Exhibit 10.01
TAX SEPARATION AGREEMENT
between
PEPSICO, INC.,
on behalf of itself
and the members
of the PEPSICO GROUP
and
TRICON GLOBAL RESTAURANTS, INC.,
on behalf of itself
and the members
of the TRICON GROUP
TAX SEPARATION AGREEMENT
This Agreement is entered into as of the [ ] day of [ ], 1997
between PepsiCo, Inc. ("PepsiCo"), a North Carolina corporation, on behalf of
itself and the members of the PepsiCo Group, and TRICON Global Restaurants, Inc.
("TRICON"), a North Carolina corporation, on behalf of itself and the members of
the TRICON Group.
W I T N E S S E T H:
WHEREAS, pursuant to the tax laws of various jurisdictions,
certain members of the TRICON Group, as defined below, presently file certain
tax returns on an affiliated, consolidated, combined, unitary, fiscal unity or
other group basis (including as permitted by Section 1501 of the Internal
Revenue Code of 1986, as amended (the "Code")) with certain members of the
PepsiCo Group, as defined below (each such group, a "Consolidated Group");
WHEREAS, PepsiCo and TRICON intend to enter into a Separation
Agreement dated as of [ ], 1997 (the "Separation Agreement"), providing for the
distribution by PepsiCo to its shareholders of all of the common stock of TRICON
that is held by PepsiCo (the "Distribution") and certain other matters;
WHEREAS, PepsiCo and TRICON desire to set forth their agreement
on the rights and obligations of PepsiCo, TRICON and the members of the PepsiCo
Group and the TRICON Group, respectively, with respect to the handling and
allocation of federal, state, local and foreign Taxes incurred in Taxable
periods beginning prior to the Distribution Date, Taxes resulting from
transactions effected in connection with the Distribution (the "Restructuring")
and various other Tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Definitions
(a) As used in this Agreement:
"Affiliate" of any Person shall mean (i) any individual,
corporation, partnership or other entity directly or indirectly owning more than
50 percent (by vote or value) of, owned more than 50 percent (by vote or value)
by, or under more than 50 percent (by vote or value) common ownership with, such
Person, and (ii) any entity that is entitled to the benefit of any Tax Asset of
such Person under applicable law, any entity with any Tax Asset to which such
Person is entitled to the benefit of under applicable law, or any entity which
is entitled or required to transfer or assign income, revenues, receipts, or
gains to such Person under applicable law.
"After-Tax Amount" shall mean an additional amount necessary to
reflect the hypothetical Tax consequences of the receipt or accrual of any
payment, using the maximum statutory rate (or rates, in the case of an item that
affects more than one Tax) applicable to the recipient of such payment for the
relevant year, reflecting for example, the effect of the deductions available
for interest paid or accrued and for Taxes such as state and local income Taxes.
"Consolidated Group" shall have the meaning ascribed to it in the
first "whereas" clause in this Agreement; provided, however, that "Consolidated
Group" shall also include (i) any Affiliate of PepsiCo that filed (or will file)
any Pre-Distribution Period Returns that reflect the income, assets or
operations of a Restaurant Business and (ii) any Affiliate of TRICON that filed
(or will file) any Pre-Distribution Period Returns that reflect the income,
assets or operations of a Non-Restaurant Business.
"Distribution" shall mean the distribution by PepsiCo of all of
the common stock of TRICON that is held by PepsiCo to PepsiCo's shareholders
pursuant to the Separation Agreement.
"Distribution Date" shall mean the date on which the
Distribution shall be effected.
"Federal Tax" shall mean any Tax imposed under Subtitle A of the
Code and any related penalty imposed under Subtitle F of the Code.
"Final Determination" shall mean (i) with respect to Federal
Taxes, (A) a "determination" as defined in Section 1313(a) of the Code, or (B)
the date of acceptance by or on behalf of the IRS of Form 870-AD (or any
successor form thereto), as a final resolution of Tax liability for any Taxable
period, except that a Form 870-AD (or successor form thereto) that reserves the
right of the taxpayer to file a claim for refund or the right of the IRS to
assert a further deficiency shall not constitute a Final Determination with
respect to the item or items so reserved; (ii) with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise; (iii) any final disposition by reason of the
expiration of the applicable statute of limitations; or (iv) the payment of Tax
by PepsiCo, TRICON, or any member of the PepsiCo Group or the TRICON Group,
whichever is responsible for payment of such Tax under applicable law, with
respect to any item disallowed or adjusted by a Taxing Authority, provided that
the provisions of Section 8 hereof have been complied with, or, if such section
is inapplicable, that the party responsible under the terms of this Agreement
for such Tax is notified by the party paying such Tax that it has determined
that no action should be taken to recoup such disallowed item, and the other
party agrees with such determination.
"IRS" shall mean the Internal Revenue Service.
"LIBOR" shall be determined on the basis of the offered rates for
deposits in U.S. Dollars for a period of 30 days which appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time. If at least two rates appear on
the Reuters Screen LIBO Page, the rate will be the arithmetic mean of such
rates.
"Non-Restaurant Business" shall mean any business other than a
Restaurant Business.
"PepsiCo Group" shall mean, with respect to any Taxable period,
PepsiCo and its Affiliates (including their predecessors and successors) at any
time prior to the Distribution other than those Affiliates comprising the TRICON
Group.
