Exhibit 10.6
TAX SEPARATION AGREEMENT
between
PEPSICO, INC.,
on behalf of itself
and the members
of the PEPSICO GROUP
and
THE PEPSI BOTTLING GROUP, INC.,
on behalf of itself
and the members
of the PBG GROUP
TAX SEPARATION AGREEMENT
This Agreement is entered into as of the __ day of ________,
1999 between PepsiCo, Inc. ("PepsiCo"), a North Carolina corporation, on behalf
of itself and the members of the PepsiCo Group, and The Pepsi Bottling Group,
Inc. ("PBG"), a North Carolina corporation, on behalf of itself and the members
of the PBG Group.
W I T N E S S E T H:
WHEREAS, pursuant to the tax laws of various jurisdictions,
certain members of the PBG 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 PBG intend to enter into a Separation
Agreement providing for the consolidation of the assets and operations of a
substantial portion of the bottling business owned by PepsiCo and its
subsidiaries and affiliates into PBG and its subsidiaries and affiliates;
WHEREAS, PBG intends to effect an initial public offering of
approximately __% of its common stock (the "Offering");
WHEREAS, PepsiCo and PBG desire to set forth their agreement on
the rights and obligations of PepsiCo, PBG and the members of the PepsiCo Group
and the PBG Group, respectively, with respect to the handling and allocation of
federal, state, local and foreign Taxes incurred in Taxable periods beginning
prior to the Offering Date, Taxes resulting from transactions effected in
connection with the Offering (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.
"Bottling Business" shall mean any business activity associated
with the operation or development of companies manufacturing soft drinks from
concentrate and distributing such soft drinks, as determined by the PepsiCo
Senior Vice President and Treasurer, in accordance with past practice; PROVIDED,
HOWEVER, that "Bottling Business" shall exclude the marketing, manufacture,
distribution and sale of concentrate.
"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) PepsiCo or any Affiliate of PepsiCo
that filed (or will file) any Pre-Offering Period Returns that reflect the
income, assets or operations of a Bottling Business and (ii) any Affiliate of
PBG that filed (or will file) any Pre-Offering Period Returns that reflect the
income, assets or operations of a Non-Bottling Business.
"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
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file a claim for refund or the right of the IRS to assert a further deficiency
shall not constitu 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) with respect to any Tax, any final disposition by reason of the
expiration of the applicable statute of limitations or applicable foreign
equivalent; or (iv) with respect to any Tax, the payment of Tax by PepsiCo, PBG,
or any member of the PepsiCo Group or the PBG 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-Bottling Business" shall mean any business other than a
Bottling Business.
"Non-Resident Owned Investment Corporation" shall have the
meaning ascribed to it for Canadian tax purposes.
"Offering" shall mean the underwritten initial public offering
of PBG common stock.
"Offering Date" shall mean the date of closing of the Offering.
"PBG Group" shall mean PBG and its Affiliates immediately after
the Offering Date, including any predecessors thereto; PROVIDED, HOWEVER, that
for purposes of determining whether an entity is a member of the PBG 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 PepsiCo or an Affiliate of PepsiCo or an Affiliate of PBG
conducted at least one Bottling Busine and a Non-Bottling Business, each
Bottling Business shall be treated for purposes of this Agreement as a separate
corporation that is a member of the PBG Group, unless such Bottling Business
continues to be conducted by an Affiliate of PepsiCo immediately after the
Offering Date or
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unless such Bottling Business is transferred to Heartland Territories Holdings,
Inc. pursuant to the Contribution and Merger Agreement dated as of January 25,
1999 among Xxxxxxx Corporation, PepsiCo and Heartland Territories Holdings,
Inc., and the Non-Bottling 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-Offering Period any Affiliate
of PepsiCo was involved solely in the conduct of a Bottling Business, such
member shall be treated as a member of the PBG Group for such Pre-Offering
Period, unless such Bottling Business continues to be conducted by an Affiliate
of PepsiCo immediately after the Offering Date, or unless such Bottling Business
is transferred to Heartland Territories Holdings, Inc. pursuant to the
Contribution and Merger Agreement dated as of January 25, 1999 among Xxxxxxx
Corporation, PepsiCo and Heartland Territories Holdings, Inc.; and PROVIDED
FURTHER, that if with respect to any Pre-Offering Period any Affiliate of PBG
was not involved in the conduct of a Bottling Business, such member shall not be
treated as a member of the PBG Group for such Pre-Offering Period.
