New York Counsel for the Agent --------------------------------------------------------- NY3:#7330584v6 -3- EXHIBIT D [FORM OF DESIGNATION LETTER] ____________, ____ To JPMorgan Chase Bank as Agent Attention: Cherry Arnaez 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 28, 2004 among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), JPMorgan Chase 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. 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 Form of Designation Letter -------------------------- NY3:#7330584v6 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: _____________________________ Name: Title: [NAME OF BORROWING SUBSIDIARY] By: ______________________________ Name: Title: Form of Designation Letter -------------------------- NY3:#7330584v6 -2- ACCEPTED: JPMORGAN CHASE BANK, as Agent By: ___________________________________ Name: Title: Form of Designation Letter -------------------------- NY3:#7330584v6 -3- EXHIBIT E [FORM OF SUBSTITUTION LETTER] ____________, ____ To JPMorgan Chase Bank as Agent Attention: Cherry Arnaez 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 28, 2004 among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), JPMorgan Chase 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. 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 Form of Substitution Letter --------------------------- NY3:#7330584v6 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:___________________________ Name: Title: BOTTLING GROUP, LLC By:____________________________ Name: Title: Form of Substitution Letter --------------------------- NY3:#7330584v6 -2- EXHIBIT F [FORM OF TERMINATION LETTER] ____________, ____ To JPMorgan Chase Bank, as Agent Attention: Cherry Arnaez 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 28, 2004 by and among The Pepsi Bottling Group, Inc. (the "Company"), Bottling Group, LLC (the "Guarantor"), JPMorgan Chase 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: _________________________ Name: Title: Form of Termination Letter -------------------------- NY3:#7330584v6 EX-11 3 pbg2q10q2004exhibt11_1.txt PEPSI BOTTLING GROUP (EXHIBIT 11.1) Exhibit 11.1 The Pepsi Bottling Group, Inc. Computation of Basic and Diluted Earnings Per Share (in millions, except per share data)
12 Weeks Ended 24 Weeks Ended -------------- -------------- June 12, June 14, June 12, June 14, 2004 2003 2004 2003 ------ ------ ------ ------ Number of shares on which basic earnings per share is based: Average outstanding during period................ 258 273 259 276 Add - Incremental shares under stock compensation plans............................. 9 6 9 7 ---- ---- ---- ---- Number of shares on which diluted earnings per share is based...................... 267 279 268 283 Net earnings applicable to common shareholders ................................... $ 142 $ 131 $ 192 $ 164 Net earnings on which diluted earnings per share is based ............................. $ 142 $ 131 $ 192 $ 164 Basic earnings per share........................... $0.55 $0.48 $0.74 $0.59 Diluted earnings per share......................... $0.53 $0.47 $0.72 $0.58
EX-15 4 pbg2q10q2004exhibit15_1.txt PEPSI BOTTLING GROUP (EXHIBIT 15.1) Exhibit 15.1 Accountants' Acknowledgment The Board of Directors The Pepsi Bottling Group, Inc.: The Owners of Bottling Group, LLC: With respect to the registration statements listed below, we acknowledge our awareness of the use therein of our reports dated July 8, 2004 related to our reviews of The Pepsi Bottling Group, Inc. and Bottling Group, LLC interim financial information. o Form S-8 dated May 26, 1999 (File No. 333-79357) o Form S-8 dated May 26, 1999 (File No. 333-79369) o Form S-8 dated May 26, 1999 (File No. 333-79375) o Form S-8 dated May 26, 1999 (File No. 333-79365) o Form S-8 dated June 14, 1999 (File No. 333-80647) o Form S-8 dated May 8, 2001 (File No. 333-60428) o Form S-8 dated September 19, 2001 (File No. 333-69622) o Form S-8 dated November 14, 2001 (File No. 333-73302) o Form S-8 dated October 28, 2002 (File No. 333-100786) Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such reports are not considered part of a registration statement prepared or certified by an accountant, or reports prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. /s/ KPMG LLP New York, New York July 21, 2004 EX-31 5 pbg2q10q2004exhibit31_1.txt PEPSI BOTTLING GROUP (EXHIBIT 31.1 CEO) Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John T. Cahill, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Pepsi Bottling Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 21, 2004 /s/ John T. Cahill ------------- ------------------ John T. Cahill Chief Executive Officer EX-31 6 pbg2q10q2004exhibit31_2.txt PEPSI BOTTLING GROUP (EXHIBIT 31.2 CFO) Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Alfred H. Drewes, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Pepsi Bottling Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 21, 2004 /s/ Alfred H. Drewes ------------- -------------------- Alfred H. Drewes Senior Vice President and Chief Financial Officer EX-32 7 pbg2q10q2004exhibit32_1.txt PEPSI BOTTLING GROUP (EXHIBIT 32.1 CEO) Exhibit 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of The Pepsi Bottling Group, Inc. (the "Company") certifies to his knowledge that: (1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 12, 2004 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-Q. /s/ John T. Cahill ------------------ John T. Cahill Chief Executive Officer July 21, 2004 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11(d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 8 pbg2q10q2004exhibit32_2.txt PEPSI BOTTLING GROUP (EXHIBIT 32.2 CFO) Exhibit 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of The Pepsi Bottling Group, Inc. (the "Company") certifies to his knowledge that: (1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 12, 2004 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Act"); and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company as of the dates and for the periods referred to in the Form 10-Q. /s/ Alfred H. Drewes -------------------- Alfred H. Drewes Senior Vice President and Chief Financial Officer July 21, 2004 The foregoing certification (the "Certification") is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed original of the Certification has been provided to the Company and will be retained by the Company in accordance with Rule 12b-11(d) of the Act and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----