"PepsiCo Tax Liability" shall mean, with respect to any
Consolidated Group and any Taxable period, the PepsiCo Group's share of the Tax
liability of such Consolidated Group, computed as if the relevant members of the
PepsiCo Group were not and never were part of such Consolidated Group, but
rather were a separate affiliated group of corporations filing a similar group
Return (provided, however, that transactions with any member of the TRICON Group
included in such Consolidated Group shall not be taken into account until the
first Taxable period in which such transaction is required to be taken into
account for Tax purposes under applicable law). Such computation shall be made
(A) without regard to the income, deductions (including net operating loss and
capital loss deductions) and credits in any year of any member of the TRICON
Group, except to the extent that a payment was made to any member of the TRICON
Group with respect thereto, (B) by taking account of any Tax Asset of the
PepsiCo Group, (C) with regard to net operating loss and capital loss
carryforwards and carrybacks and minimum Tax credits from earlier years of the
PepsiCo Group and without reduction for any such losses, carryforwards,
carrybacks or credits used by any member of the TRICON Group, (D) by applying
the maximum applicable statutory Tax rate in effect under applicable law during
the relevant year, and (E) reflecting the positions, elections and accounting
methods used by the Consolidated Group in preparing the relevant Return for the
Consolidated Group.
"PepsiCo Vice President, Tax" shall include any successor
position or title.
"Person" shall have the meaning ascribed to it in Section
7701(a)(1) of the Code.
"Post-Distribution Period" shall mean any taxable period (or
portion thereof) beginning after the close of business on the Distribution Date.
"Pre-Distribution Period" shall mean any Taxable period ending on
or before the close of business on the Distribution Date; provided that if a
Taxable period ending after the Distribution Date contains any days which fall
prior to or on the Distribution Date, any portion of such Taxable period up to
and including the Distribution Date shall also be included in the
Pre-Distribution Period.
"Prime" shall mean the rate announced from time to time as
"prime" by Chase Manhattan Bank as its prime rate with respect to the applicable
currency.
"Restaurant Business" shall mean any business activity associated
with the operation, development, franchising and licensing of restaurants
(including the casual dining restaurants), as determined by the PepsiCo Vice
President, Tax in accordance with past practice.
"Return" shall mean any Tax return, statement, report, form,
election, claim or surrender (including estimated Tax returns and reports,
extension requests and forms, and information returns and reports) required to
be filed with any Taxing Authority.
"Tax" (and the correlative meaning, "Taxes," "Taxing" and
"Taxable") shall mean (A) any tax imposed under Subtitle A of the Code, or any
net income, gross income, gross receipts, alternative or add-on minimum, sales,
use, business and occupation, value-added, trade, goods and services, ad
valorem, franchise, profits, license, business royalty, withholding, payroll,
employment, capital, excise, transfer, recording, severance, stamp, occupation,
premium, property, asset, real estate acquisition, environmental, custom duty,
or other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by a Taxing Authority; (B) any liability of a member
of the PepsiCo Group or the TRICON Group, as the case may be, for the payment of
any amounts of the type described in clause (A) for any Taxable period resulting
from such member being a part of a Consolidated Group pursuant to the
application of Treasury Regulation Section 1.1502-6 or any similar provision
applicable under state, local or foreign law; or (C) any liability of a member
of the PepsiCo Group or the TRICON Group for the payment of any amounts
described in clause (A) as a result of any express or implied obligation to
indemnify any other party.
"Tax Asset" shall mean any net operating loss, net capital loss,
investment Tax credit, foreign Tax credit, target jobs Tax credit, low income
housing credit, research and experimentation credit, charitable deduction, or
any other loss, credit or Tax attribute, including additions to basis of
property and attributes which reduce or offset value-added Tax liability, which
could reduce any Tax (domestic or foreign), including, without limitation,
deductions, credits, or alternative minimum net operating loss carryforwards
related to alternative minimum Taxes.
"Tax Packages" shall mean one or more packages of information
that are (i) reasonably necessary for the purpose of preparing Returns of any
Consolidated Group with respect to a Pre-Distribution Period and (ii) completed
in all material respects in accordance with the standards that PepsiCo has
established for its subsidiaries with respect to the relevant Pre-Distribution
Period.
"Tax Proceeding" shall mean any Tax audit, dispute or proceeding
(whether administrative or judicial).
"Taxing Authority" shall mean any governmental authority
(domestic or foreign), including, without limitation, any state, municipality,
political subdivision or governmental agency, responsible for the imposition of
any Tax.
"TRICON Group" shall mean TRICON and its Affiliates immediately
after the Distribution Date, including any predecessors thereto; provided,
however, that for purposes of determining whether an entity is a member of the
TRICON Group, a transfer of beneficial ownership of an entity shall be treated
as a transfer of title, regardless of whether title has actually passed;
provided further, that to the extent that an affiliate of PepsiCo or TRICON
conducted both a Restaurant Business and a Non-Restaurant Business, the
Restaurant Business shall be treated for purposes of this Agreement as a
separate corporation that is a member of the TRICON Group and the Non-Restaurant
Business shall be treated for purposes of this Agreement as a separate
corporation that is a member of the PepsiCo Group; provided further, that if
with respect to any Pre-Distribution Period (or portion thereof) any Affiliate
of PepsiCo was involved solely in the conduct of a Restaurant Business, such
member shall be treated as a member of the TRICON Group for such
Pre-Distribution Period (or portion thereof); and provided further, that if with
respect to any Pre-Distribution Period (or portion thereof) any Affiliate of
TRICON was not involved in the conduct of a Restaurant Business, such member
shall not be treated as a member of the TRICON Group for such Pre-Distribution
Period (or portion thereof).
"TRICON Tax Liability" shall mean, with respect to any
Consolidated Group and any Taxable period, the TRICON Group's share of the Tax
liability of such Consolidated Group, computed as if the relevant members of the
TRICON Group were not and never were part of such Consolidated Group, but rather
were a separate affiliated group of corporations filing a similar group Return
(provided, however, that transactions with any member of the PepsiCo Group
included in such Consolidated Group shall not be taken into account until the
first Taxable period in which such transaction is required to be taken into
account for Tax purposes under applicable law). Such computation shall be made
(A) without regard to the income, deductions (including net operating loss and
capital loss deductions) and credits in any year of any member of the PepsiCo
Group, except to the extent that a payment was made to any member of the PepsiCo
Group with respect thereto, (B) by taking account of any Tax Asset of the TRICON
Group, including net operating loss and capital loss carryforwards and
carrybacks and minimum Tax credits from earlier years of the TRICON Group except
to the extent that such losses, carryforwards, carrybacks or credits have been
used by any member of the PepsiCo Group, (C) by applying the maximum applicable
statutory Tax rate in effect under applicable law during the relevant year, and
(D) reflecting the positions, elections and accounting methods used by the
Consolidated Group in preparing the relevant Return for the Consolidated Group.
