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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
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WHITMAN CORPORATION
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, without par value, of Whitman Corporation ("Common
Stock")
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
101,069,077 shares of Common Stock
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$20.00 (The price is based upon the average of the high and
low sales price for such security on January 26, 1999, as
reported on the New York Stock Exchange Composite Tape)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,021,381,540 (the product of (x) 101,069,077 (the number of
outstanding shares of Common Stock outstanding on January 27,
1999,) and (y) $20.00 (the per unit price set forth in note
(3) above))
------------------------------------------------------------------------
(5) Total fee paid:
$404,277 ( 1/50th of 1% of the underlying value of the
transaction, $2,021,381,540, as calculated in note (4) above)
and rounded to the nearest whole dollar.)
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
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THIS PRELIMINARY PROXY STATEMENT/PROSPECTUS AND THE INFORMATION CONTAINED HEREIN
IS SUBJECT TO COMPLETION OR AMENDMENT.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1999
, 1999
TO THE SHAREHOLDERS OF WHITMAN CORPORATION:
A special meeting of shareholders of Whitman Corporation will be held on
, 1999, at 10:00 a.m., local time, at .
The purpose of the special meeting is to consider and vote upon the
following:
Adoption of the Contribution and Merger Agreement, dated as of January
25, 1999 (the "Agreement"), among PepsiCo, Inc., Whitman Corporation and
Heartland Territories Holdings, Inc., wholly-owned subsidiary of PepsiCo
("Merger Sub"), pursuant to which: (A) prior to the effective time of
the merger, PepsiCo will contribute, or will cause to be contributed, to
Merger Sub certain bottling operations (including associated liabilities
and debt to be assumed by Merger Sub), (B) (i) Whitman will merge with
and into Merger Sub, with Merger Sub as the surviving corporation,
whereupon Merger Sub's name will be changed to "Whitman Corporation"
(Merger Sub being referred to, after the Merger Effective Time, as "New
Whitman"), (ii) the shares of Whitman common stock issued and
outstanding as of the effective time of the merger will be converted on
a one-for-one basis into shares of New Whitman common stock, whereupon,
after giving effect to the Transactions and based on the number of
shares of Whitman common stock outstanding as of , 1999,
(x) the holders of Whitman Common Stock will hold shares of New Whitman
common stock representing in the aggregate approximately 65% of the New
Whitman common stock outstanding and (y) PepsiCo will hold shares of New
Whitman common stock representing in the aggregate approximately 35% of
the New Whitman common stock outstanding, and (C) following consummation
of the Merger, New Whitman will cause the sale of certain of its
indirect domestic and foreign subsidiaries to a subsidiary of PepsiCo
for an aggregate of $137.8 million in cash (though this sale does not
require the vote of Whitman shareholders and may occur prior to the
effective time of the merger) and PepsiCo will cause the sale of certain
foreign subsidiaries and certain assets of its domestic subsidiaries to
a subsidiary of New Whitman for an aggregate of $176 million in cash.
The Whitman board of directors is not currently aware of any business to
be acted upon at the special meeting other than as described herein.
The Whitman board of directors has fixed the close of business on
, 1999, as the record date for the determination of shareholders
entitled to notice of, and to vote at, the special meeting or any adjournment or
postponement thereof. Only holders of record of Whitman common stock at the
close of business on the record date will be entitled to notice of, and to vote
on, matters at the special meeting and any adjournment thereof. Reference is
made to the attached Proxy Statement/Prospectus for a more complete description
of the Agreement and the transactions. Under applicable Delaware law and
relevant organizational documents of Whitman, holders of Whitman common stock
will not be entitled to dissenters' appraisal rights with respect to the
adoption of the Agreement. A list of Whitman shareholders as of the record date
will
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 3
be available at the special meeting and, during the ten-day period prior to the
special meeting, at the [location must be in the city where meeting is to be
held], during ordinary business hours.
By Order of the Board of Directors,
/s/
--------------------------------------
Secretary
Rolling Meadows, Illinois
, 1999
To assure your representation at the special meeting, please sign and mail
the enclosed proxy, which is being solicited on behalf of the Whitman board of
directors. A postage-prepaid envelope is enclosed for your convenience in
returning your proxy. If you receive more than one form of proxy, it is an
indication that your shares are registered in more than one account. All proxy
forms received by you should be signed and returned promptly to ensure that all
of your shares are voted.
If your shares are held in the name of a broker, trust, bank or other
nominee and you plan to attend the Special Meeting and vote your shares in
person, you should bring with you a proxy or letter from the broker, trustee,
bank or nominee confirming your beneficial ownership of the shares.
YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE OUTSTANDING SHARES OF WHITMAN COMMON STOCK IS REQUIRED TO ADOPT THE
AGREEMENT. YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON, IF
YOU WISH, AND REVOKE ANY PREVIOUSLY SUBMITTED PROXY.
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 4
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS................ 1
SUMMARY..................................................... 3
RISK FACTORS................................................ 9
PepsiCo Will Have Significant Influence on New Whitman.... 9
It Will Be Extremely Difficult for a Third Party to
Acquire Control of New Whitman Without the Cooperation
of PepsiCo............................................. 9
Dependence upon PepsiCo................................... 9
Conflicts of Interest Between New Whitman and PepsiCo..... 10
Integration of New Businesses May Be Difficult............ 10
New Whitman Stock Price May Be Lower Than Whitman Stock
Price.................................................. 10
THE SPECIAL MEETING......................................... 11
Special Meeting........................................... 11
Voting Securities and Record Date......................... 11
Purpose of Special Meeting................................ 11
Quorum.................................................... 11
Proxies................................................... 11
THE TRANSACTIONS............................................ 13
The Companies............................................. 13
The Transactions.......................................... 14
Background of the Transactions............................ 16
Reasons for the Transactions.............................. 17
Recommendation of the Whitman Board of Directors.......... 18
Opinion of Financial Advisor.............................. 18
Interests of Certain Persons in the Transactions.......... 22
New Whitman Board and Management Following the
Transactions........................................... 23
Effects of the Transactions on Whitman's Existing
Shareholders........................................... 23
New Whitman Share Repurchase.............................. 23
Plans for the Operation of the PepsiCo Bottling Operations
Following the Transactions............................. 24
Governmental and Regulatory Approvals..................... 24
Accounting Treatment of the Transactions.................. 24
Absence of Appraisal Rights............................... 25
Name Change............................................... 25
Stock Exchange Listing; Delisting and Deregistration of
Whitman Common Stock................................... 25
Treatment of Stock Certificates........................... 25
Effective Time............................................ 25
THE AGREEMENT............................................... 26
The Transactions.......................................... 26
Contributed Operations.................................... 27
Closing................................................... 27
Representations and Warranties............................ 27
Certain Covenants of Whitman.............................. 28
Certain Covenants in Respect of PepsiCo and the
Contributed Operations................................. 29
Other Covenants........................................... 30
Tax Matters............................................... 32
Conditions to Closing..................................... 32
Indemnification........................................... 33
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PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 5
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Tax Indemnification....................................... 33
Termination............................................... 34
Termination Fee........................................... 35
Expenses.................................................. 35
Working Capital Adjustments............................... 36
THE SHAREHOLDER AGREEMENT................................... 38
General................................................... 38
Conduct by PepsiCo........................................ 39
Transfers by PepsiCo...................................... 39
Special Meetings Requested by PepsiCo..................... 40
Top-Up Rights............................................. 40
Charter, By-Laws and Rights Agreement..................... 40
New Whitman Board Composition............................. 40
Term...................................................... 41
OTHER AGREEMENTS............................................ 42
Pepsi Beverage Agreements................................. 42
Services Agreement........................................ 45
Employee Benefits Agreement............................... 45
Whitman Transfers Employee Benefits Agreement............. 47
Registration Rights Agreement............................. 48
Rights Agreement.......................................... 48
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER....... 50
DESCRIPTION OF NEW WHITMAN CAPITAL STOCK.................... 51
Authorized Capital Stock.................................. 51
Common Stock.............................................. 51
Preferred Stock........................................... 52
Preemptive Rights......................................... 52
Transfer Agent and Registrar.............................. 52
COMPARATIVE RIGHTS OF HOLDERS OF WHITMAN AND NEW WHITMAN
CAPITAL STOCK............................................. 53
General................................................... 53
Par Value................................................. 53
Business Opportunity...................................... 53
Affiliated Transaction Committee.......................... 53
Action By Written Consent................................. 54
Special Meetings.......................................... 54
Certain Board Voting Requirements......................... 54
Rights Agreement.......................................... 54
MARKET PRICES............................................... 55
PEPSICO BOTTLING OPERATIONS................................. 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS, CASH
FLOWS AND LIQUIDITY AND CAPITAL RESOURCES OF THE PEPSICO
BOTTLING OPERATIONS....................................... 61
NEW WHITMAN UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 68
EXPERTS..................................................... 75
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PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 6
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LEGAL MATTERS............................................... 75
SHAREHOLDER PROPOSALS....................................... 75
WHERE YOU CAN FIND MORE INFORMATION......................... 75
INDEX OF DEFINED TERMS...................................... 77
INDEX TO COMBINED FINANCIAL STATEMENTS...................... F-1
Appendices:
A -- Contribution and Merger Agreement
B -- Certificate of Incorporation of New Whitman
C -- By-Laws of New Whitman
D -- Form of Shareholder Agreement
E -- Opinion of Credit Suisse First Boston Corporation
</TABLE>
iii
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: WHY IS THE WHITMAN BOARD PROPOSING THE TRANSACTIONS?
A: If completed, the Transactions will result in your having a stake in one of
PepsiCo's anchor bottlers, which will also be one of the largest producers and
distributors of Pepsi-Cola brand products in the world. The Whitman board of
directors believes that the shareholders of Whitman will benefit from the
increased size and strength of New Whitman. New Whitman will have nearly 40%
more revenue on a pro forma basis than Whitman currently does. New Whitman will
have exclusive production and distribution rights for Pepsi-Cola in portions of
nine states and eight foreign countries worldwide.
Q: PLEASE EXPLAIN THE EXCHANGE RATIO.
A: In the merger you will receive one share of New Whitman common stock in
exchange for each share of Whitman common stock you own.
Q: WHAT ABOUT FUTURE DIVIDENDS?
A: Whitman expects to declare and pay dividends on its common stock consistent
with its current practice until the closing. Whitman anticipates that its
regular quarterly dividend of $.05 per share will be declared in February, 1999
and paid in April, 1999.
New Whitman expects to be a dividend paying company. However, in light of
expected increases in the level of spending on acquisitions and capital
expenditures, New Whitman expects dividends to be at a significantly lower rate
than is currently paid on the Whitman common stock.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTIONS TO ME?
A: The exchange of shares of Whitman common stock for shares of New Whitman
common stock will be tax-free to Whitman shareholders for federal income tax
purposes. To review the tax consequences to shareholders in greater detail, see
pages - .