Notwithstanding anything to the contrary herein, the PBG Group shall include any
entity (and any Affiliate thereof) that is sold by PepsiCo or any member of the
PepsiCo Group to PBG or any member of the PBG Group after the Offering Date in
connection with the Restructuring, including but not limited to Pepsi-Cola
Bottling Global B.V., Pepsi-Cola Bottling Finance B.V., Centro-Mediterranea De
Bebidas Carbonicas PepsiCo, S.A., Dornfell, International Bottlers LLC,
International Bottlers Management Co LLC, International Bottlers Management Co.
LLC, Pepsi International Bottlers (Krasnoyarsk), Pepsi International Bottlers
(Nizhny Novgorod), Pepsi International Bottlers (Novosibirsk), Pepsi
International Bottlers (Samara), Pepsi International Bottlers (Yekaterinburg),
PepsiCo Holdings OOO, Pepsi-Cola Soft Drink Factory of Sochi, OOO, International
Bottlers Employment Co. LLC, Pepsi International Bottlers LLC, PepsiCo IVI S.A.,
and Spirituosen S.A.
"PBG Tax Liability" shall mean, with respect to any Consolidated
Group and any Taxable period, the PBG Group's share of the Tax liability of such
Consolidated Group, computed as if the relevant members of the PBG 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 PBG Group,
including net operating loss and capital loss carryforwards and carrybacks and
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minimum Tax credits from earlier years of the PBG Group, and without reduction
for any such Tax Assets used by any member of the PepsiCo Group, except to the
extent that a payment was made to any member of the PBG Group with respect
thereto, (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. Notwithstanding anything in this
agreement to the contrary, any payment by Pepsi-Cola of Canada Ltd. or any of
its Canadian Affiliates to a Non-Resident Owned Investment Corporation which is
attributable to the Canadian Taxable income of a Bottling Business and which is
characterized as a payment of interest for Canadian income Tax purposes shall be
treated as a payment made by the PBG Group.
"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 Offering other than those Affiliates comprising the PBG 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 PBG Group
included in such Consolidated Group shall not 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 PBG Group,
except to the extent that a payment was made to any member of the PBG Group with
respect thereto, (B) by taking account of any Tax Asset of the PepsiCo Group,
including 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 Tax Assets used by any member of the PBG Group, except to
the extent that a payment was made to any member of the PepsiCo Group with
respect thereto, (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. Notwithstanding
anything in this agreement to the contrary, any payment by Pepsi-Cola of Canada
Ltd. or any of its Canadian Affiliates to a Non-Resident Owned Investment
Corporation which is attributable to the Canadian Taxable income of a
Non-Bottling Business and which is characterized as a payment of interest for
Canadian income Tax purposes shall be treated as a payment made by the PepsiCo
Group.
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"PepsiCo Senior Vice President and Treasurer" shall include any
successor position or title; PROVIDED, HOWEVER, that if such successor position
or title does not have responsibility for Tax matters, then the most senior
position or title that has responsibility for Tax matters shall be substituted
for the PepsiCo Senior Vice President and Treasurer in this Agreement.
"Person" shall have the meaning ascribed to it in Section
7701(a)(1) of the Code.
"Post-Offering Period" shall mean any taxable period (or portion
thereof) beginning after the close of business on the Offering Date.
"Pre-Offering Period" shall mean any Taxable period ending on or
before the close of business on the Offering Date; PROVIDED that if a Taxable
period ending after the Offering Date contains any days which fall prior to or
on the Offering Date, any portion of such Taxable period up to and including the
Offering Date shall also be included in the Pre-Offering 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.
"Restructuring" shall have the meaning ascribed to it in the
fourth "whereas" clause in this Agreement; PROVIDED, HOWEVER, that
"Restructuring" shall exclude any transaction effected in the ordinary course of
normal business operations.
"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 acquisiti 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 PBG Group, as the case may be, for the payment of
any amounts of
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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 PBG 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 ne 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-Offering 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-Offering
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.