(b) Any term used in this Agreement which is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or the applicable Treasury regulations thereunder (as
interpreted in administrative pronouncements and judicial decisions) or in
comparable provisions of applicable law.
2. Administrative and Compliance Matters.
(a) Sole Tax Sharing Agreement. Any and all existing Tax sharing
agreements or arrangements, written or unwritten, between any member of the
PepsiCo Group and any member of the TRICON Group shall be or shall have been
terminated as of the date of this Agreement. As of the date of this Agreement,
neither the members of the TRICON Group nor the members of the PepsiCo Group
shall have any further rights or liabilities thereunder, and this Agreement
shall be the sole Tax sharing agreement between the members of the TRICON Group
and the members of the PepsiCo Group. Notwithstanding the foregoing, if any such
termination is not binding on any Taxing Authority, the TRICON Group shall hold
the affected member of the PepsiCo Group harmless against any adverse effect
which would have been avoided if such termination had been given effect by such
Taxing Authority.
(b) Designation of Agent. TRICON and each member of the TRICON
Group, and PepsiCo and each member of the PepsiCo Group, as the case may be, in
each case with respect to any Consolidated Group of which such Person is a
member, hereby irrevocably authorize PepsiCo or TRICON, as the case may be, and
consistent with past practice and applicable law, to designate a member of the
PepsiCo Group or the TRICON Group, as appropriate, or a successor of such
member, as its agent, coordinator, and administrator, for the purpose of taking
any and all actions (including the execution of waivers of applicable statutes
of limitation) necessary or incidental to the filing of any Return, any amended
Return, or any claim for refund (even where an item or Tax Asset giving rise to
an amended Return or refund claim arises in a Post-Distribution Period), credit
or offset of Tax or any other proceedings, and for the purpose of making
payments to, or collecting refunds from, any Taxing Authority, in each case
relating only to any Pre-Distribution Period. Such designated member of the
PepsiCo Group or the TRICON Group, as the case may be, as agent, covenants to
TRICON or PepsiCo, respectively, that it shall be responsible to see that all
such administrative matters relating thereto shall be handled promptly and
appropriately.
(c) Pre-Distribution Period Returns. With respect to a
Consolidated Group, the member of the PepsiCo Group or the TRICON Group, as
applicable, that is required by applicable law to file the Returns for all
Pre-Distribution Periods will prepare such Returns with the assistance of the
TRICON Group or the PepsiCo Group, respectively. With respect to each
Consolidated Group, either a member of the PepsiCo Group or a member of the
TRICON Group, as consistent with past practice and applicable law, will file the
Pre-Distribution Period Returns for such Consolidated Group. PepsiCo and the
members of the PepsiCo Group shall have the right with respect to any
Consolidated Group Returns to determine (x) the manner in which such returns,
documents or statements shall be prepared and filed, including, without
limitation, the manner in which any item of income, gain, loss, deduction or
credit shall be reported, (y) whether any extensions should be requested, and
(z) the elections, including claims and surrenders for U.K. group relief and any
similar foreign offsetting procedures, that will be made by any member of the
PepsiCo Group or the TRICON Group. In addition, with respect to all
Pre-Distribution Periods, except as provided in Section 8(b), PepsiCo and the
members of the PepsiCo Group shall have the right to (i) contest, compromise or
settle any adjustment or deficiency proposed, asserted or assessed as a result
of any audit of any consolidated return filed by the PepsiCo Group or the TRICON
Group, (ii) file, prosecute, compromise or settle any claim for refund, (iii)
determine whether any refunds to which the PepsiCo Group may be entitled shall
be received by way of refund or credited against the tax liability of the
PepsiCo Group and (iv) determine whether a deposit will be made with a Taxing
Authority to stop the running of interest. With respect to the 1997 Tax year,
TRICON and the members of the TRICON Group shall prepare and deliver to PepsiCo
all Tax Packages within 120 days after the Distribution Date, regardless of
whether the member's Taxable year ends on the Distribution Date.
3. Tax Sharing.
(a) General. For each Taxable period of each Consolidated Group
during which income, profits, gains, net worth, receipts, sales, loss or credit
against Tax of at least one member of each of the TRICON Group and the PepsiCo
Group are includible in a Return of such Consolidated Group, the TRICON Group or
the PepsiCo Group, as appropriate, shall pay, as provided in this Section 3, to
the PepsiCo Group or the TRICON Group, respectively, an amount equal to the
TRICON Tax Liability or the PepsiCo Tax Liability, as appropriate, for such
Taxable period, if any. Any Return filed by an entity described in clause (i) of
the definition of Consolidated Group shall be treated as required to be filed by
the PepsiCo Group and any payment made prior to the Distribution with respect to
such Return shall be treated as having been made by the PepsiCo Group. Any
Return filed by an entity described in clause (ii) of the definition of
Consolidated Group shall be treated as required to be filed by the TRICON Group
and any payment made prior to the Distribution with respect to such Return shall
be treated as having been made by the TRICON Group.
(b) Estimated Payments. Not later than 3 days after a member of
the PepsiCo Group or a member of the TRICON Group, as the case may be, makes an
estimated Tax payment with respect to a Taxable period of a Consolidated Group,
whether or not such payment is made prior to the Distribution, the PepsiCo Group
shall (i) in good faith determine the amount of the TRICON Tax Liability or the
PepsiCo Tax Liability, as appropriate, pursuant to this Agreement and (ii)
deliver a written statement to TRICON reflecting the determination described
above. Not later than three days after receipt of such statement, the TRICON
Group shall pay to the PepsiCo Group or the PepsiCo Group shall pay to the
TRICON Group, as appropriate, the amount so determined in accordance with
Section 9 hereof.