Q: WHAT IS THE RECOMMENDATION OF THE WHITMAN BOARD?
A: The Whitman board of directors unanimously recommends that you approve the
merger.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your completed and signed proxy in the enclosed return envelope as
soon as possible, so that your shares may be represented at the special meeting.
The special meeting will take place on , 1999.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. If you do not instruct your broker to vote
your shares, it will be equivalent to voting against the Transactions.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before we vote your proxy at the
special meeting. You can do so in one of three different ways. First, you can
send a written notice, stating that you would like to revoke your proxy, to the
Secretary of Whitman at the address given below. Second, you can complete a new
proxy card and send it to the Secretary of Whitman at the address given below.
Third, you can attend the special meeting and vote in person. Simply attending
the special meeting, however, will not revoke your proxy. If you have instructed
a broker to vote your shares, you must follow the directions received from your
broker to change your vote. You should send any written notice or new proxy card
to the Secretary of Whitman at the following address: Whitman Corporation, 3501
Algonquin Road, Rolling Meadows, Illinois, 60008, Attention: Secretary.
Q: WILL I HAVE APPRAISAL RIGHTS IF I DO NOT VOTE TO ADOPT THE AGREEMENT?
A: No. You are not entitled to appraisal rights under Delaware law in connection
with the Transactions.
Q: DO I NEED A NEW STOCK CERTIFICATE?
A: No. Your current Whitman stock certificate will represent shares of New
Whitman common stock after the Transactions. You should not send in your Whitman
stock certificate.
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 8
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE COMPLETED?
A: We are working to complete the Transactions as quickly as possible, hopefully
shortly after the special meeting.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: You should call at .
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PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 9
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the Transactions fully, and for a more complete
description of the legal terms of the Transactions, you should carefully read
this entire Proxy Statement/Prospectus and the documents we have referred you
to. See "Where You Can Find More Information." (Page 75.)
THE COMPANIES
WHITMAN CORPORATION
3501 Algonquin Road
Rolling Meadows, Illinois 60008
(847) 818-5000
Whitman, through its principal subsidiary Pepsi-Cola General Bottlers,
Inc., is a leading producer and distributor of Pepsi-Cola brand products.
Whitman was incorporated in 1962 under the laws of Delaware. Following a series
of divestitures over the past ten years, Pepsi-Cola General Bottlers is
Whitman's only significant operating company.
PEPSICO, INC.
700 Anderson Hill Road
Purchase, New York 10577
(914) 253-2000
PepsiCo is engaged in the beverage and snack food businesses. PepsiCo's
beverage businesses manufacture and sell beverage products, primarily soft
drinks and soft drink concentrates, throughout the world. PepsiCo's snack food
businesses manufacture and sell a varied line of salty snack foods throughout
the world. PepsiCo was incorporated in Delaware in 1919 and was reincorporated
in North Carolina in 1986.
The bottling operations being contributed by PepsiCo to New Whitman consist
of certain bottling businesses of PepsiCo located in the midwestern U.S. The
bottling operations which will be sold to New Whitman immediately after the
Merger consist of PepsiCo's bottling subsidiaries located in the Czech Republic,
Slovakia, Poland and Hungary, and certain domestic transportation and vending
assets.
PepsiCo indirectly currently owns 20% of the common stock of Pepsi-Cola
General Bottlers. That interest will be transferred to New Whitman as a part of
the contribution described above.
HEARTLAND TERRITORIES HOLDINGS, INC.
c/o PepsiCo, Inc.
700 Anderson Hill Road
Purchase, New York 10577
(914) 253-2000
Heartland Territories Holdings, Inc. (also referred to as "Merger Sub"
herein) is a wholly-owned inactive subsidiary of PepsiCo. Merger Sub was formed
by PepsiCo in 1963 under the laws of Delaware to provide services for PepsiCo's
bottling operations and has been inactive since 1994.
REASONS FOR THE TRANSACTIONS
Following the Transactions, New Whitman will have exclusive production and
distribution rights for Pepsi-Cola brand products in portions of nine states and
eight foreign countries worldwide. New Whitman will have nearly 40% more revenue
on a pro forma basis than Whitman currently does. Further, with PepsiCo
restructuring its bottling system, New Whitman will be one of several PepsiCo
anchor bottlers worldwide. The Whitman board of directors believes that
shareholders of Whitman will benefit from the greater size and strength of New
Whitman.
To review the reasons for the Transactions in greater detail, as well as
related uncertainties, see pages 13 through 25.
RECOMMENDATION TO WHITMAN SHAREHOLDERS
The Whitman board of directors believes that the Transactions are in the
best interests of Whitman and its shareholders and unanimously recommends that
you vote FOR adoption of the Agreement.
THE TRANSACTIONS
The Agreement is attached as Appendix A to this Proxy Statement/Prospectus.
We encourage you to read the Agreement, as it is the legal document that governs
the Transactions.
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PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 10
THE TRANSACTIONS (SEE PAGE 13)
The Transactions will take place in several steps. First, PepsiCo will
contribute some of its midwestern U.S. bottling operations (including associated
liabilities and debt) to Merger Sub. Second, Whitman will merge into Merger Sub,
with Merger Sub as the surviving corporation. Immediately after the merger,
Merger Sub will change its name to "Whitman Corporation" and be referred to as
"New Whitman" herein. After the merger, New Whitman will sell some bottling
operations to PepsiCo for $137.8 million in cash (though this sale does not
require a vote of Whitman shareholders and may occur prior to the merger), and
PepsiCo will sell some additional bottling operations and assets to New Whitman
for $176 million in cash.
WHAT WHITMAN SHAREHOLDERS WILL RECEIVE (SEE PAGE 14)
As a result of the Transactions, Whitman shareholders will receive one
share of New Whitman common stock (together with the associated rights) for each
share of Whitman common stock that they own and each certificate currently
representing shares of Whitman common stock will represent an equivalent number
of shares of New Whitman common stock.
You should not send in your stock certificates. You will not exchange
certificates in connection with the merger.
OWNERSHIP OF NEW WHITMAN FOLLOWING THE TRANSACTIONS (SEE PAGE 14)
Current holders of Whitman common stock will own approximately 65% of the
outstanding common stock of New Whitman after the Transactions. PepsiCo and its
subsidiaries will own approximately 35% of the outstanding common stock of New
Whitman after the Transactions.
SHARE REPURCHASE (SEE PAGE 23)
The Agreement provides that during the 12 months following the closing of
the merger, New Whitman will repurchase the lesser of (1) 16 million shares of
New Whitman common stock or (2) shares of New Whitman common stock with an
aggregate value of $400 million, though New Whitman is not obligated to effect
such repurchase if the New Whitman board of directors determines in good faith
that such repurchase is impractical or inadvisable. PepsiCo does not intend to
sell its shares during this repurchase, and as a result of the repurchase,
PepsiCo's interest in New Whitman could increase to over 39%.
BOARD OF DIRECTORS AND MANAGEMENT OF NEW WHITMAN FOLLOWING THE TRANSACTIONS (SEE
PAGE 23)
When the Transactions are complete, the New Whitman board of directors will
consist of 10 members -- eight of the nine current members of the Whitman board
of directors plus two directors who have been designated by PepsiCo. The
management of New Whitman will be the same as that of Whitman prior to the
Transactions.
CONDITIONS TO THE TRANSACTIONS (SEE PAGE 32)
The completion of the Transactions depends upon the satisfaction of a
number of conditions, including (but not limited to) the following:
(1) the adoption of the Agreement by holders of a majority of Whitman common
stock;
(2) the absence of any injunction or other legal restraint preventing the
Transactions;
(3) the receipt of an opinion from PepsiCo's counsel regarding (a) the
qualification of the contribution, and the contribution and merger
collectively, under Section 351 and (b) the qualification of the merger
under Section 368 of the Internal Revenue Code of 1986, as amended; and
(4) the receipt of an opinion from Whitman's counsel regarding the applicability
of Section 368 of the Internal Revenue Code of 1986 to the merger.
Any condition to the Transactions may be waived by the party entitled to
assert such condition.
TERMINATION OF THE AGREEMENT (SEE PAGE 34)
Either Whitman or PepsiCo can terminate the Agreement if, among other
things, any of the following occurs:
(1) the Transactions are not completed before June 30, 1999;
(2) the holders of a majority of Whitman common stock do not adopt the
Agreement;
4
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 11
(3) a governmental entity issues a permanent injunction or restraint prohibiting
the completion of the Transactions; or
(4) the other party breaches or fails to comply in any material respect with any
of its representations or warranties or obligations under the Agreement.
The parties may also terminate the Agreement by mutual consent, and Whitman
may terminate the Agreement if it receives a superior proposal, subject to the
payment of a termination fee as described below.
BREAK-UP AND TERMINATION FEES (SEE PAGE 35)
The Agreement requires Whitman to reimburse PepsiCo's expenses up to a
maximum of $2 million if a majority of Whitman shareholders do not vote in favor
of adoption of the Agreement.
The Agreement further requires Whitman to pay a termination fee of $20
million to PepsiCo under certain circumstances (less the amount of any fee paid
to PepsiCo as described in the previous paragraph) if Whitman terminates the
Agreement and enters into a significant transaction with a third party.
ACCOUNTING TREATMENT (SEE PAGE 24)
We expect the Transactions will be accounted for under the purchase method
of accounting in accordance with generally accepted accounting principles.
SHAREHOLDER AGREEMENT (SEE PAGE 38)
New Whitman and PepsiCo will enter into a Shareholder Agreement on the
closing date of the Transactions.
Under the Shareholder Agreement, PepsiCo's and its affiliates' ownership of
New Whitman common stock will be limited to an ownership threshold of 49% of the
outstanding shares. Any acquisitions in excess of the threshold must be done
with the consent of either the independent directors of New Whitman (not
affiliated with PepsiCo and not officers of New Whitman) or the independent New
Whitman shareholders (not affiliated with PepsiCo) or pursuant to an offer for
all outstanding shares of New Whitman common stock at a price meeting certain
minimum-price criteria.
The Shareholder Agreement also restricts certain transfers by PepsiCo and
its affiliates, in particular, transfers which would result in a third party
unaffiliated with PepsiCo owning greater than 20% of the outstanding shares of
New Whitman common stock.
PEPSICO BEVERAGE AGREEMENTS (SEE PAGE 42)
PepsiCo will appoint New Whitman as an anchor bottler. At the closing of
the merger, New Whitman will enter into the following bottling agreements with
PepsiCo:
(1) a master bottling agreement for beverages bearing the "PEPSI-COLA"
and "PEPSI" trademark, including DIET PEPSI and PEPSI ONE, in the United
States;
(2) an allied brands master bottling agreement for bottling and
distribution of non-cola products in the United States;
(3) a master fountain syrup agreement and an allied brands fountain
syrup agreement for fountain syrup in the United States;
(4) international bottling agreements which include terms similar to
the master bottling agreement, the allied brands master bottling agreement
and the fountain syrup agreements for countries outside of the United
States.