(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 PBG 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 PBG Group nor the members of the PepsiCo Group shall
have any further rights or liabilities thereunder, and this
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Agreement shall be the sole Tax sharing agreement between members of the PBG
Group and the members of the PepsiCo Group. Notwithstanding the foregoing, if
any such termination is not binding on any Taxing Authority, the PBG 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. PBG and each member of the PBG 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 PBG, as the case may be, and consistent
with past practice and applicable law, to designate a member of the PepsiCo
Group or the PBG Group, as appropriate, or a successor of such member, as its
agent, coordinator, and administrator, 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-Offering 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-Offering Period. Such designated member of the PepsiCo Group or the PBG
Group, as the case may be, as agent, covenants to PBG 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-OFFERING PERIOD RETURNS. (i) With respect to a
Consolidated Group, the member of the PepsiCo Group or the PBG Group, as
applicable, that is required by applicable law to file the Returns for all
Pre-Offering Periods will prepare such Returns with the assistance of the PBG
Group or the PepsiCo Group, respectively. With respect to each Consolidated
Group, either a member of the PepsiCo Group or a member of the PBG Group, as
consistent with past practice and applicable law, will file the Pre-Offering
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; PROVIDED, HOWEVER, that such returns, documents or statements shall be
prepared in accordance with past practice (unless such past practice is no
longer permissible under the Code or other applicable law), (y) whether any
extensions should be requested, and (z) the elections that will be made by any
member of the PepsiCo Group or the PBG Group. In addition, with respect to all
Pre-Offering 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,
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asserted or assessed as a result of any audit of any consolidated return filed
by the PepsiCo Group or the PBG 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 1998 and 1999 Tax years, PBG and the members of the PBG
Group shall prepare and deliver to PepsiCo all Tax Packages no later than June
1, 1999 and December 1, 1999, respectively.
(ii) To the extent that any Return for a Pre-Offering Period
reflects any transaction effected in connection with the Restructuring, PepsiCo
shall have complete discretion in determining the amount of any Tax liability
resulting from the Restructuring which will be shown on such Return. For the
purpose of exercising such discretion, any such Return that is not a
Consolidated Group Return and that is filed by a member of the PBG Group shall
be submitted by such member of the PBG Group to PepsiCo (together with any
relevant schedules, statements and, to the extent requested by PepsiCo,
supporting documentation) at least 45 days prior to the due date (including
extensions) of such Return. To the extent necessary to determine the amount of
any Tax liability resulting from the Restructuring which will be shown on such
Return, PepsiCo shall have the right to review all work papers and procedures
used to prepare such Return. If, within 10 business days after delivery of any
such Return, PepsiCo objects to the amount of any Tax liability shown on such
Return and resulting from the Restructuring, the Return shall be adjusted in the
manner PepsiCo deems appropriate and as so adjusted shall be binding upon the
parties without further adjustment.
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 PBG Group and the PepsiCo
Group are includible in a Return of such Consolidated Group, the PBG Group or
the PepsiCo Group, as appropriate, shall pay, as provided in this Section 3, to
the PepsiCo Group or the PBG Group, respectively, an amount equal to the PBG 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 Offering Date 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 PBG Group and any payment
made prior to the Offering Date with respect to such Return shall be treated as
having been made by the PBG Group; PROVIDED, HOWEVER, that any Tax liability
attributable to
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any sales and use or property Tax Returns that relate to a Pre-Offering Period,
that are prepared by PBG or an Affiliate of PBG on behalf of a member of the
PepsiCo Group and that relate solely to Taxes of a Non-Bottling Businesses will
be a Tax liability of the PepsiCo Group.
(b) ESTIMATED PAYMENTS. Not later than 3 days after a member
of the PepsiCo Group or a member of the PBG 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 Offering Date, the
PepsiCo Group shall (i) in good faith determine the amount of the PBG Tax
Liability or the PepsiCo Tax Liability, as appropriate, pursuant to this
Agreement and (ii) deliver a written statement to PBG reflecting the
determination described above. Not later than 5 business days after receipt
of such statement, the PBG Group shall pay to the PepsiCo Group or the
PepsiCo Group shall pay to the PBG 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 PBG 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 Offering Date, the PepsiCo
Group shall deliver to the PBG Group a written statement setting forth the
difference, calculated in good faith, between (x) the PBG T Liability or the
PepsiCo Tax Liability, as appropriate, for such Return, and (y) the aggregate
amount of payments with respect to the PBG Tax Liability or the PepsiCo Tax
Liability, as appropriate, for such year made pursuant to Section 3(b) or
otherwise, including estimated Tax payments made by way of intercompany account
transfers. Not later than 5 business days after such Return is required to be
filed, the PBG Group shall pay to the PepsiCo Group or the PepsiCo Group shall
pay to the PBG Group, as appropriate, in accordance with Section 9 hereof, an
amount equal to such difference, if any.