(c) Payment of Taxes at Year-End.
(i) Not later than 5 business days before a member of the PepsiCo
Group or a member of the TRICON Group, as the case may be, is required to file a
Return (after taking extensions into account) with respect to any Consolidated
Group for which payments are to be made under this Agreement, whether or not
such Return is filed prior to the Distribution, the PepsiCo Group shall deliver
to the TRICON Group a written statement setting forth the difference between (x)
the TRICON Tax Liability or the PepsiCo Tax Liability, as appropriate, for such
Return, and (y) the aggregate amount of payments with respect to the TRICON Tax
Liability or the PepsiCo Tax Liability, as appropriate, for such year made
pursuant to Section 3(b). Not later than the date such Return is required to be
filed, the TRICON Group shall pay to the PepsiCo Group or the PepsiCo Group
shall pay to the TRICON Group, as appropriate, in accordance with Section 9
hereof, an amount equal to such difference, if any; provided, however, that to
the extent such payment is to be made to the TRICON Group and is attributable to
a claim for refund of Taxes previously paid to a Taxing Authority, the PepsiCo
Group will not be required to make such payment to the TRICON Group.
(ii) With respect to each Return described in Section 3(a) above
and previously filed by a Consolidated Group, and for which the TRICON Tax
Liability or the PepsiCo Tax Liability, as the case may be, has not been
satisfied in full or for which the TRICON Group has not paid the PepsiCo Group
in full for a benefit derived from the use of a Tax Asset of the PepsiCo Group,
the TRICON Group shall pay to the PepsiCo Group or the PepsiCo Group shall pay
to the TRICON Group, as appropriate, within 30 days of demand therefor, the
amount in respect of such Return as determined by the PepsiCo Vice President,
Tax.
(d) Certain Other Matters.
(i) With respect to each Consolidated Group, the TRICON Group
shall pay to the PepsiCo Group the actual benefit received by such Consolidated
Group from the use of any Tax Asset of the PepsiCo Group or any Tax Asset
attributable to the Restaurant Business which is reattributed to PepsiCo
pursuant to Treasury Regulation ss.1.1502-20(g) or any comparable provision of
applicable law, whether arising in a Pre-Distribution Period or a
Post-Distribution Period. Such benefit shall be considered equal to the excess
of the amount of Tax that would have been payable to a Taxing Authority (or of
the Tax refund that would have been receivable) by such Consolidated Group in
the absence of such Tax Asset over the amount of Tax actually payable to a
Taxing Authority (or of the Tax refund actually receivable) by such Consolidated
Group. Payment of the amount of such benefit shall be made within 30 days of the
receipt by any member of the TRICON Group of any refund, credit or other offset
attributable thereto from the relevant Taxing Authority and the future Returns
of the PepsiCo Group shall be adjusted to reflect such use.
(ii) If, subsequent to the payment by the TRICON Group to the
PepsiCo Group of any amount referred to in Section 3(d)(i) above, there shall be
(A) a Final Determination which results in a disallowance or a reduction of the
Tax Asset so used or (B) a reduction in the amount of the benefit realized by
the TRICON Group from such Tax Asset as a result of a Final Determination or the
use by the TRICON Group of a Tax Asset of a member of the TRICON Group, the
PepsiCo Group shall repay to the TRICON Group the amount which would not have
been payable to the PepsiCo Group pursuant to Section 3(d)(i) had the amount of
the benefit been determined in light of such event. In addition, the PepsiCo
Group shall hold each member of the TRICON Group harmless for any penalty or
interest payable by any member of the TRICON Group as a result of any such event
referred to in the preceding sentence, unless such event is attributable to any
action of any member of the TRICON Group. Any amounts payable under this Section
3(d)(ii) shall be paid by the PepsiCo Group within 30 days after receipt of
written notice from the TRICON Group.
(e) Treatment of Adjustments.
(i) Except as provided in clause (iii) below if any adjustment is
made in, or if a Taxing Authority assesses any deficiency with respect to, a
Return of a Consolidated Group filed by a member of the TRICON Group which would
have increased the PepsiCo Tax Liability under Section 3(c)(i), then within 30
days after a Final Determination of the adjustment, the PepsiCo Group shall pay
to the TRICON Group the difference between all payments actually made under
Section 3(c)(i) and all payments that would have been made under Section 3(c)(i)
taking such adjustment into account.
(ii) If any adjustment is made in, or if a Taxing Authority
assesses any deficiency with respect to, a Return of a Consolidated Group filed
by a member of the PepsiCo Group which would have increased the TRICON Tax
Liability under Section 3(c)(i), then within 30 days after any member of the
PepsiCo Group makes a payment to a Taxing Authority or makes a deposit with a
Taxing Authority to stop the running of interest with respect to such
adjustment, the TRICON Group shall pay to the PepsiCo Group the difference
between all payments actually made under Section 3(c)(i) and all payments that
would have been made under Section 3(c)(i) taking such adjustment into account.
(iii) If any adjustment made in, or any deficiency assessed with
respect to, a Return of a Consolidated Group results in a reduction in the
amount of the benefit realized by the PepsiCo Group from a Tax Asset of the
TRICON Group (whether or not the TRICON Group was paid in respect of such
benefit), the TRICON Group shall, within 30 days after receipt of written notice
from the PepsiCo Group, pay to the PepsiCo Group the amount of such reduction.
In addition, the TRICON Group shall hold each member of the PepsiCo Group
harmless for any penalty or interest payable by any member of the TRICON Group
as a result of any such reduction.