OTHER AGREEMENTS (SEE PAGE 45)
At the closing of the Transactions, PepsiCo and New Whitman will also enter
into agreements relating to, among other things, shared services and employee
benefits arrangements and registration rights for PepsiCo.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 18)
In deciding to approve the Transactions, the Whitman board of directors
considered the written opinion, dated January 25, 1999, of its financial
advisor, Credit Suisse First Boston Corporation, that the merger consideration
to be received by shareholders of Whitman was fair to the shareholders of
Whitman from a financial point of view. The full text of that opinion is
attached as Appendix E to this Proxy Statement/Prospectus. We encourage you to
read it completely.
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PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 12
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 50)
We have structured the Transactions so that Whitman shareholders will not
recognize any gain or loss for federal income tax purposes in the Transactions.
We have conditioned the Transactions on our receipt of a legal opinion that such
is the case.
NO APPRAISAL RIGHTS (SEE PAGE 25)
Under Delaware law, Whitman shareholders do not have any right to an
appraisal of the value of their shares in connection with the Transactions.
WHITMAN MARKET PRICE INFORMATION
Shares of Whitman common stock are currently listed on the New York Stock
Exchange under the symbol "WH". On January 22, 1999, the last full trading day
on the NYSE prior to the public announcement of the signing of the Agreement,
Whitman common stock closed at $22.0625 per share. On , 1999,
Whitman common stock closed at $ per share.
LISTING OF NEW WHITMAN COMMON STOCK
The shares of New Whitman common stock issued in connection with the
Transactions will be listed on the NYSE under the symbol "WH" (which is the same
symbol currently used for Whitman common stock).
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<PAGE> 13
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary selected historical financial data presented below for the
five-year period ended December 31, 1997 has been derived from the consolidated
financial statements of Whitman and its subsidiaries as they appeared in the
Whitman 1997 Annual Report on Form 10-K incorporated by reference herein. The
summary selected historical financial data for the nine months ended September
30, 1998 and 1997 are unaudited and derived from information contained in the
Whitman Quarterly Reports on Form 10-Q incorporated by reference herein;
however, in the opinion of management, all adjustments which are of a normal
recurring nature necessary for a fair presentation of the results of such period
have been made.
These financial data should be read in conjunction with the historical
consolidated financial statements, the notes thereto and "Management's
Discussion and Analysis and Results of Operations" contained in the Whitman 1997
Form 10-K or Form 10-Q, as appropriate, incorporated by reference herein, and
the Combined Financial Statements of the PepsiCo Bottling Operations, included
elsewhere in this Proxy Statement/Prospectus. See "Management's Discussion and
Analysis of Operations, Cash Flows and Liquidity and Capital Resources of
PepsiCo Bottling Operations".
The pro forma financial data for the nine months ended September , 1998
and year ended December , 1997 are unaudited and derived from the unaudited
Pro Forma Condensed Combined Financial Statements included elsewhere in this
Proxy Statement/Prospectus.
WHITMAN CORPORATION/NEW WHITMAN
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR
------------------------------- --------------------------------------------------------------------
PRO FORMA PRO FORMA
1998(A) 1998 1997 1997(A) 1997 1996 1995 1994 1993
--------- -------- -------- ----------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $1,687.0 $1,235.9 $1,178.9 $2,176.4 $1,557.5 $1,501.4 $1,448.7 $1,256.1 $1,179.6
Operating income......... $ 151.5 $ 163.0 $ 133.3(B) $ 91.9(B) $ 130.2(B) $ 194.8 $ 181.1 $ 169.1 $ 154.6
Income (loss) from
continuing
operations............. $ 24.7 $ 50.7 $ 31.1(B) $ (62.1)(B) $ 15.8(B) $ 47.8 $ 46.8 $ 26.5 $ 29.7
Basic earnings (loss)
from continuing
operations per
share(C)............... $ 0.18 $ 0.50 $ 0.31(B) $ (0.44)(B) $ 0.16(B) $ 0.46 $ 0.44 $ 0.25 $ 0.28
Basic EPS -- weighted-
average common
shares(C).............. 139.2 101.2 101.8 139.6 101.6 104.8 104.9 105.5 107.1
Cash dividends per
share.................. $ 0.15 $ 0.335 $ 0.45 $ 0.41 $ 0.37 $ 0.33 $ 0.29
OTHER FINANCIAL DATA:
EBITDA(D)................ $ 253.8 $ 208.6 $ 182.9 $ 268.5 $ 235.3 $ 244.4 $ 236.4 $ 190.0 $ 213.6
Operating cash flow(D)... 259.1 220.7 197.6 290.5 253.3 270.0 251.7 233.4 218.1
Capital expenditures..... 123.0 103.4 54.2 134.8 83.4 87.2 111.1 66.0 45.1
Depreciation and
amortization........... 107.6 57.7 54.9 149.3 73.8 75.2 70.6 64.3 63.5
Book value per share..... $ 7.88 $ 3.06 $ 5.64 $ 4.83 $ 5.81 $ 5.75 $ 5.11 $ 4.81
BALANCE SHEET DATA (AT
PERIOD END):
Total assets............. $2,973.1 $1,558.0 $2,136.0 $2,029.7 $2,080.6 $2,050.5 $1,853.8 $1,817.4
Long-term debt........... 1,322.0 597.0 777.1 604.7 821.7 810.3 704.0 731.3
</TABLE>
7
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 14
- - - ---------------
(A) The unaudited Pro Forma Combined Statements of Operations of New Whitman
for the nine months ended September 1998 and for the year ended December
1997 present the pro forma combined results of operations of New Whitman
assuming that the transactions contemplated by the Agreement had been
completed as of the beginning of 1997, and include all material adjustments
necessary to present the results of New Whitman on a pro forma basis.
(B) In 1997, Whitman recorded special charges of $49.3 million and $9.4 million
for the year ended December 31, 1997 and the nine months ended September
30, 1997, respectively, related to the spin-offs of Midas, Inc. and
Hussmann International, Inc., the restructuring of Pepsi-Cola General
Bottlers organization and the elimination of a significant portion of the
Whitman corporate management and staff. The effect of the special charges
on income from continuing operations and the related basic earnings per
share was a net loss of $31.6 million, or $0.31 per share, and $7.5
million, or $0.07 per share, for the year ended December 31, 1997 and the
nine months ended September 30, 1997, respectively.
(C) Pro forma earnings per share is based upon an additional 38.0 million
shares of New Whitman common stock assumed to be outstanding as a result of
the Transactions and the post-Transactions share repurchase (assuming that
16.0 million shares of New Whitman common stock are repurchased in the
post-Transactions share repurchase).
(D) EBITDA is defined as income (loss) before income taxes, excluding special
charges, plus the sum of interest, depreciation and amortization. Operating
cash flow is defined as operating income, excluding special charges, plus
depreciation and amortization. Information concerning EBITDA and operating
cash flow has been included because they are expected to be used by certain
investors as measures of the operating performance and of the ability to
service potential debt. EBITDA and operating cash flow are not required
under generally accepted accounting principles ("GAAP"), and should not be
considered alternatives to income (loss) from continuing operations or any
other measure of performance required by GAAP. They also should not be used
as measures of cash flow or liquidity under GAAP.
8
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 15
RISK FACTORS
You should carefully consider the following factors and other information
in this document before you make your decision whether to vote in favor of
adoption of the Agreement. The risks set forth below are in addition to the
risks that apply to most businesses, including risks of competition, market
conditions, availability of supplies, foreign exchange and product liability in
excess of insurance and reliance on employees.
PEPSICO WILL HAVE SIGNIFICANT INFLUENCE ON NEW WHITMAN
Currently, PepsiCo owns 20% of the common stock of Pepsi-Cola General
Bottlers, with the remaining 80% owned by Whitman. After completion of the
Transactions, PepsiCo will no longer own any interest in Pepsi-Cola General
Bottlers but will own approximately 35% of the outstanding common stock of New
Whitman and two of PepsiCo's designees will be directors of New Whitman.
PepsiCo's interest may increase to over 39% if the repurchase plan is completed.
PepsiCo's ownership percentage will entitle it to call special meetings of New
Whitman shareholders under the New Whitman by-laws. PepsiCo will have
significant rights under the Shareholder Agreement, including the right to
acquire up to 49% of the outstanding New Whitman common stock. In addition,
PepsiCo will have the right to acquire additional shares provided that the
acquisition is done with the consent of either the independent directors of New
Whitman (not affiliated with PepsiCo and not officers of New Whitman) or the
independent New Whitman shareholders (not affiliated with PepsiCo) or pursuant
to an offer for all outstanding shares of New Whitman common stock at a price
meeting certain fair-price criteria. PepsiCo will not be under any restrictions
with respect to voting of its shares or soliciting proxies from other
shareholders. The majority of New Whitman's sales will be of PepsiCo products.
The combination of PepsiCo's rights as a shareholder and its position as a
critical supplier will give PepsiCo significant influence on New Whitman.
IT WILL BE EXTREMELY DIFFICULT FOR A THIRD PARTY TO ACQUIRE CONTROL OF NEW
WHITMAN WITHOUT THE COOPERATION OF PEPSICO
PepsiCo, as owner of approximately 35% of the equity interest of New
Whitman (more than 39% if the repurchase plan is completed) could vote its
shares of New Whitman common stock against any takeover proposal, which would
make it extremely difficult to acquire New Whitman without PepsiCo's consent. In
addition, New Whitman will have several takeover defenses in its corporate
documents. These defenses could discourage potential acquisition proposals and
could delay or prevent a change in control of New Whitman. The combined effect
of these deterrents could have an effect on the price of New Whitman common
stock and will serve to make it extremely difficult to remove and replace
members of the board of directors of New Whitman or the current management of
New Whitman without the cooperation of PepsiCo.
DEPENDENCE UPON PEPSICO
Immediately after the merger, New Whitman will enter into the several
bottling agreements with PepsiCo for cola and certain non-cola and fountain
beverage products. See "Other Agreements -- Pepsi Beverage Agreements." These
agreements provide that New Whitman must purchase all of its concentrate for
such beverages at prices and on other terms which are set by PepsiCo in its sole
discretion. There can be no assurance that prices under these agreements will
not increase materially or that New Whitman will be able to pass on any
increased costs to its customers. PepsiCo has traditionally provided marketing
support and funding to its bottling operations. However, while PepsiCo has
indicated to New Whitman that it intends to continue to provide this support,
PepsiCo is not obligated under the bottling agreements to do so and any such
support provided to New Whitman will be at PepsiCo's sole discretion. Any
concentrate price increases or decreases in marketing support and funding levels
could materially affect New Whitman's financial results.