(ii) If the determination of the PBG Tax Liability or the
PepsiCo Tax Liability, as the case may be, with respect to any Consolidated
Group reflects a Tax Asset that was not used to reduce the Tax liability of the
PBG Group or the PepsiCo Group, respectively, but may under applicable law be
used to reduce the Tax liability of the PepsiCo Group or the PBG Group, as the
case may be, for any Tax period, PepsiCo shall pay to PBG or PBG shall pay to
PepsiCo, as appropriate, the actual Tax saving produced by such Tax Asset within
30 days after such Tax saving is claimed on a Return, and the future Returns of
the PBG Group or the PepsiCo Group, respectively, shall be adjusted to reflect
such use. The amount of any such Tax saving for any Tax period shall be the
amount of the
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reduction in Taxes payable to a Taxing Authority (or the increase in any Tax
refund) with respect to such period as compared to the Taxes that would have
been payable to a Taxing Authority (or the Tax refund that would have been
received) by the Consolidated Group with respect to such period in the absence
of such Tax Asset.
(iii) With respect to each Return described in Section 3(a)
above and previously filed by a Consolidated Group, and for which the PBG Tax
Liability or the PepsiCo Tax Liability, as the case may be, has not been
satisfied in full, or for which the PBG Group has not paid the PepsiCo Group in
full for a Tax saving produced by the use of a Tax Asset of the PepsiCo Group,
or for which the PepsiCo Group has not paid the PBG Group in full for a Tax
saving produced by the use of a Tax Asset of the PBG Group, the PBG Group shall
pay to the PepsiCo Group or the PepsiCo Group shall pay to the PBG Group, as
appropriate, within 30 days of demand therefor, the amount in respect of such
Return as determined in good faith by the PepsiCo Senior Vice President and
Treasurer.
(d) CARRYBACKS AND CERTAIN OTHER MATTERS.
(i) With respect to each Consolidated Group, PepsiCo shall pay
to PBG or PBG shall pay to PepsiCo, as appropriate, the actual benefit received
by such Consolidated Group from the use in any Pre-Offering Period of any Tax
Asset of the PBG Group or the PepsiCo Group, respectively, arising in a
Post-Offering Period. Such benefit shall be considered equal to the excess of
the amount of Tax that would have been payable (or of the Tax refund that would
have been receivable) by such Consolidated Group in the absence of such
carryback over the amount of Tax actually payable (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 PepsiCo Group
or the PBG Group, as the case may be, of any refund, credit or other offset
attributable thereto from the relevant Taxing Authority, and the future Returns
of the PBG Group or the PepsiCo Group, respectively, shall be adjusted to
reflect such use.
(ii) Notwithstanding the definitions of PBG Tax Liability or
PepsiCo Tax Liability or any other provision in this Agreement, any loss
recognized upon any sale to PBG or any member of the PBG Group of any Bottling
Business (including but not limited to Pepsi-Cola Bottling Global B.V. and
PepsiCo IVI S.A.), or any assets used in a Bottling Business, shall be treated
as a Tax Asset of the PepsiCo Group.
(iii) Reference is made to a certain Agreement (the "Spanish
Agreement") entered into on December 22, 1998, by and between PepsiCo on
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behalf of itself and its affiliates and General Xxxxx, Inc. on behalf of itself
and its affiliates. In accordance with the Spanish Agreement, PepsiCo will
assign all of its rights and obligations under the Spanish Agreement to PBG.
Notwithstanding anything to the contrary in this Agreement, Snack Ventures
Inversiones, S.L. ("Inversiones") shall pay to Centro-Levantina De Bebidas
Carbonicas PepsiCo, S.L. ("Centro") one-half of the actual tax savings, if any,
Inversiones, together with Snack Ventures, S.A. ("SVSA"), are able to achieve
solely as a result of offsetting losses of Centro against profits of Inversiones
and/or SVSA (after using all other available losses) through the tax
consolidation achieved by the SVE Spanish '98 Restructuring (as defined in the
Spanish Agreement), only as those tax savings are realized by Inversiones,
together with SVSA, and then on the last day of the statutory term for the
period for which payment of the taxes is due.
If any tax savings initially obtained from the SVE Spanish '98
Restructuring are subsequently reduced or any assessments, fines, penalties,
interest charges, liabilities, loss of tax benefits or credits are paid or
incurred as a result of, or any other form of loss or liability arise from or
are associated with the SVE Spanish '98 Restructuring (all together referred to
as "Adjustment Losses"), PBG shall pay or cause Centro to reimburse Inversiones
for one-half of all Adjustment Losses, not exceed the total paid to Centro
pursuant to the preceding paragraph, plus interest at SVE's cost of funds,
computed from the date of each payment made to Centro under the preceding
paragraph.