(iv) Any refunds or credits of Tax (including a return of a
deposit described in Section 3(e)(ii)) received by a member of the TRICON Group
relating to a Pre-Distribution Period, shall be paid by such member of the
TRICON Group to the PepsiCo Group within 30 days of receipt; provided that no
such payment shall be required to the extent such refund or credit is
attributable to (x) a Tax Asset of the PepsiCo Group for which payment has
previously been made by the TRICON Group, or (y) an adjustment for which payment
in respect thereof has previously been made pursuant to Section 3(e)(i) or
3(e)(ii).
4. Certain Representations and Covenants.
(a) (i) TRICON Representations. TRICON and each member of the
TRICON Group represent that as of the date hereof, and covenants that on the
Distribution Date, there is no plan or intention (A) to liquidate TRICON or to
merge or consolidate TRICON, or any member of the TRICON Group conducting an
active trade or business relied upon in connection with the Restructuring or the
Distribution, with any other person subsequent to the Distribution, (B) to sell,
refranchise or otherwise dispose of any asset, or close any restaurant unit, of
TRICON or any member of the TRICON Group subsequent to the Distribution, in a
manner that would result in any increased Tax liability or reduction of any Tax
Asset of the PepsiCo Group or any member thereof, (C) to take any action
inconsistent with the information and representations furnished to the IRS or
any other Taxing Authority in connection with the request for a private letter
ruling (or any comparable pronouncement by a Taxing Authority under applicable
law) with respect to the Distribution or the Restructuring, (D) to enter into
any negotiations, agreements, or arrangements with respect to transactions or
events (including stock issuances, pursuant to the exercise of options or
otherwise, capital contributions, or acquisitions, but not including the
Distribution) which, if treated as consummated before the proposed distribution,
would result in PepsiCo not having "control" of TRICON within the meaning of
sections 355(a)(1)(A) and 368(c) of the Code at the time of the Distribution,
(E) to make any change in equity structure that would result in PepsiCo not
having such "control" (except for the Distribution), (F) to repurchase stock of
TRICON in a manner contrary to the requirements of Revenue Procedure 96-30 or in
a manner contrary to the representations made in connection with the request for
a private letter ruling with respect to the Distribution or (G) to take any
action that contravenes any existing gain recognition agreement or other
agreement with a Taxing Authority to which any member of the TRICON Group or the
PepsiCo Group is a party.
(ii) TRICON and PepsiCo Representations. Each of TRICON, PepsiCo
and the members of the TRICON Group and the PepsiCo Group, respectively,
represents that as of the date hereof, and covenants that on the Distribution
Date, neither TRICON, PepsiCo nor the members of the TRICON Group or PepsiCo
Group, respectively (as applicable), is aware of any present plan or intention
by the current shareholders of PepsiCo to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in, or securities of, PepsiCo or TRICON
subsequent to the Distribution. In making this representation, the parties
hereto recognize that the shares of PepsiCo are, and the shares of TRICON will
be, listed on certain stock exchanges and regular public trading in such shares
can be expected.
(b) TRICON Covenants. TRICON covenants to PepsiCo that, without
the prior written consent of the PepsiCo Vice President, Tax, (i) during the
two-year period following the Distribution Date neither TRICON, nor any member
of the TRICON Group conducting an active trade or business relied upon in
connection with the Restructuring or the Distribution, will liquidate, merge or
consolidate with any other person, (ii) during the two-year period following the
Distribution Date TRICON will not sell, refranchise exchange, distribute or
otherwise dispose of its assets or those of any member of the TRICON Group, or
close any of its restaurant units or those of any member of the TRICON Group, in
a manner that would result in any increased Tax liability or reduction of any
Tax Asset of the PepsiCo Group or any member thereof, (iii) following the
Distribution, TRICON will, for a minimum of two years, continue the active
conduct of the historic business conducted by TRICON throughout the five year
period prior to the Distribution, (iv) during the two-year period following the
Distribution Date it will not enter into any transaction or make any change in
equity structure (including stock issuances, pursuant to the exercise of options
or otherwise, capital contributions, or acquisitions, but not including the
Distribution) which, if treated as consummated before the proposed distribution,
would result in PepsiCo not having "control" of TRICON within the meaning of
sections 355(a)(1)(A) and 368(c) of the Code at the time of the Distribution,
(v) TRICON will not, nor will it permit any member of the TRICON Group to, take
any action inconsistent with the information and representations furnished to
the IRS or any other Taxing Authority in connection with the request for a
private letter ruling (or any comparable pronouncement by a Taxing Authority
under applicable law) with respect to the Distribution or the Restructuring,
(vi) TRICON will not take any action that contravenes any existing gain
recognition agreement or other agreement with a Taxing Authority to which any
member of the TRICON Group or the PepsiCo Group is a party, (vii) TRICON will
not repurchase stock of TRICON in a manner contrary to the requirements of
Revenue Procedure 96-30 or in a manner contrary to the representations made in
connection with the request for a private letter ruling with respect to the
Distribution, and (viii) on or after the Distribution Date TRICON will not, nor
will it permit any member of the TRICON Group to, make or change any accounting
method, amend any Return or take any Tax position on any Return, take any other
action, omit to take any action or enter into any transaction that results in
any increased Tax liability or reduction of any Tax Asset of the PepsiCo Group
or any member thereof in respect of any Pre-Distribution Period. TRICON agrees
that PepsiCo is to have no liability for any tax resulting from any action
referred to in the preceding sentence and agrees to indemnify and hold harmless
the PepsiCo Group against any such tax. TRICON shall also bear all costs
incurred by PepsiCo in connection with PepsiCo's determination of whether or not
to grant any written consent required under this Section 4(b).