The bottling agreements also require New Whitman to submit its annual
sales, marketing, advertising, management and financial plans each year to
PepsiCo for its review and approval. If New Whitman fails to do so, or if New
Whitman fails to carry out these plans in all material respects, PepsiCo has the
right to terminate
9
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 16
the bottling agreements. If the bottling agreements are terminated for this or
for any other reason, it would have a material adverse effect on New Whitman's
business and financial results.
CONFLICTS OF INTEREST BETWEEN NEW WHITMAN AND PEPSICO
The nature of the relationship between New Whitman and PepsiCo and their
respective businesses may give rise to conflicts of interest between them. New
Whitman will enter into significant business transactions in the future with
PepsiCo. While the terms of these transactions will be negotiated at arm's
length, PepsiCo's stake in New Whitman may create potential conflicts of
interest in connection with transactions between New Whitman and PepsiCo.
Conflicts could arise with respect to dealings between New Whitman and PepsiCo,
such as with respect to the nature, quality and pricing of services or products
provided to New Whitman by PepsiCo or by New Whitman to PepsiCo, potential
acquisitions of bottling territories and/or assets from PepsiCo or other
independent PepsiCo bottlers, the divestment of certain of New Whitman's
bottling operations, the payment of dividends by New Whitman or balancing the
objectives of increasing sales volume of Pepsi-Cola beverages and maintaining or
increasing New Whitman's profitability.
In addition, two of New Whitman's directors will be individuals who are
also directors or officers of PepsiCo, a situation which may give rise to
certain conflicts of interest. The New Whitman by-laws provide for an affiliated
transactions committee comprised of independent directors to review certain
transactions with affiliates of New Whitman, including PepsiCo.
INTEGRATION OF NEW BUSINESSES MAY BE DIFFICULT
New Whitman will need to integrate the operations of Whitman's current
business and the operations being contributed and sold to New Whitman, each of
which were previously operated separately. This integration may be more
expensive than anticipated or take longer than planned. If there are delays or
unexpected costs involved with the integration this could have a material
adverse effect on the business, results of operations or financial condition of
New Whitman as well as on the market value of New Whitman common stock.
NEW WHITMAN STOCK PRICE MAY BE LOWER THAN WHITMAN STOCK PRICE
After completion of the Transactions, Whitman shareholders will become
shareholders of New Whitman. The market value of shares of New Whitman common
stock may be less than the market value of shares of Whitman common stock before
the merger.
10
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 17
THE SPECIAL MEETING
SPECIAL MEETING
The special meeting of shareholders of Whitman Corporation will be held at
[10:00] a.m., local time, on , 1999, at ,
, for the purpose set forth in the accompanying Notice of Special
Meeting and as described below. This Proxy Statement/Prospectus is furnished in
connection with the solicitation by the board of directors of Whitman of proxies
to be used at the special meeting and at any and all adjournments or
postponements of the special meeting. Any person executing a proxy card may
revoke it prior to its exercise.
VOTING SECURITIES AND RECORD DATE
Holders of record of shares of Whitman common stock, at the close of
business on , 1999, the record date, are entitled to notice of and
to vote at the special meeting. As of the Record Date, there were
issued and outstanding shares of Whitman common stock, each of
which entitles the holder thereof to one vote per share. The affirmative vote of
the holders of a majority of the outstanding shares of Whitman common stock is
required under Delaware law to adopt the Contribution and Merger Agreement,
dated as of January 25, 1999, among Whitman, PepsiCo, Inc. and Heartland
Territories Holdings, Inc. ("Merger Sub") (the "Agreement"), at the special
meeting. Abstentions and broker non-votes will be counted for the purpose of
determining the existence of a quorum.
As of the record date, directors and executive officers of Whitman and
their affiliates owned approximately shares of Whitman common stock,
representing approximately % of the shares of Whitman common stock entitled
to vote at the special meeting. It is currently expected that each such director
and executive officer of Whitman will vote the shares of Whitman common stock
beneficially owned by him or her for adoption of the Agreement.
To the best of Whitman's knowledge, no entity (other than as disclosed
below) owned more than 5% of Whitman common stock as of the record date.
PURPOSE OF SPECIAL MEETING
At the special meeting, Whitman shareholders will (1) consider and vote
upon adoption of the Agreement and (2) transact such other business as may
properly come before the special meeting and at any and all adjournments or
postponements thereof. See "The Transactions."
QUORUM
The presence in person or by properly executed proxy of holders of 51% of
the issued and outstanding shares of Whitman common stock entitled to vote at
the special meeting is necessary to constitute a quorum at the special meeting.
Abstentions and broker non-votes will be counted for the purpose of determining
the existence of a quorum.
PROXIES
All shares of Whitman common stock that are represented at the special
meeting by properly executed proxies received prior to or at the special
meeting, and not duly and timely revoked, will be voted at the special meeting
in accordance with the instructions indicated on such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxy
will be voted FOR the adoption of the Agreement. A properly executed proxy
marked "ABSTAIN," although counted for purposes of determining whether there is
a quorum and for purposes of determining the aggregate voting power and number
of shares represented and entitled to vote at the special meeting, will not be
voted. Accordingly, since the affirmative vote of a majority of outstanding
shares is required for adoption of the Agreement, a proxy marked "ABSTAIN" will
have the effect of a vote against the Agreement. Shares represented by "broker
non-votes" (i.e., shares held by brokers or nominees which are represented at
the special meeting but with respect to which the broker or nominee is
11
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 18
not empowered to vote) will be counted for purposes of determining whether there
is a quorum at the special meeting. In accordance with NYSE rules, brokers and
nominees are precluded from exercising their voting discretion with respect to
the adoption of the Agreement and thus, absent specific instructions from the
beneficial owner of such shares, are not empowered to vote such shares with
respect to the adoption of the Agreement. Therefore, since the affirmative vote
of a majority of the aggregate voting power is required for adoption of the
Agreement, a "broker non-vote" with respect to the Agreement will have the
effect of a vote against the Agreement. In addition, the failure to vote in
person or by proxy will have the effect of a vote against the Agreement.
If fewer shares of Whitman common stock are voted in favor of adoption of
the Agreement than the number required for such adoption, an adjournment or
postponement of the special meeting may be sought for the purpose of soliciting
additional proxies. Shares represented by proxies voting against the adoption of
the Agreement will be voted against a proposal to adjourn the special meeting
for the purpose of soliciting additional proxies. Whitman does not currently
intend to seek an adjournment of the special meeting.
The Whitman board of directors is not currently aware of any business to be
acted upon at the special meeting other than as described herein. If, however,
other matters are properly brought before the special meeting, or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon according to their judgment.
Any proxy given pursuant to this solicitation may be revoked at any time
before the proxy is voted by filing with the Secretary of Whitman prior to or at
the special meeting, at the address specified for Whitman in the Summary, either
an instrument revoking the proxy or a duly executed proxy bearing a later date.
Attendance at the special meeting will not in and of itself constitute a
revocation of a proxy.
The cost of soliciting proxies will be borne by Whitman. In addition to the
use of the mails, proxies may be solicited personally or by telephone by
officers and regular employees of Whitman, none of whom will be specifically
compensated for such services. Kissel-Blake Inc. will assist in solicitation of
proxies. Whitman will pay approximately $ to Kissel-Blake, for proxy
solicitation services. Whitman does not expect to pay any additional
compensation for the solicitation of proxies; however, the proxy solicitor,
brokers and other custodians, nominees, and fiduciaries will be reimbursed for
expenses incurred in forwarding proxy material to principals and obtaining their
proxies.
WHITMAN SHAREHOLDERS SHOULD NOT SEND IN THEIR WHITMAN STOCK CERTIFICATES
WITH THEIR PROXY CARDS. WHITMAN SHAREHOLDERS WILL NOT NEED TO EXCHANGE THEIR
STOCK CERTIFICATES IN CONNECTION WITH THE TRANSACTIONS.
12
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 19
THE TRANSACTIONS
The transactions consist of (1) the contribution of the Contributed
Operations (as defined below) and PepsiCo's 20% equity interest in Pepsi General
(as defined below) to Merger Sub and, thereafter, (2) the merger of Whitman with
and into Merger Sub, with Merger Sub as the surviving corporation and with
Merger Sub's name being changed to "Whitman Corporation" ("New Whitman"), and
immediately thereafter, (3) the sale of the PepsiCo Acquired Businesses (as
defined below) to PepsiCo for an aggregate of $137.8 million in cash and the
sale of the New Whitman Acquired Businesses (as defined below) to a subsidiary
of New Whitman for an aggregate of $176 million in cash (collectively, (1), (2)
and (3), the "Transactions").
THE COMPANIES
Whitman. Whitman, through its principal operating company, Pepsi-Cola
General Bottlers, Inc. ("Pepsi General"), is engaged in the production and
distribution of Pepsi-Cola brand products and a variety of other non-alcoholic
beverage products. Pepsi General is the world's largest independent franchised
Pepsi-Cola bottler, accounting for about 12% of all Pepsi-Cola products sold in
the United States. It currently serves a significant portion of a 12 state
region, primarily in the midwestern U.S., with a customer base of approximately
25 million people.
Whitman was incorporated in Delaware in 1962. Whitman's principal executive
offices are located at 3501 Algonquin Road, Rolling Meadows, Illinois 60008, and
its telephone number is (847) 818-5000.
The operations currently owned by Pepsi General which will be sold to
PepsiCo pursuant to the Agreement consist of bottling operations in Marion,
Virginia, Princeton, West Virginia, and in the St. Petersburg area of Russia,
and related transportation assets (the "PepsiCo Acquired Businesses").
PepsiCo. PepsiCo is engaged in the beverage and snack food businesses.
PepsiCo's beverage businesses manufacture and sell beverage products, primarily
soft drinks and soft drink concentrates, throughout the world. PepsiCo's snack
food businesses manufacture and sell a varied line of salty snack foods
throughout the world.
PepsiCo was incorporated in Delaware in 1919 and was reincorporated in
North Carolina in 1986. PepsiCo's principal executive offices are located at 700
Anderson Hill Road, Purchase, New York 10577, and its telephone number at that
address is (914) 253-2000. Unless the context indicates otherwise, when used in
this Proxy Statement/Prospectus, the term "PepsiCo" means PepsiCo and its
divisions and subsidiaries (excluding Merger Sub and New Whitman).
The operations to be contributed to Merger Sub pursuant to the Agreement
consist of operations (the "Contributed Operations") principally in the central
part of the United States, including St. Louis, Missouri, Indianapolis, Indiana,
and Cleveland, Ohio (including associated liabilities and debt of, approximately
$262 million to be assumed by Merger Sub ("Assumed Debt")). See "The Contributed
Operations." The bottling and related operations to be sold to Pepsi General
pursuant to the Agreement consist of bottling operations in Poland, Hungary, the
Czech Republic and Slovakia, and certain domestic transportation and vending
assets related to the Contributed Operations (the "New Whitman Acquired
Businesses," and together with the Contributed Operations, the "PepsiCo Bottling
Operations" or "PBO").