(iv) Notwithstanding the definitions of PBG Tax Liability or
PepsiCo Tax Liability or any other provision in this Agreement, any Tax
liability, Tax Asset or refund of Tax resulting from the matters relating to the
Section 936 Tax case shall be treated as a Tax liability or Tax Asset of, or a
refund of Tax attributable to, the PepsiCo Group, respectively.
(v) Notwithstanding the definitions of PBG Tax Liability or
PepsiCo Tax Liability or any other provision in this Agreement, any Tax
liability, Tax Asset or refund of Tax resulting from the sale of Redux Realty,
Inc. shall be treated as a Tax liability or Tax Asset of, or a refund of Tax
attributable to, the PepsiCo Group, respectively.
(e) TREATMENT OF ADJUSTMENTS.
12
(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 PBG 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 PBG Group the difference between all payments actually made under Section
3(c)(i) and all payments that wou 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 PBG 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 PBG Group shall pay to the PepsiCo Group t 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, subsequent to the payment by the PepsiCo Group or the
PBG Group, as the case may be (the "Payor Group"), to the PBG Group or the
PepsiCo Group, respectively (the "Payee Group"), of any amount referred to in
Section 3(c)(ii), 3(c)(iii) or 3(d)(i) above, there shall be (A) a Final
Determination which results in a disallowance or a reduction of the relevant Tax
Asset or (B) a reduction in the amount of the benefit realized by the Payor
Group from such Tax Asset as the result of a Fin Determination or the use by the
Payor Group of a Tax Asset of a member of the Payor Group, the Payee Group shall
repay to the Payor Group the amount which would not have been payable to the
Payee Group pursuant to Section 3(c)(ii), 3(c)(iii) or 3(d)(i) had the amount of
the benefit been determined in light of such event. In addition, the Payee Group
shall hold each member of the Payor Group harmless for any penalty or interest
payable by any member of the Payor Group as a result of any such event referred
to in the preceding sentence. Any amounts payable under this Section 3(e)(iii)
shall be paid by the Payee Group within 30 days of demand therefor. To the
extent the Payee Group's repayment obligation arises due to the use by the Payor
Group of a Tax Asset of a member of the Payor Group, the Payee Group shall pay
to the Payor Group interest on the amount repaid to the Payor Group from the
date such amount was paid by the Payor Group until such repayment at Prime.
(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 PepsiCo Group
or the PBG Group, as the case may be, relating to a Pre-Offering Period, to the
extent attributable to any item of income, loss, credit, deduction or other Tax
attribute of any member of the PBG Group or the PepsiCo Group, respectively,
shall be paid
13
by the PepsiCo Group or the PBG Group, respectively, to the PBG Group or the
PepsiCo Group, respectivel 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 PBG Group or PepsiCo Group, respectively, for which
payment has previously been made by the PepsiCo Group or the PBG Group,
respectively, pursuant to Section 3(c) or 3(d)(i), or (y) an adjustment for
which payment in respect thereof has previously been made pursuant to Section
3(e)(i), 3(e)(ii) or 3(e)(iii); and PROVIDED FURTHER that, in determining the
extent to which a refund is attributable to any item of income, loss, credit, or
other Tax attribute of a member of the PepsiCo Group or the PBG Group, if the
portion of any such refund represents interest with respect to Taxes and the
items or Tax attributes to which such interest relates are not readily
identifiable, then the PepsiCo Senior Vice President and Treasurer shall in good
faith determine the allocation such interest among the items and Tax attributes
of the members of the PepsiCo Group and the PBG Group.
4. CERTAIN REPRESENTATIONS AND COVENANTS.
(a) PBG REPRESENTATIONS. PBG and each member of the PBG Group
represent that as of the date hereof, and covenants that on the Offering Date,
there is no plan or intention (i) to liquidate, merge or consolidate PBG NRO or
PBG Amalco with any other person subsequent to the Offering Date, (ii) to sell
or otherwise dispose of any asset, or cease business operations in any bottling
territory of PBG NRO or PBG Amalco subsequent to the Offering Date, 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) to take any action
inconsistent with the information and representations furnished to any Taxing
Authority, legal counsel or accounting firm in connection with the request for a
ruling or comparable pronouncement by a Taxing Authority, or with the delivery
of an opinion by such counsel or accounting firm, with respect to the
Restructuring, regardless of whether such information or representations were
included in the ruling or pronouncement issued by the Taxing Authority or the
opinion delivered by such counsel or accounting firm, (iv) to take any action
that contravenes any existing gain recognition agreement or other agreement with
a Taxing Authority to which any member of the PBG Group or the PepsiCo Group is
a party, (v) to liquidate, merge or consolidate White Co., Inc. or any direct or
indirect subsidiary of White Co., Inc., (vi) to liquidate, merge or consolidate
Pepsi-Cola de Espana, S.L. with any other Person, or (vi) to file an entity
classification election under Treasury Regulations Section 301.7701-3 to treat
Pepsi-Cola de Espana, S.L. as a corporation.