(c) Deductions and Certain Taxes Related to Options. The PepsiCo
Vice President, Tax shall determine whether the PepsiCo Group or the TRICON
Group shall file Returns claiming the Tax deductions attributable to the
exercise of options to purchase stock of PepsiCo which are held by employees or
former employees of the TRICON Group. If it is determined that the PepsiCo Group
shall claim all such Tax deductions, (i) the PepsiCo Group shall be entitled to
the Tax deduction resulting from the exercise of any such option, (ii) the
Returns of the PepsiCo Group and the TRICON Group shall reflect the entitlement
of the PepsiCo Group to such deduction, (iii) to the extent such deduction is
disallowed, the TRICON Group shall pay to the PepsiCo Group an amount equal to
the Tax paid by the PepsiCo Group as a result of such disallowance and (iv)
within 1 day of the exercise of any such option the TRICON Group will pay to the
PepsiCo Group an amount equal to the liability of the PepsiCo Group under the
Federal Insurance Contributions Act, the Federal Unemployment Tax Act or any
state employment tax law in connection with the exercise of such an option,
except to the extent such Tax is withheld from a payment to the employee and
remitted to a Taxing Authority on the employee's behalf. If it is determined
that the TRICON Group shall claim all such Tax deductions, (i) the Returns of
the PepsiCo Group and the TRICON Group shall reflect such determination, (ii)
within 1 day of the exercise of any such option, the TRICON Group shall pay to
the PepsiCo Group an amount equal to the product of the amount of the related
deduction and the PepsiCo Group's effective Tax rate for the relevant Taxable
period, as determined by the PepsiCo Vice President, Tax, (iii) TRICON and each
member of the TRICON Group will indemnify the PepsiCo Group against any Tax
liability of the PepsiCo Group under the Federal Insurance Contributions Act or
the Federal Unemployment Tax Act incurred in connection with the exercise of
such an option, except to the extent such Tax is withheld from a payment to the
employee and remitted to a Taxing Authority on the employee's behalf, and (iv)
to the extent such deduction is disallowed, and if the PepsiCo Vice President,
Tax determines that the PepsiCo Group should file an amended Return claiming
such deduction, the PepsiCo Group shall pay to the TRICON Group the actual
benefit received by the PepsiCo Group in respect of such deduction. For purposes
of the immediately preceding clause (iii), such benefit shall be considered
equal to the excess of the amount of Tax that would have been payable to a
Taxing Authority (or of the Tax refund that would have been receivable) by the
PepsiCo Group in the absence of such deduction over the amount of Tax actually
payable to a Taxing Authority (or of the Tax refund actually receivable) by the
PepsiCo Group. Payment of the amount of such benefit shall be made within 30
days of the receipt by any member of the PepsiCo Group of any refund, credit or
other offset attributable thereto from the relevant Taxing Authority.
5. Indemnities.
(a) TRICON Indemnity. TRICON and each member of the TRICON Group
will jointly and severally indemnify PepsiCo and the members of the PepsiCo
Group that were members of a Consolidated Group that included such TRICON
Affiliate against and hold them harmless from:
(i) any Tax liability of the TRICON Group and any Tax
liability attributable to the Restructuring;
(ii) any liability or damage resulting from a breach by TRICON or
any member of the TRICON Group of any representation or covenant made by TRICON
herein;
(iii) any Tax liability resulting from the Distribution and
attributable to any action of TRICON or any member of the TRICON Group;
(iv) any Tax liability resulting from the recapture, pursuant to
Section 904(f) of the Code, of an overall foreign loss for a Pre-Distribution
Period to the extent that the PepsiCo Vice President, Tax determines that such
loss is attributable to operations of the Restaurant Business in a
Pre-Distribution Period; and
(v) all liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and attorneys' fees and
expenses), losses, damages, assessments, settlements or judgments arising out of
or incident to the imposition, assessment or assertion of any Tax liability or
damage described in (i), (ii), (iii), or (iv) including those incurred in the
contest in good faith in appropriate proceedings relating to the imposition,
assessment or assertion of any such Tax, liability or damage.
(b) PepsiCo Indemnity. PepsiCo and each member of the PepsiCo
Group will jointly and severally indemnify TRICON and the members of the TRICON
Group that were members of a Consolidated Group that included such PepsiCo
Affiliate against and hold them harmless from:
(i) any Tax Liability of the PepsiCo Group and any Tax
liability resulting from the Distribution, other than any such liabilities
described in Section 5(a);
(ii) any liability or damage resulting from a breach by
PepsiCo or any member of the PepsiCo Group of any representation or covenant
made by PepsiCo herein; and
(iii) all liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and attorneys' fees and
expenses), losses, damages, assessments, settlements or judgments arising out of
or incident to the imposition, assessment or assertion of any Tax liability or
damage described in (i) or (ii) including those incurred in the contest in good
faith in appropriate proceedings relating to the imposition, assessment or
assertion of any such Tax, liability or damage.
If a member of the PepsiCo Group ceases to be an Affiliate of PepsiCo as a
result of a sale of its stock to a third party (whether or not treated as a sale
or exchange of stock for Tax purposes), such member of the PepsiCo Group shall
be released from its obligations under this Agreement upon such sale and neither
PepsiCo nor any member of the PepsiCo Group shall have any obligation to
indemnify TRICON or any member of the TRICON Group under Section 5(b)(iii) for
any liability or damage attributable to actions taken by such Affiliate after
such sale.
(c) Discharge of Indemnity. TRICON, PepsiCo and the members of
the TRICON Group and PepsiCo Group, respectively, shall discharge their
obligations under Sections 5(a) and 5(b) hereof, respectively, by paying the
relevant amount within 30 days of demand therefor. The PepsiCo Group shall be
entitled to make such a demand at any time after a member of the PepsiCo Group
makes a payment or deposit in respect of a Tax for which any member of the
TRICON Group has an obligation under Section 5(a). The TRICON Group shall be
entitled to make such a demand at any time after a Final Determination of an
obligation of any member of the PepsiCo Group under Section 5(b). Any such
demand shall include a statement showing the amount due under Section 5(a) or
5(b), as the case may be. Calculation mechanics relating to items described in
Section 5(a)(i) and 5(b)(i) are set forth in Section 3(c). Notwithstanding the
foregoing, if either TRICON, PepsiCo or any member of the TRICON Group or
PepsiCo Group disputes in good faith the fact or the amount of its obligation
under Section 5(a) or Section 5(b), then no payment of the amount in dispute
shall be required until any such good faith dispute is resolved in accordance
with Section 16 hereof; provided, however, that any amount not paid within 30
days of demand therefor shall bear interest as provided in Section 9.