PepsiCo currently owns 20% of Pepsi General, which interest will be
contributed to New Whitman as part of the contribution.
Merger Sub. Merger Sub is a wholly-owned subsidiary of PepsiCo and a
Delaware corporation. Merger Sub was originally formed in 1963 by PepsiCo to
provide services for PepsiCo's bottling operations. Merger Sub has been inactive
since 1994 and will not engage in any activity prior to the effective time of
the merger other than activities related to the Transactions.
Merger Sub is a Delaware corporation with executive offices at 700 Anderson
Hill Road, Purchase, New York 10577, and its telephone number is (914)253-2000.
Following the effective time of the merger, Merger Sub will have its executive
offices at 3501 Algonquin Road, Rolling Meadows, Illinois 60008, and its
telephone number will be (847) 818-5000.
13
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 20
THE TRANSACTIONS
The Agreement provides that PepsiCo will cause certain of its subsidiaries
to contribute the Contributed Operations and PepsiCo's 20% equity interest in
Pepsi General to Merger Sub in exchange for shares of Merger Sub common stock.
After the contribution, Whitman will merge with and into Merger Sub, with
Merger Sub as the surviving corporation being renamed "Whitman Corporation." The
outstanding shares of Whitman Common Stock will be converted on a one-for-one
basis into the right to receive shares of New Whitman common stock (the "Merger
Consideration"). Each share of New Whitman common stock will be issued together
with the corresponding number of associated rights to purchase one one-hundredth
of a share of preferred stock of New Whitman (the "Rights") pursuant to the
Rights Agreement, dated as of the date of the closing of the merger, by and
between New Whitman and First Chicago Trust Company of New York, as rights agent
(the "Rights Agreement").
Following consummation of the merger, New Whitman will cause the PepsiCo
Acquired Businesses to be sold to PepsiCo for an aggregate of $137.8 million in
cash, provided that such sale may occur prior to the closing of the merger and
without a vote of Whitman shareholders under certain conditions. In addition,
immediately following consummation of the merger, PepsiCo will cause the New
Whitman Acquired Businesses and certain transportation and vending assets
associated with the Contributed Operations to be sold to Pepsi General for an
aggregate of $176 million in cash.
Upon consummation of the Transactions, based on the number of shares of
Whitman common stock outstanding as of , 1999, PepsiCo, through its
subsidiaries, will hold 54,794,115 shares of New Whitman Common Stock,
representing approximately 35% of the New Whitman Common Stock. Holders of
Whitman Common Stock will hold shares of New Whitman common stock representing
approximately 65% of the New Whitman common stock. See "The Shareholder
Agreement."
The Agreement provides that during the 12 months following the closing of
the merger, New Whitman will repurchase the lesser of (1) 16 million shares of
New Whitman common stock or (2) shares of New Whitman common stock with an
aggregate value of $400 million, though New Whitman is not obligated to effect
such repurchase if the New Whitman board of directors determines in good faith
that such repurchase is impractical or inadvisable. PepsiCo does not intend to
sell its shares of New Whitman common stock during the repurchase, and as a
result of the repurchase, PepsiCo's interest in New Whitman could increase to
over 39%.
A copy of the Agreement (excluding all exhibits, attachments and schedules
thereto) and the form of the Shareholder Agreement between New Whitman and
PepsiCo (the "Shareholder Agreement") are attached to this Proxy
Statement/Prospectus as Appendices A and D, respectively, and are incorporated
by reference.
14
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 21
The following diagrams illustrate the Transactions and the end result
thereof:
SUMMARY OF OUTSTANDING INTERESTS BEFORE THE TRANSACTIONS
Whitman
Shareholders
|
|
| 100%
|
Whitman
PepsiCo, Inc. Corporation
| |
| |
| |
|------------------|--------------------|------------| |
|100% |100% |100% |20% | 80%
Certain PepsiCo Contributed Merger Sub Pepsi-Cola
Foreign Subsidiaries Operations General
("New Whitman Bottlers
Acquired Businesses") |
|
| 100%
|
Certain Whitman
Subsidiaries
("PepsiCo Acquired
Businesses")
- - - --------------------------------------------------------------------------------
SUMMARY OF OUTSTANDING INTERESTS AFTER THE TRANSACTIONS
PepsiCo, Inc. Whitman Shareholders
| | approx. 35% | approx 65%
| |----------------------------------------------------|
| |
| |
Certain Whitman New Whitman
Subsidiaries |
("PepsiCo Acquired | 100%
Businesses") |
Pepsi-Cola
General Bottlers
|
|--------------------------------------------------------------|
| 100% | 100%
Certain PepsiCo Contributed
Foreign Subsidiaries Operations
("New Whitman
Acquired
Businesses")
15
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 22
BACKGROUND OF THE TRANSACTIONS
Whitman has had a business relationship with PepsiCo since 1970, when
Whitman (which was then known as IC Industries, Inc.) acquired Pepsi General,
for which PepsiCo was the principal supplier. Following that acquisition, Pepsi
General acquired additional Pepsi-Cola franchises from independent bottlers in
the United States. In 1987, Pepsi General acquired two Pepsi-Cola franchises
directly from PepsiCo in a transaction in which PepsiCo acquired its current 20%
equity interest in Pepsi General. Since that time, PepsiCo has had a
representative on the Pepsi General board of directors, although that board of
directors rarely meets.
In the meantime, Whitman had become a large, diversified company. However,
between 1988 and 1998, Whitman divested most of its operating companies through
sales and spin-offs, culminating with the spin-offs of Midas, Inc. and Hussmann
International, Inc. in January 1998. Following that transaction, Pepsi General
remained as Whitman's sole significant operating company.
On July 13, 1998, Roger A. Enrico, Chairman and Chief Executive Officer of
PepsiCo, contacted Bruce S. Chelberg, Chairman and Chief Executive Officer of
Whitman, to discuss a proposal for making Whitman a PepsiCo "anchor bottler."
Mr. Enrico had previously enunciated a strategy for creating a system of a few
large anchor bottlers in the Pepsi system, which would include its own bottling
operations. Mr. Enrico proposed the transfer to Whitman of certain domestic and
foreign PepsiCo bottling operations, as well as its 20% stake in Pepsi General,
in exchange for 65.8 million shares of Whitman common stock (an approximately
39.5% ownership interest), certain Whitman domestic and foreign bottling
operations and the assumption by Whitman of approximately $709 million of debt.
Mr. Enrico also proposed new bottling appointments and the election of PepsiCo
nominees to the Whitman board of directors.
By letter dated July 16, 1998, Mr. Chelberg advised Mr. Enrico that he did
not believe that the PepsiCo proposal provided sufficiently attractive economic
incentives for the Whitman shareholders, but that he believed that a
constructive exchange could be continued which might lead to a mutually
beneficial transaction. By letter dated the same date, Mr. Enrico indicated that
he did not think further effort on the proposal would be productive at that
time.
In August 1998, senior executives of Whitman and PepsiCo, along with their
investment advisers, resumed discussions about a possible Whitman/PepsiCo
transaction. Mr. Chelberg advised the Whitman board of directors of these
developments at a meeting held on August 14, 1998, and at this meeting the
Whitman board of directors also was informed that on July 23, 1998, PepsiCo
announced that it was considering the feasibility of public ownership of its own
Pepsi Bottling Group unit, which accounts for approximately 54% of PepsiCo's
beverage case volume in North America, and that Mr. Enrico stated at the time of
such announcement that he would like PepsiCo to have a handful of strong
regional bottlers that would acquire smaller bottlers to better serve retail
customers and to compete more effectively.
On August 24, 1998, PepsiCo and Whitman entered into a confidentiality
agreement in order to facilitate the exchange of information.
On September 1, 1998, PepsiCo, through its investment advisors, Merrill
Lynch & Co., submitted a revised proposal to Whitman regarding terms on which
Whitman might become a PepsiCo anchor bottler. This proposal still contemplated
Whitman's assumption of $709 million of debt, but differed from the July 13
proposal primarily in that it contemplated that PepsiCo would be issued 52.5
million shares of Whitman common stock and that PepsiCo would make a tender
offer for 10% of the Whitman common stock owned by the public at a 50% premium
to then-current market price (Whitman common stock had closed at $15.50 on
August 31, 1998.) The revised proposal was reviewed by the Whitman board of
directors at a meeting held on September 17 and 18, 1998. After discussing the
proposal with management and Whitman's investment advisors, Credit Suisse First
Boston Corporation ("CSFB"), the Whitman board of directors authorized
management to continue its discussions with PepsiCo. Additional meetings and
discussions between senior executives of PepsiCo and Whitman, together with
their legal and investment advisors, were held. On October 14, 1998, Whitman
issued a press release confirming that it was in negotiations with PepsiCo
concerning a realignment of their business relationship.
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<PAGE> 23
Between October 1998 and January 1999, due diligence was conducted and
negotiations continued between the parties, including two meetings at which Mr.
Chelberg and Mr. Enrico were present, and the parties began drafting documents
reflecting agreements which had been reached and as a basis for further
negotiations. The Whitman board of directors was advised as to the progress of
these negotiations at meetings held on November 20 and December 21, 1998.
On January 8, 1999, Whitman and PepsiCo signed a non-binding
agreement-in-principle setting forth certain of the principal terms of the
proposed transaction. Each of Whitman and PepsiCo filed Premerger Notification
and Report Forms with the appropriate Federal antitrust agencies on January 14,
1999.
At its meeting held on January 25, 1999, the board of directors reviewed
definitive agreements for the transaction and received the oral and written
opinion of CSFB, dated January 25, 1999 (the "CSFB Opinion") that, as of such
date and on the basis of and subject to the matters described therein, the
Merger Consideration was fair to the shareholders of Whitman from a financial
point of view (see "-- Opinion of Financial Advisor"). At that meeting, the
Whitman board of directors unanimously approved the definitive agreements for
the Transactions and immediately thereafter the Agreement was signed by Whitman
and PepsiCo and the Transactions were publicly announced.
REASONS FOR THE TRANSACTIONS
The Whitman board of directors believes that Whitman will benefit from the
greater size and strength of New Whitman resulting from the Transactions. On a
pro forma basis, New Whitman will have nearly 40% more revenue than Whitman
currently. Following the Transactions, New Whitman will have exclusive
production and distribution rights for Pepsi-Cola brand products in portions of
nine states and eight foreign countries worldwide. Furthermore, with PepsiCo
restructuring its bottling system, New Whitman and PepsiCo will enter into new
bottling agreements and New Whitman will be one of several PepsiCo anchor
bottlers worldwide.