(b) PBG COVENANTS. PBG covenants to PepsiCo that, without the
prior written consent of the PepsiCo Senior Vice President and Treasurer, (i)
during the two-year period following the Offering Date, neither PBG NRO nor
14
PBG Amalco will liquidate, merge or consolidate with any other person, (ii)
during the two-year period following the Offering Date neither PBG NRO nor PBG
Amalco will sell, exchange, distribute or otherwise dispose of its assets or
cease business operations in any bottling territory, 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) PBG 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 PBG Group or the PepsiCo Group is a
party, (iv) on or after the Offering Date, PBG will not, nor will it permit any
member of the PBG 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-Offering Period, (v) PBG will not, nor will it
permit any member of the PBG Group to, take any action inconsistent with the
information and representations furnished to any Taxing Authority, legal counsel
or accounting firm in connection with a request for a ruling or comparable
pronouncement by a Taxing Authority or with the delivery of an opinion by such
counsel or accounting firm, with respect to the Restructuring, regardless of
whether such information or representations were included in the ruling or
pronouncement issued by such Taxing Authority or the opinion delivered by such
counsel or accounting firm, (vi) PBG NRO and PBG Amalco will each, for a minimum
of two years following the date of such distribution, continue the active
conduct of the historic business relied upon to satisfy the requirements of
Section 355(b) of the Code, (vii) no member of the PBG Group will take any
action that would result in PBG Amalco ceasing to be treated as a branch of PBG
NRO for United States tax purposes, (viii) during the two-year period following
the Offering Date, neither White Co., Inc. nor any direct or indirect subsidiary
of White Co., Inc. will liquidate, merge or consolidate with any other person,
and (ix) during the two-year period following the Offering Date, Pepsi-Cola de
Espana, S.L. will not liquidate, merge or consolidate with any other Person, and
(x) during the two-year period following the Offering Date, neither PBG nor any
member of the PBG Group will file an entity classification election under
Treasury Regulations Section 301.7701-3 to treat Pepsi-Cola de Espana, S.L. as a
corporation.
(c) DEDUCTIONS AND CERTAIN TAXES RELATED TO OPTIONS. The PepsiCo
Group shall file Returns claiming (x) the Tax deductions attributable to the
exercise of options to purchase stock of PepsiCo which are held by employees or
former employees of the PBG Group and (y) any other similar compensation related
Tax deductions. Accordingly, (i) the PepsiCo Group shall be entitled to any such
Tax deductions, (ii) the Returns of the PepsiCo Group and the PBG Group shall
reflect the entitlement of the PepsiCo Group to such deductions, (iii) to the
extent any such deductions are disallowed, the PBG Group shall file amended
Returns claiming such deductions and shall pay to the PepsiCo Group an
15
amount equal to the actual benefit received by the PBG Group in respect of such
deductions, and (iv) to the extent a Taxing Authority determines that the
PepsiCo Group is liable for Taxes 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, the PBG Group shall pay to the PepsiCo
Group an amount equal to the Tax paid by the PepsiCo Group as a result of such
Tax liability within 30 days of demand therefor. If, at any time subsequent to a
disallowance described in the immediately preceding clause (iii), the PepsiCo
Senior Vice President and Treasurer determines that the PBG Group shall claim
all subsequent Tax deductions attributable to the exercise of options to
purchase PepsiCo stock which are held by employees or former employees of the
PBG Group, (i) the Returns of the PepsiCo Group and the PBG Group filed after
such determination shall reflect such determination, (ii) not later than 3 days
prior to the due date of any such Return, PBG shall notify the PepsiCo Senior
Vice President and Treasurer of the amount of Tax deductions it intends to claim
on such Return with respect to such options or other compensation related Tax
deductions, and (iii) the PBG Group shall pay to the PepsiCo Group an amount
equal to the actual benefit received by the PBG Group in respect of such
deductions. For purposes of the immediately preceding clause (i), the PepsiCo
Senior Vice President and Treasurer will have the right to determine the amount
of such Tax deductions that will be claimed by the PBG Group on any such Return.