(d) Tax Benefits. If an indemnification obligation of any member
of the PepsiCo Group or any member of the TRICON Group, as the case may be,
under this Section 5 with respect to a Consolidated Group arises in respect of
an adjustment that makes allowable to a member of the TRICON Group or a member
of the PepsiCo Group, respectively, any deduction, amortization, exclusion from
income or other allowance (a "Tax Benefit") which would not, but for such
adjustment, be allowable, then any payment by any member of the PepsiCo Group or
any member of the TRICON Group, respectively, pursuant to this Section 5 shall
be an amount equal to (x) the amount otherwise due but for this subsection (d),
minus (y) the present value of the product of the Tax Benefit multiplied (i) by
the maximum applicable federal, foreign or state, as the case may be, corporate
tax rate in effect at the time such Tax Benefit becomes allowable to a member of
the TRICON Group or a member of the PepsiCo Group (as the case may be) or (ii)
in the case of a credit, by 100 percent. The present value of such product shall
be determined by discounting such product from the time the Tax Benefit becomes
allowable at a rate equal to Prime.
(e) For purposes of this Section 5, in the case of Taxes that are
imposed on a periodic basis and are payable for a Tax period that includes (but
does not end on) the Distribution Date, the portion of such Tax related to the
portion of such Tax period ending on the Distribution Date shall (x) in the case
of any Taxes other than Taxes based upon or related to income, sales, gross
receipts, wages, capital expenditures or expenses, be deemed to be the amount of
such Tax for the entire Tax period multiplied by a fraction the numerator of
which is the number of days in the Tax period ending on the Distribution Date
and the denominator of which is the number of days in the entire Tax period, and
(y) in the case of any Tax based upon or related to income, sales, gross
receipts, wages, capital expenditures or expenses, be deemed equal to the amount
which would be payable if the relevant Tax period ended on the Distribution
Date.
6. Guarantees. PepsiCo or TRICON, as the case may be, shall guarantee the
obligations of each member of the PepsiCo Group or the TRICON Group,
respectively, under this Agreement.
7. Communication and Cooperation.
(a) Consult and Cooperate. TRICON and PepsiCo shall consult and
cooperate (and shall cause each member of the TRICON Group or the PepsiCo Group,
respectively, to cooperate) fully at such time and to the extent reasonably
requested by the other party in connection with all matters subject to this
Agreement. Such cooperation shall include, without limitation,
(i) the retention and provision on reasonable request of any and
all information including all books, records, documentation or other
information pertaining to Tax matters relating to the PepsiCo Group and
the TRICON Group, any necessary explanations of information, and access
to personnel, until one year after the expiration of the applicable
statute of limitation (giving effect to any extension, waiver, or
mitigation thereof);
(ii) the execution of any document that may be necessary or
helpful in connection with any required Return or in connection with any
audit, proceeding, suit or action; and
(iii) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing.
(b) Provide Information. PepsiCo and TRICON shall keep each
other fully informed with respect to any material development relating to the
matters subject to this Agreement.
(c) Tax Attribute Matters. PepsiCo and TRICON shall promptly
advise each other with respect to any proposed Tax adjustments relating to a
Consolidated Group, which are the subject of an audit or investigation, or are
the subject of any proceeding or litigation, and which may affect any Tax
liability or any Tax attribute of PepsiCo, TRICON, the PepsiCo Group, the TRICON
Group or any member of the TRICON Group or the PepsiCo Group (including, but not
limited to, basis in an asset or the amount of earnings and profits).
8. Audits and Contest.
(a) Notwithstanding anything in this Agreement to the contrary,
PepsiCo shall have full control over all matters relating to any Return or any
Tax Proceeding relating to any Tax matters of at least one member of the PepsiCo
Group. Except as provided in Section 8(b), PepsiCo shall have absolute
discretion with respect to any decisions to be made, or the nature of any action
to be taken, with respect to any matter described in the preceding sentence.
(b) No settlement of any Tax Proceeding relating to any matter
which would cause a payment obligation under Sections 5(a) or 5(b) shall be
accepted or entered into by or on behalf of the party entitled to receive a
payment under either Section 5(a) or 5(b), whichever is applicable, unless the
party ultimately responsible for such payment under either Section 5(a) or 5(b),
whichever is applicable (the "Indemnitor"), consents thereto in writing (which
consent shall not be unreasonably withheld or delayed); provided, however, that,
notwithstanding anything to the contrary in this Agreement, PepsiCo may settle
any Tax Proceeding if it determines, in its sole judgment, that TRICON is not
cooperating in such Tax Proceeding. If the Indemnitor does not respond to the
indemnified party's request for consent within 30 days, the Indemnitor will be
deemed to have consented to the settlement.
(c) The indemnified party agrees to give notice to the Indemnitor
of the assertion of any claim, or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought hereunder within 30 days
of such assertion or commencement, or such earlier time that would allow the
Indemnitor to timely respond to such claim, suit action or proceeding.
(d) With respect to Returns relating to Taxes solely attributable
to the TRICON Group, TRICON and the members of the TRICON Group shall have full
control over all matters relating to any Tax Proceeding in connection therewith.
TRICON and the members of the TRICON Group shall have absolute discretion with
respect to any decisions to be made, or the nature of any action to be taken,
with respect to any matter described in the preceding sentence.