In approving and recommending the Transactions, the Whitman board of
directors considered the following material information and made various
evaluations thereof:
- The fact that PepsiCo had announced its intention to pursue a strategy of
consolidating its franchisee relationships and identifying a small group
of franchisees to serve as anchor bottlers, and the risk that, if Whitman
was not selected as an anchor bottler, it would find itself in a
disadvantageous position in terms of growth opportunities.
- The evaluation of other strategic alternatives such as the status quo,
share repurchases, growth through acquisitions of additional franchises
or diversification, a leveraged recapitalization or sale of the entire
company, and the risks and difficulties associated with each of such
alternatives.
- The intended federal income tax consequences of the Transactions
including the ability of the Whitman shareholders to have a tax-free
exchange of Whitman common stock for New Whitman common stock. See
"Certain Federal Income Tax Consequences of the Transactions."
- The arrangements contemplated by the Shareholder Agreement for corporate
governance of New Whitman.
- The terms and conditions of the Agreement, including the consideration
for the Transactions, the parties' representations, warranties and
covenants, the conditions to their respective obligations, and the amount
of termination fees payable under the Agreement and the Whitman board of
directors' belief that such terms and conditions were appropriate for the
proposed Transactions.
- The recommendation of the Transactions by the Whitman management.
- PepsiCo's past and current provision of marketing support and funding,
which PepsiCo has no obligation to continue.
- Additionally, the Whitman board of directors relied on the CSFB Opinion
that, as of such date and on the basis of and subject to the matters
described therein, the Merger Consideration was fair to the
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<PAGE> 24
shareholders of Whitman from a financial point of view. The full text of
the CSFB Opinion, which sets forth the procedures followed, the factors
considered and the assumptions made by CSFB, is attached as Appendix E to
this Proxy Statement/Prospectus and is incorporated by reference. Whitman
shareholders should read the CSFB Opinion carefully and in its entirety.
- The results of the due diligence review of the Contributed Operations
conducted by Whitman's management and financial advisors.
In approving the Transactions, the Whitman board also considered that
through PepsiCo's beneficial ownership of 35% of the New Whitman Common Stock
(which could increase to over 39% if the repurchase plan is completed) and its
ability to increase its ownership to 49% of the New Whitman common stock at any
time and to acquire additional shares of New Whitman common stock subject to
compliance with the procedures set forth in the Shareholder Agreement, as well
as through the operation of the proposed new bottling agreements, PepsiCo will
have significant influence over New Whitman, and New Whitman's ability to pursue
strategies independent of or in conflict with PepsiCo's goals will be
significantly less than that of Whitman's currently. The Whitman board of
directors determined that this negative factor was outweighed by the benefits of
the Transactions.
In analyzing the Transactions, the Whitman board of directors evaluated the
factors and considerations described above and consulted with its financial and
legal advisors and with Whitman management. The Whitman board of directors did
not adopt the CSFB Opinion as the exclusive basis for its determination as to
the advisability of the Transactions; rather, the Whitman board of directors, as
indicated above, included the CSFB Opinion in the total mix of information
regarding the Transactions that was available to, and evaluated by, it. The
Whitman board of directors concluded that the combination of the factors
discussed above, together with the Whitman board of directors' independent
evaluation, supported the Whitman board of directors' determination that the
Transactions were advisable and in the best interests of Whitman and its
shareholders. In reaching this conclusion, the Whitman board of directors did
not assign relative or specific weights to the above information and factors or
determine that any information or factor was of particular importance. A
determination of various weightings would, in the view of the Whitman board of
directors, be impractical. Rather, the Whitman board of directors viewed its
position and recommendations as being based on the totality of the information
and factors presented to and considered by it. In addition, individual members
of the Whitman board of directors may have given different weight to different
information and factors.
RECOMMENDATION OF THE WHITMAN BOARD OF DIRECTORS
THE WHITMAN BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE PROPOSED
TRANSACTIONS AT A MEETING HELD ON JANUARY 25, 1999 AND DETERMINED THAT THE
TRANSACTIONS ARE ADVISABLE AND IN THE BEST INTERESTS OF WHITMAN AND ITS
SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE WHITMAN SHAREHOLDERS VOTE FOR
ADOPTION OF THE AGREEMENT.
In approving the Transactions and making its recommendation, the Whitman
board of directors took into account all of the factors described above under
"-- Background of the Transactions" and "-- Reasons for the Transactions," and
the terms of the Agreement. In addition, the Whitman board of directors relied
upon the CSFB Opinion, which is described below. See "-- Opinion of Financial
Advisor." The Agreement does not contain a requirement that CSFB update its
opinion as of a date subsequent to the date of the CSFB Opinion, nor does the
Whitman board of directors deem such an update to be necessary.
OPINION OF FINANCIAL ADVISOR
At a meeting of the Whitman board of directors held on January 25, 1999,
CSFB delivered the CSFB Opinion that, as of such date and on the basis of and
subject to the matters described therein, the Merger Consideration was fair from
a financial point of view to the shareholders of Whitman.
THE FULL TEXT OF THE CSFB OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX E TO THIS PROXY
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<PAGE> 25
STATEMENT/PROSPECTUS. THE CSFB OPINION HAS NOT BEEN UPDATED AND WILL NOT BE
UPDATED PRIOR TO THE CLOSING. WHITMAN SHAREHOLDERS ARE URGED TO READ THE CSFB
OPINION CAREFULLY AND IN ITS ENTIRETY. THE CSFB OPINION IS DIRECTED TO THE
WHITMAN BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO THE SHAREHOLDERS OF WHITMAN AS
OF THE DATE OF THE CSFB OPINION, DOES NOT ADDRESS THE MERITS OF THE UNDERLYING
DECISION BY WHITMAN TO ENGAGE IN THE TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER OF WHITMAN AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE ON THE AGREEMENT. THE SUMMARY OF THE CSFB OPINION SET FORTH IN THIS PROXY
STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion, CSFB (1) reviewed certain publicly available
business and financial information relating to Whitman, the PepsiCo Acquired
Businesses, Pepsi General and the PepsiCo Bottling Operations, as well as the
Shareholder Agreement, a draft dated January 25, 1999 of the Employee Benefits
Agreement (as defined below), a draft dated January 22, 1999 of the Agreement,
drafts dated January 19, 1999 of the Master Bottling Agreement (as defined
below), the International Bottling Agreements (as defined below) and the
Registration Rights Agreement (as defined below) and a draft dated January 12,
1999 of the Pepsi Fountain Agreement (as defined below), (2) reviewed certain
information, including financial forecasts, relating to the business, earnings,
cash flow, assets, liabilities and prospects of Whitman, the PepsiCo Acquired
Businesses, Pepsi General and the PepsiCo Bottling Operations, as well as the
amount and timing of the cost savings and related expenses and synergies that
could potentially result from the Transactions (the "Synergies"), furnished to
CSFB, in each case, by management of Whitman and PepsiCo, (3) met with
management of Whitman, Pepsi General, PepsiCo and certain PepsiCo Bottling
Operations to discuss the business and prospects of Whitman, the PepsiCo
Acquired Businesses, Pepsi General and the PepsiCo Bottling Operations and, as
appropriate, the Synergies, (4) considered certain financial and stock market
data of Whitman and PepsiCo and compared that data with similar data for other
publicly held companies in businesses similar to those of Whitman, the PepsiCo
Acquired Businesses, Pepsi General and the PepsiCo Bottling Operations, (5)
considered the financial terms of certain other business combinations and other
transactions which have recently been effected and (6) considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the foregoing information and relied upon its
being complete and accurate in all material respects. With respect to the
financial forecasts, CSFB assumed that they had been reasonably prepared on
bases reflecting the best currently available estimates and judgments of
management of Whitman and PepsiCo as to the future financial performance of
Whitman, the PepsiCo Acquired Businesses, Pepsi General and the PepsiCo Bottling
Operations. CSFB did not make an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Whitman, any of the PepsiCo
Acquired Businesses, Pepsi General or any of the PepsiCo Bottling Operations nor
was CSFB furnished with any such evaluations of appraisals. In addition, CSFB
was not requested to, and did not, solicit third party indications of interest
in a possible acquisition of all or part of Whitman. CSFB did not express any
opinion as to what the value of the New Whitman Common Stock actually would be
or the prices at which the New Whitman common stock would trade subsequent to
the Transactions. In addition, CSFB was not requested to consider, and the CSFB
Opinion did not in any manner address, Whitman's underlying business decision to
effect the Transactions. The CSFB Opinion was necessarily based upon financial,
economic, market and other conditions as they existed and could be evaluated on
the date thereof.
In preparing the CSFB Opinion, CSFB performed a variety of financial and
comparative analyses. The summary set forth below does not purport to be a
complete description of the presentations made by CSFB to the Whitman board of
directors or the analyses performed by CSFB in arriving at the CSFB Opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. CSFB believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create a misleading view of the processes underlying the CSFB
Opinion. In performing its analyses, CSFB made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of New Whitman or Whitman. The
analyses
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<PAGE> 26
performed by CSFB are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. In addition, analyses relating to the value of businesses or
assets do not purport to be appraisals or to necessarily reflect the prices at
which businesses or assets may actually be sold. The analyses performed were
prepared solely as part of CSFB's analysis of the fairness of the Merger
Consideration to Whitman shareholders from a financial point of view and were
provided to the Whitman Board in connection with the delivery of the CSFB
Opinion. The following is a summary of the presentation made by CSFB to the
Whitman board of directors on January 25, 1999.
Representatives of CSFB advised the Whitman board of directors that the
Transactions and the potential impact to Whitman should be evaluated in light of
several considerations: (1) that discussions related to the Transactions were
initiated in the context of the restructuring of PepsiCo's bottling operations;
(2) PepsiCo's publicly announced plan to separate its corporate owned bottling
operations into a new public company to be called The Pepsi Bottling Group, Inc.
("PBG"); (3) PepsiCo's current ownership of both domestic and international
bottling operations with coverage contiguous to Whitman that will either be
transferred to Whitman in the Transactions or to PBG; (4) Whitman's past and
current receipt of financial support from PepsiCo, which PepsiCo has no
obligation to continue; (5) PepsiCo's ability to influence Whitman's acquisition
of independent PepsiCo bottlers and (6) PepsiCo's right of first refusal with
respect to Whitman's interest in Pepsi General.
In valuing Whitman and New Whitman, CSFB utilized a number of
methodologies: a discounted cash flow ("DCF") analysis, a comparable company
analysis, a comparable acquisition analysis and a historical investment
analysis. In performing the DCF analysis, which produces an intrinsic, long-term
theoretical value based upon projected cash flows, CSFB discounted ten years of
cash flows developed from forecasts provided by the management of Whitman and
added a terminal value based on multiples of year-ten earnings before interest,
taxes, depreciation and amortization ("EBITDA"). CSFB also performed a
sensitivity analysis with respect to its DCF analysis in which it adjusted
revenue growth rates and operating margins. In performing its comparable company
analysis, CSFB applied trading multiples of businesses reasonably similar to
Whitman, the PepsiCo Acquired Businesses, Pepsi General and the PepsiCo Bottling
Operations to 1999 operating estimates provided to CSFB by Whitman management.