For purposes of each of the two immediately preceding clauses (iii), the actual
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 PBG 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 PBG Group. Payment of the amount referred to in the
first clause (iii) of this Section 4(c) shall be made within 30 days of the
receipt by any member of the PBG Group of any refund, credit or other offset
attributable thereto from the relevant Taxing Authority. Payment of the amount
referred to in the second clause (iii) of this Section 4(c) shall be made not
later than 3 days after the due date of the estimated Tax payment immediately
following when any member of the PBG Group becomes entitled to any refund,
credit or other offset attributable to such deduction. PBG agrees to act as
PepsiCo's pay agent for purposes of administering and accounting for PepsiCo
stock options held by employees or former employees of the PBG Group.
5. INDEMNITIES.
(a) PBG INDEMNITY. PBG and each member of the PBG Group will
jointly and severally indemnify PepsiCo and the members of the PepsiCo Group
that were members of a Consolidated Group that included such PBG Affiliate
against and hold them harmless from:
16
(i) any Tax liability of the PBG Group;
(ii) any liability or damage resulting from a breach by PBG or
any member of the PBG Group of any representation or covenant made by PBG
herein;
(iii) any Tax liability attributable to the Restructuring that
is attributable to any action of PBG or any member of the PBG Group, without
regard to whether the PepsiCo Senior Vice President and Treasurer has consented
to such action;
(iv) any Tax liability resulting from the recapture, pursuant to
Section 904(f) of the Code, of an overall foreign loss for a Pre-Offering Period
to the extent that the PepsiCo Senior Vice President and Treasurer determines
that such loss is attributable to operations of the Bottling Business in a
Pre-Offering Period;
(v) any increase in any Tax liability, or any reduction of any
Tax Asset, of any member of the PepsiCo Group resulting from a Final
Determination of a Taxing Authority relating to the pricing of goods or services
provided by a member of the PepsiCo Group to a member of the PBG Group;
(vi) any Canadian withholding Tax imposed on a distribution by a
Non-Resident Owned Investment Corporation to a member of the PepsiCo Group if
(x) such distribution was made to secure a refund of Canadian income Tax
attributable to an adjustment made in, or a deficiency assessed with respect to,
the Canadian Taxable income of a Bottling Business for a Pre-Offering Period or
(y) such distribution was made in connection with a payment by Pepsi-Cola of
Canada Ltd. or any of its Canadian Affiliates to a Non-Resident Owned Investment
Corporation and such payment was attributable to the Canadian Taxable income of
a Bottling Business and the Canadian income Tax deduction for such payment is
disallowed; and
(vii) 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), (iv) or (v) 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 PBG and the members of the PBG Group
17
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;
(ii) any Tax liability relating to a Pre-Offering Tax Period and
resulting from the ownership by a member of the PepsiCo Group of a 50 percent or
less interest in a joint venture conducting a Bottling Business;
(iii) any Tax liability resulting from the Restructuring, other
than any such liabilities described in Section 5(a);
(iv) 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;
(v) any increase in any Tax liability, or any reduction of any
Tax Asset, of any member of the PBG Group resulting from a Final Determination
of a Taxing Authority relating to the pricing of goods or services provided by a
member of the PBG Group to a member of the PepsiCo Group; and
(vi) 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), (iv) or (v) 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 PBG or any member of the PBG 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. PBG, PepsiCo and the members of the
PBG 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 PBG Group has an
obligation under Section 5(a). The PB Group shall be entitled to make
18
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 PBG,
PepsiCo or any member of the PBG 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. (i) If an indemnification obligation of any
member of the PepsiCo Group or any member of the PBG Group, as the case may be,
under this Section 5 arises in respect of an adjustment, or in respect of a
Canadian withholding Tax described in section 5(a)(vi), that makes allowable to
a member of the PBG 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 or withholding tax, be
allowable, or if any transaction effected as part of the Restructuring results
in an indemnification obligation of any member of the PepsiCo Group under
Section 5(b)(iii) and makes allowable to a member of the PBG Group a Tax Benefit
which would not, but for such transaction, be allowable, then any payment by any
member of the PepsiCo Group or any member of the PBG 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 PBG 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.