9. Payments. All payments to be made hereunder shall be made in immediately
available funds. Except as otherwise provided, all payments required to be made
pursuant to this Agreement will be due 30 days after the receipt of notice of
such payment or, where no notice is required, 30 days after the fixing of
liability or the resolution of a dispute. Payments shall be deemed made when
received. Any payment that is not made by the PepsiCo Group when due shall bear
interest at LIBOR minus 10 basis points, as quoted from time to time, for each
day until paid. Any payment that is not made by the TRICON Group when due shall
bear interest at LIBOR plus 75 basis points, as quoted from time to time, for
each day until paid. If, pursuant to a Final Determination, any amount paid by
PepsiCo or the members of the PepsiCo Group or TRICON or the members of the
TRICON Group, as the case may be, pursuant to this Agreement results in any
increased Tax liability or reduction of any Tax Asset of TRICON or any member of
the TRICON Group or PepsiCo or any member of the PepsiCo Group, respectively,
then PepsiCo or TRICON, as appropriate, shall indemnify the other party and hold
it harmless from any interest or penalty attributable to such increased Tax
liability or the reduction of such Tax Asset and shall pay to the other party,
in addition to amounts otherwise owed, the After-Tax Amount. With respect to any
payment required to be made under this Agreement, the PepsiCo Vice President,
Tax has the right to designate, by written notice to TRICON, which member of the
TRICON Group or the PepsiCo Group, as the case may be, will make or receive such
payment and in which currency such payment will be made.
10. Notices. Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery or mailing thereof, as the case may be, if delivered personally or sent
by certified mail, return receipt requested, postage prepaid, to the parties at
the following addresses (or at such other address as a party may specify by
notice to the other):
If to PepsiCo or the PepsiCo Group, to:
Xxxxxxx XxXxxxx
Vice President, Tax
PepsiCo, Inc.
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000-0000
If to TRICON or the TRICON Group, to:
[name]
[address]
11. Costs and Expenses.
(i) Except as expressly set forth in this Agreement, each party
shall bear its own costs and expenses incurred pursuant to this Agreement. For
purposes of this Agreement, costs and expenses shall include, but not be limited
to, reasonable attorney fees, accountant fees and other related professional
fees and disbursements. Notwithstanding anything to the contrary in this
Agreement, the TRICON Group will be responsible for its allocable portion, as
determined by the PepsiCo Vice President, Tax, of (i) all costs and expenses
attributable to filing any Return that reflects the income, assets or operations
of the TRICON Group and any Return required to be filed in connection with the
Restructuring, and (ii) all costs and expenses incurred by PepsiCo in complying
with the provisions of Section 7 of this Agreement.
(ii) With respect to all Tax Proceedings, including pending
litigation with any Taxing Authority, costs shall be allocated in good faith by
the PepsiCo Vice President, Tax. Each party hereto shall be liable for its
allocable portion of such costs as provided in Section 5.
12. Effectiveness; Termination and Survival. This Agreement shall become
effective upon the consummation of the Distribution. All rights and obligations
arising hereunder with respect to a Pre-Distribution Tax Period shall survive
until they are fully effectuated or performed and, provided, further, that
notwithstanding anything in this Agreement to the contrary, this Agreement shall
remain in effect and its provisions shall survive for one year after the full
period of all applicable statutes of limitation (giving effect to any extension,
waiver or mitigation thereof) and, with respect to any claim hereunder initiated
prior to the end of such period, until such claim has been satisfied or
otherwise resolved.
13. Section Headings. The headings contained in this Agreement are inserted
for convenience only and shall not constitute a part hereof or in any way affect
the meaning or interpretation of this Agreement.
14. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein. No alteration, amendment, modification, or waiver of any of the terms of
this Agreement shall be valid unless made by an instrument signed by an
authorized officer of each of PepsiCo and TRICON, or in the case of a waiver, by
the party against whom the waiver is to be effective.
(b) Amendments and Waivers. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
hereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege. This
Agreement shall not be waived, amended or otherwise modified except in writing,
duly executed by all of the parties hereto.
15. Governing Law and Interpretation. This Agreement shall be construed and
enforced in accordance with the laws of the State of North Carolina without
giving effect to laws and principles relating to conflicts of law.
16. Dispute Resolution. If the parties hereto are unable to resolve any
disagreement or dispute relating to this Agreement, including but not limited to
whether a transaction is part of the Restructuring and whether a Tax liability
is a PepsiCo Tax Liability or a TRICON Tax Liability, such dispute shall be
resolved in good faith by the PepsiCo Vice President, Tax.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
18. Assignments; Third Party Beneficiaries. Except as provided below, this
Agreement shall be binding upon and shall inure only to the benefit of the
parties hereto and their respective successors and assigns, by merger,
acquisition of assets or otherwise (including but not limited to any successor
of a party hereto succeeding to the Tax attributes of such party under
applicable law). This Agreement is not intended to benefit any person other than
the parties hereto and such successors and assigns, and no such other person
shall be a third party beneficiary hereof. If, during the period beginning on
the Distribution Date and ending upon the expiration of the survival period set
forth in Section 12, any corporation becomes an Affiliate of TRICON, such
Affiliate shall be bound by the terms of this Agreement and TRICON shall provide
evidence to PepsiCo of such Affiliate's agreement to be bound by the terms of
this Agreement.
19. Authorization, etc. Each of the parties hereto hereby represents and
warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party, that this Agreement constitutes a
legal, valid and binding obligation of each such party, and that the execution,
delivery and performance of this Agreement by such party does not contravene or
conflict with any provision or law or of its charter or bylaws or any agreement,
instrument or order binding on such party.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first written above.
PepsiCo on its own behalf and on behalf of the members of
the PepsiCo Group.
By:__________________________
Title:_______________________
TRICON on its own behalf and on behalf of the members of
the TRICON Group.
By:__________________________
Title:_______________________