Its comparable acquisition analysis required application of multiples paid by
acquirors for businesses reasonably similar to Whitman, the PepsiCo Acquired
Businesses, Pepsi General and the PepsiCo Bottling Operations to 1998 operating
estimates provided to CSFB by Whitman management. In performing its historical
investment analysis, CSFB reviewed the capital invested in PepsiCo's bottling
operations as reflected on its current financial statements.
CSFB presented a comparable company analysis in which it compared certain
financial information of selected companies engaged in the carbonated beverage
bottling business (the "Bottler Comparables") and selected companies engaged in
the carbonated beverage business (the "Concentrate Comparables") that were
considered by CSFB to be reasonably comparable to Whitman, the PepsiCo Acquired
Businesses, Pepsi General and the PepsiCo Bottling Operations to certain
corresponding financial information of Whitman. The Bottler Comparables
comprised Coca-Cola Beverages, Coca-Cola Enterprises and PBG. The Concentrate
Comparables comprised The Coca-Cola Company and PepsiCo. CSFB advised the
Whitman board of directors that one of the most relevant financial measures for
Whitman and other carbonated beverage bottlers is EBITDA. Accordingly, in
performing its comparable company analysis, CSFB compared (1) 1999 estimated
EBITDA margin, (2) EBITDA growth from 1997 to 1999, (3) 1999 estimated EBITDA
trading multiples, (4) 1999 estimated net income margin and (5) 1999 estimated
price to earnings ratio ("P/E") of the Bottler Comparables and the Concentrate
Comparables with corresponding data for Whitman. The comparable company analysis
was based on stock prices as of January 22, 1999 and public equity research
reports of earnings estimates, except for the Whitman management case, which was
based on estimates provided by Whitman management, and PBG, which was based on
financial results for PBG for the twelve months ended September 5, 1998 as
disclosed on PBG's Form S-1 dated January 7, 1999. For the Whitman management
case, this analysis resulted in a 1999 estimated EBITDA margin of 17.2%, EBITDA
growth from 1997 to 1999 of 13.2%, a 1999 estimated EBITDA trading multiple of
10.7x, a 1999 estimated net income margin of 5.0% and a 1999 estimated P/E of
31.6x. For Whitman based on current "street" estimates, this analysis resulted
in a 1999 estimated EBITDA margin of 17.1%, EBITDA growth from 1997 to 1999 of
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<PAGE> 27
12.3%, a 1999 estimated EBITDA trading multiple of 10.8x, a 1999 estimated net
income margin of 5.3% and a 1999 estimated P/E of 30.2x. For Coca-Cola
Beverages, this analysis resulted in a 1999 estimated EBITDA margin of 10.3%,
EBITDA growth from 1997 to 1999 of 6.9%, a 1999 estimated EBITDA trading
multiple of 9.9x, a 1999 estimated net income margin of 1.2% and a 1999
estimated P/E of 65.7x. For Coca-Cola Enterprises, this analysis resulted in a
1999 estimated EBITDA margin of 15.5%, EBITDA growth from 1997 to 1999 of 18.3%,
a 1999 estimated EBITDA trading multiple of 10.5x, a 1999 estimated net income
margin of 0.8% and a 1999 estimated P/E of 113.1x. For PBG, this analysis
resulted in a latest 12-months ended September 5, 1998 estimated EBITDA margin
of 10.7% and an estimated net income margin of 0.4%. For PepsiCo, this analysis
resulted in a 1999 estimated EBITDA margin of 18.7%, EBITDA growth from 1997 to
1999 of 8.4%, a 1999 estimated EBITDA trading multiple of 13.7x, a 1999
estimated net income margin of 7.9% and a 1999 estimated P/E of 29.3x. For The
Coca-Cola Company, this analysis resulted in a 1999 estimated EBITDA margin of
31.8%, EBITDA growth from 1997 to 1999 of 0.1%, a 1999 estimated EBITDA trading
multiple of 23.1x, a 1999 estimated net income margin of 18.5% and a 1999
estimated P/E of 40.9x.
Representatives of CSFB advised the Whitman board of directors that EBITDA
trading multiples for Whitman have increased significantly since the
negotiations with PepsiCo were publicly confirmed on October 15, 1998,
especially when compared to changes in such multiples for Coca-Cola Enterprises
and Coca-Cola Beverages. CSFB derived EBITDA trading multiples for Whitman,
Coca-Cola Enterprises and Coca-Cola Beverages on September 16, 1998, November
18, 1998 and January 22, 1999 (the dates on which materials were prepared for
the September 17-18, 1998, November 20, 1998 and January 25, 1999 meetings of
the Whitman board of directors, respectively) which were based upon market
prices and earnings estimates of public equity research reports available as of
each such date. Whitman EBITDA trading multiples increased from 8.2x on
September 16, 1998 to 10.4x on November 18, 1998, to 10.8x on January 22, 1999.
In contrast, Coca-Cola Enterprises EBITDA trading multiples decreased from 13.1x
on September 16, 1998, to 11.1x on November 18, 1998, to 10.5x on January 22,
1999 and Coca-Cola Beverages EBITDA trading multiples decreased from 12.6x on
September 16, 1998, to 11.5x on November 18, 1998, to 9.9x on January 22, 1999.
Utilizing the methodologies described above, CSFB derived an enterprise
value reference range, a range of multiples of such enterprise value to 1999
estimated EBITDA (which was provided by Whitman management) and an equity value
per share reference range for Whitman and New Whitman. For purposes of this
analysis, enterprise value represented the aggregate valuation the respective
businesses before adjustments to calculate equity value. The adjustments CSFB
made to enterprise value to calculate equity value included decreases in value
for estimated total debt and certain other liabilities as of December 31, 1998
and increases in value for estimated cash and investments as of December 31,
1998. In determining the aforementioned ranges for Whitman on a stand-alone
basis, CSFB utilized both a management plan, which was based upon stand-alone
projections developed from forecasts provided by Whitman management assuming
realization of the benefits to Whitman's existing operations as a result of the
Transactions, and a sensitivity analysis, which was based on projected cash
flows for domestic operations that were developed from forecasts provided by
Whitman management and adjusted to reflect decreases in sales growth and
operating margin as well as reductions in the valuation of international
operations that could reasonably be expected to occur if the Transactions were
not consummated. The ranges derived by CSFB for New Whitman were based on the
pro forma valuation of the properties retained by and transferred to New Whitman
and do not reflect the benefit of the Synergies. Separate ranges were derived
with and without giving effect to the New Whitman share repurchase plan (which,
for purposes of its analysis, CSFB assumed would result in the repurchase by New
Whitman of 16 million shares of New Whitman common stock for an aggregate
purchase price of $400 million).
Applying these analyses and utilizing the management plan, CSFB derived an
enterprise value reference range for Whitman on a stand-alone basis of $2.183
billion to $2.540 billion, a range of multiples of enterprise value to 1999
estimated EBITDA of 9.0x to 10.5x and an equity value per share reference range
of $17.84 to $21.56. CSFB's sensitivity analysis for Whitman, which reflected
decreases in sales growth and operating margins as well as reductions in the
valuation of international operations that could reasonably be expected to occur
if the Transactions were not consummated, yielded an enterprise value range of
$1.657 billion to $2.313
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<PAGE> 28
billion, a range of multiples of enterprise value to 1999 estimated EBITDA
(before adjustments for the sensitivity analysis) of 6.9x to 9.6x and an equity
value per share reference range of $12.63 to $19.31.
For New Whitman, on a pro forma basis and without taking the New Whitman
share repurchase plan into account, this analysis resulted in an enterprise
value reference range of $3.561 billion to $4.400 billion, a range of multiples
of enterprise value to 1999 estimated EBITDA of 9.3x to 11.5x and an equity
value per share reference range of $18.36 to $23.94. Taking the New Whitman
share repurchase plan into account, this analysis resulted in an enterprise
reference value range of $3.561 billion to $4.400 billion, a range of multiples
of enterprise value to 1999 estimated pro forma EBITDA of 9.3x to 11.5x and an
equity value per share reference range of $18.78 to $24.01 for New Whitman. For
comparative purposes, CSFB presented the implied stock price pro forma for the
Transactions based solely upon pro forma EBITDA for New Whitman (derived
utilizing the stand-alone projections prepared by Whitman management) and the
current market multiple of 10.7x (reflecting a current stock price of $22.06 per
share) as $22.23 per share, which implied a pro forma enterprise value of $4.093
billion.
CSFB acted as financial advisor to Whitman in connection with the
Transactions. In the past, CSFB has performed certain investment banking and
financial advisory services for both Whitman and PepsiCo and has received
customary fees for such services. Further, CSFB anticipates providing certain
investment and commercial banking services to Whitman and PepsiCo and/or its
affiliates, including PBG, in the future and would expect to receive customary
fees for such services.
Pursuant to the terms of a letter agreement between CSFB and Whitman dated
July 16, 1998, CSFB is entitled to receive a financial advisory fee of $150,000
and will receive an additional financial advisory fee of $150,000 on July 16,
1999. In addition, Whitman has agreed to pay CSFB a transaction fee of
$15,000,000, payable upon consummation of the Transactions or a strategic
advisory fee of $2,000,000 in the event that neither the Transactions nor any
other acquisition transaction, as defined in the engagement letter, with PepsiCo
occurs. Whitman also has agreed to reimburse CSFB for its reasonable
out-of-pocket expenses, including the fees and expenses of its counsel, and to
indemnify CSFB and certain related persons against certain liabilities,
including liabilities under the federal securities laws.
CSFB is an internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. In
the ordinary course of their business, CSFB and their affiliates may actively
trade the debt and equity securities of both Whitman and PepsiCo for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the Transactions, Whitman shareholders should be aware that
PepsiCo and New Whitman will enter into several bottling agreements. The
interests of PepsiCo in New Whitman upon consummation of the Transactions may
create potential conflicts of interest in connection with the bottling
agreements or other transactions between New Whitman and PepsiCo. Under the
Agreement, the execution of the new bottling agreements will occur upon the
closing of the merger. In connection with approval of transactions with
affiliates (including PepsiCo), the by-laws of New Whitman provide for an
affiliated transactions committee of the New Whitman board of directors
comprised of independent directors to review and approve certain transactions
between New Whitman and its affiliates (including PepsiCo).
New Whitman will provide indemnification and liability insurance
arrangements for officers and directors of Whitman.
Whitman has change in control agreements with 15 senior executives of Pepsi
General, including Robert C. Cushing, President of Pepsi General. The
Transactions will constitute a "Change in Control" under such agreements.