(ii) If as a result of any adjustment any member of the PepsiCo
Group makes a payment to any Taxing Authority in respect of a Tax resulting from
the Restructuring and such adjustment makes allowable to a member of the PBG
Group any Tax Benefit which would not, but for such adjustment, be allowable,
then the PBG Group shall pay to the PepsiCo Group the amount described in clause
(y) of Section 5(d)(i). The present value of the product referred to in such
clause (y) 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
19
does not end on) the Offering Date, the portion of such Tax related to the
portion of such Tax period ending on the Offering Date shall (x) in the case of
any Taxes other than Taxes based upon or related to income, sales, gross
receipts, or wages, 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 Offering 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, or wages, be deemed equal to
the amount which would be payable if the relevant Tax period ended on the
Offering Date.
6. GUARANTEES. PepsiCo or PBG, as the case may be, shall guarantee the
obligations of each member of the PepsiCo Group or the PBG Group, respectively,
under this Agreement.
7. COMMUNICATION AND COOPERATION.
(a) CONSULT AND COOPERATE. PBG and PepsiCo shall consult and
cooperate (and shall cause each member of the PBG 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
PBG 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 PBG 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 PBG 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
20
subject of any proceeding or litigation, and which may affect any Tax
liability or any Tax attribute of PepsiCo, PBG, the PepsiCo Group, the PBG
Group or any member of the PBG Group or the PepsiCo Group (including, but
not limited to, basis in an asset or the amount of earni 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 or any Tax liability resulting from the Restructuring. PBG may, at its own
expense, participate in any such Tax Proceeding. 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. PepsiCo shall act in good faith with
respect to the matters described in this Section 8(a).
(b) (i) 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 reasonable judgment, that PBG
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.
(ii) Notwithstanding anything to the contrary in this Agreement,
in the event a Tax Proceeding involves an issue that is common to both the
PepsiCo Group and the PBG Group, PepsiCo shall use its best efforts to settle
such issues on behalf of the PepsiCo Group and the PBG Group on a consistent
basis.
(iii) With respect to any Tax Proceeding that relates to a PBG
Tax liability, PepsiCo agrees to act in good faith on behalf of PBG and the
members of the PBG Group in settling such Tax Proceeding.
(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.
21
(d) With respect to Returns relating to Taxes solely
attributable to the PBG Group, PBG and the members of the PBG Group shall have
full control over all matters relating to any Tax Proceeding in connection
therewith. PBG and the members of the PBG 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 PBG Group when due shall
bear interest at LIBOR plus 40 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 PBG or the members of the PBG
Group, as the case may be, pursuant to this Agreement results in any increased
Tax liability or reduction of any Tax Asset of PBG or any member of the PBG
Group or PepsiCo or any member of the PepsiCo Group, respectively, then PepsiCo
or PBG, 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 Senior Vice President and
Treasurer has the right to designate, by written notice to PBG, which member of
the PBG 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):
22
If to PepsiCo or the PepsiCo Group, to:
Xxxxxxx X. XxXxxxx
Senior Vice President and Treasurer
PepsiCo, Inc.
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000-0000
If to PBG or the PBG Group, to:
Xxxxx Xxxxxxxx
Senior Vice President and Controller
The Pepsi Bottling Group, Inc.
Xxx Xxxxx Xxx
Xxxxxx, Xxx Xxxx 00000-0000
At such time that PBG hires a Vice President of Taxes, notices to PBG or the PBG
Group shall be given to the Vice President of Taxes, or such successor position
or title.
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 PBG Group will be responsible for its allocable portion, as
determined by the PepsiCo Senior Vice Preside and Treasurer, of (i) all costs
and expenses attributable to filing any Return that reflects the income, assets
or operations of the PBG Group 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, costs shall be
allocated in good faith by the PepsiCo Senior Vice President and Treasurer. Each
party hereto shall be liable for its allocable portion of such costs as provided
in Section 5.
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12. EFFECTIVENESS; TERMINATION AND SURVIVAL. This Agreement shall become
effective upon the closing of the Offering. All rights and obligations arising
hereunder with respect to a Pre-Offering 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 or applicable foreign equivalent (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 PBG, 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 PBG Tax Liability, such dispute shall be
resolved in good faith by the PepsiCo Senior Vice President and Treasurer.
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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 Offering Date and ending upon the expiration of the survival period set
forth in Section 12, any corporation becomes an Affiliate of PBG, such Affiliate
shall be bound by the terms of this Agreement and PBG 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.
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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:
--------------------------
PBG on its own behalf and
on behalf of the members of
the PBG Group.
By:
--------------------------