However, the payment provisions of such agreements will not be triggered by the
Transactions absent actual or constructive termination of employment.
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<PAGE> 29
NEW WHITMAN BOARD AND MANAGEMENT FOLLOWING THE TRANSACTIONS
If the proposed Transactions are consummated, holders of Whitman common
stock will become shareholders of New Whitman, which will be under the direction
of the board of directors and management of New Whitman. Initially, the New
Whitman board of directors is expected to consist of ten persons -- eight of the
nine persons now serving as directors of Whitman and two individuals who have
been designated by PepsiCo pursuant to the Shareholder Agreement. PepsiCo has
designated Robert F. Sharpe, Jr. and Karl M. von der Heyden to serve as
directors of New Whitman. Charles S. Locke, currently a director of Whitman who
was to retire from the Whitman board of directors this year in accordance with
the retirement policy applicable to non-employee directors, has notified Whitman
that he intends to resign as of the effective time of the merger. Mr. Locke is
the sole member of the current Whitman board of directors who is not expected to
be on the New Whitman board of directors. See "The Shareholder Agreement -- New
Whitman Board Composition."
Karl M. von der Heyden, 62, is Vice Chairman of the Board of Directors of
PepsiCo, Inc. Mr. von der Heyden rejoined PepsiCo, Inc. in 1996 for a limited
time commitment as Vice Chairman and Chief Financial Officer. He was previously
Co-Chairman and Chief Executive Officer of RJR Nabisco from March through May
1993, and was Executive Vice President and Chief Financial Officer of RJR
Nabisco from 1989 to 1993. He served as President and Chief Executive Officer of
Metallgesellschaft Corp. from 1993 to 1994. Mr. von der Heyden serves on the
Board of Directors of Federated Department Stores, Inc. and Zeneca Group PLC,
and will be a director of PBG.
Robert F. Sharpe, Jr., 46, is Senior Vice President, Public Affairs and
General Counsel of PepsiCo. Mr. Sharpe joined PepsiCo as Senior Vice President,
General Counsel in January, 1998. Mr. Sharpe was Senior Vice President and
General Counsel of RJR Nabisco Holding Corp. from 1996 until he joined PepsiCo.
He was previously Vice President, Tyco International Ltd. from 1994 to 1996 and
Vice President, Assistant General Counsel and Secretary of RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc. from 1989 to 1994. Mr. Sharpe will also be a
director of Pepsi General.
The executive officers and headquarters personnel of Whitman will hold
similar positions with New Whitman.
EFFECTS OF THE TRANSACTIONS ON WHITMAN'S EXISTING SHAREHOLDERS
Except as described herein under "Description of New Whitman Capital Stock"
and "Comparative Rights of Holders of Whitman and New Whitman Capital Stock" and
as contemplated by the Agreement and the Shareholder Agreement, the New Whitman
charter and the New Whitman by-laws will be similar to those of Whitman.
NEW WHITMAN SHARE REPURCHASE
The Agreement provides that during the 12-month period after the closing,
New Whitman will repurchase the lesser of (1) an aggregate of 16 million shares
of New Whitman common stock or (2) shares of New Whitman common stock having an
aggregate value of $400 million (such aggregate value to be measured by the sum
of the prices per share paid by New Whitman in respect of each such purchase),
by tender offer, open market purchase, privately negotiated transaction or
otherwise. In the case of any repurchase pursuant to a tender offer, the terms
and conditions of such tender offer will be subject to the prior written consent
of PepsiCo, which consent will not be unreasonably withheld, and neither PepsiCo
nor any of its affiliates will tender or otherwise sell any shares of New
Whitman common stock beneficially owned by PepsiCo or any such affiliate in such
tender offer. New Whitman will be under no obligation to effect such repurchase
(and its obligation to make such repurchase will be suspended) during any period
when New Whitman is under any legal restriction or prohibition preventing it
from purchasing shares of New Whitman common stock or otherwise effecting such
repurchase, or if the New Whitman board of directors determines in good faith
that it is impractical or inadvisable to effect the repurchase.
Following the repurchase, PepsiCo's interest in New Whitman could be over
39%.
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<PAGE> 30
PLANS FOR THE OPERATION OF THE PEPSICO BOTTLING OPERATIONS FOLLOWING THE
TRANSACTIONS
Immediately following the consummation of the Transactions, New Whitman
will operate the PepsiCo Bottling Operations and the businesses of Whitman
(except the PepsiCo Acquired Businesses). There is no plan or intention for New
Whitman to dispose of or transfer, whether to related or unrelated persons, any
portion of the PepsiCo Bottling Operations. New Whitman expects to evaluate the
individual and combined operations and formulate arrangements, as appropriate,
to effectively integrate the businesses.
Pursuant to the Agreement, PepsiCo and Whitman will agree on the terms of
definitive services agreements relating to the provision of certain services and
the sharing of certain facilities with each other following the closing of the
merger and/or other transfers. See "Other Agreements -- Transition Services
Agreement."
GOVERNMENTAL AND REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), the Transactions may not be consummated until the following steps have
been taken: (1) Premerger Notification and Report Forms have been submitted and
certain information has been furnished to the FTC and the Antitrust Division of
the Department of Justice; and (2) required waiting periods have expired or
terminated.
PepsiCo and Whitman each filed Premerger Notification and Report Forms with
the FTC and the Antitrust Division, on January 14, 1999. The statutory waiting
period for Whitman and PepsiCo is scheduled to expire on , 1999.
At any time before or after the consummation of the Transactions and
notwithstanding the expiration or termination of the HSR Act waiting period, any
federal or state antitrust authorities could take action under the antitrust
laws as they deem necessary or desirable in the public interest. Such action
could include seeking to enjoin the consummation of the Transactions or seeking
divestiture of all or part of the assets of Whitman or the PepsiCo Bottling
Operations. Private parties may also seek to take legal action under the
antitrust laws, if circumstances permit.
Consummation of the Transactions may also require certain other regulatory
approvals, including approvals of foreign regulatory authorities.
ACCOUNTING TREATMENT OF THE TRANSACTIONS
The Transactions contemplated by the Agreement will be accounted for under
the purchase method of accounting as prescribed under generally accepted
accounting principles. For purposes of applying the purchase method of
accounting, (1) Whitman is deemed to be the acquiring enterprise with respect to
the PepsiCo Bottling Operations and the PepsiCo Bottling Operations are deemed
to be the acquired enterprises without regard to which enterprise is the
surviving enterprise and (2) PepsiCo is deemed to be the acquiring enterprise
with respect to the PepsiCo Acquired Businesses and the PepsiCo Acquired
Businesses are deemed to be the acquired enterprises without regard to which
enterprise is the surviving enterprise. Accordingly, the historical financial
statements of Whitman are presented as the historical financial statements of
New Whitman and the assets and liabilities of the PepsiCo Bottling Operations
are accounted for as required by the purchase method of accounting. The results
of operations of the PepsiCo Bottling Operations will be included in the
financial statements of New Whitman only from the date of acquisition.
Under the purchase method of accounting, the consideration will be
allocated to the assets acquired and liabilities assumed of the PepsiCo Bottling
Operations based on their estimated fair values as of the closing date of the
merger. Any excess of purchase price over the estimated fair value of the net
assets acquired will be recorded as goodwill, which will be amortized on a
straight-line basis over the estimated period of benefit.
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<PAGE> 31
ABSENCE OF APPRAISAL RIGHTS
If the Transactions are consummated, holders of Whitman common stock will
not be entitled to appraisal rights under Delaware law with respect to any of
their shares of Whitman common stock, whether or not they vote to adopt the
Agreement.
NAME CHANGE
Pursuant to the Agreement, the name of Merger Sub will be changed to
"Whitman Corporation" at or immediately following the closing of the merger.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF WHITMAN COMMON STOCK
It is a condition to the Transactions that upon consummation of the
Transactions, the shares of New Whitman common stock to be issued by New Whitman
in connection with the Transactions will be authorized for listing on the NYSE
upon official notice of issuance. It is expected that the symbol under which
Whitman common stock now trades (WH) will continue to be used for the shares of
New Whitman common stock. If the Transactions are consummated, Whitman common
stock will cease to be listed on the NYSE and will be deregistered under the
Securities Act.
TREATMENT OF STOCK CERTIFICATES
After the effective time of the merger, each share of Whitman common stock
outstanding immediately prior to such effective time will be converted into one
share of New Whitman common stock, and each certificate representing shares of
Whitman common stock will be deemed for all purposes to represent an equivalent
number of shares of New Whitman common stock following the merger. Whitman
shareholders will not need to exchange their stock certificates in connection
with the Transactions. First Chicago Trust Company of New York is the transfer
agent and registrar for Whitman common stock and will act in the same capacities
for New Whitman common stock.
EFFECTIVE TIME
If the shareholders adopt the Agreement, the merger of Whitman with and
into Merger Sub will become effective upon the effective time of filing of the
Certificate of Merger in accordance with Delaware law.
THE WHITMAN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION
OF THE AGREEMENT.
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<PAGE> 32
THE AGREEMENT
The following summary of the terms of the Agreement is qualified in its
entirety by reference to the Agreement, which is incorporated by reference
herein and attached as Appendix A hereto. Certain defined terms used in the
description of the Agreement below which are not otherwise defined in the Proxy
Statement/ Prospectus and which are defined in the Agreement or the exhibits
thereto will have the respective meanings set forth therein.
THE TRANSACTIONS
Prior to the closing, PepsiCo will contribute to Merger Sub all of the
Contributed Operations and its 20% equity interest in Pepsi General. In addition
to the assets and operations contained in the Contributed Operations, Merger Sub
will also assume all of the liabilities except for certain excluded liabilities
that arise primarily out of, or relate primarily to or are primarily generated
by, the Contributed Operations, as well as the Assumed Debt of approximately
$262 million. At the closing, to occur after the contribution of the Contributed
Operations, Whitman will merge with and into Merger Sub, with Merger Sub as the
surviving corporation and Merger Sub's name will be changed to "Whitman
Corporation." Each share of Whitman common stock outstanding at the effective
time of the merger will be converted into the right to receive one share of New
Whitman common stock. Each outstanding option to purchase shares of Whitman
common stock will be converted into an option to purchase shares of New Whitman
common stock. All Whitman options issued prior to January 1, 1999 will be fully
vested in accordance with the terms of the applicable Whitman stock plans. All
shares of New Whitman common stock will be issued together with a corresponding
number of associated Rights.
Immediately following consummation of the merger, New Whitman will cause
the PepsiCo Acquired Businesses to be sold to PepsiCo for an aggregate of
approximately $137.8 million and PepsiCo will cause the New Whitman Acquired
Businesses to be sold to Pepsi General for an aggregate of approximately $176
million. Notwithstanding the provision described in the foregoing sentence,
Whitman and PepsiCo agreed, upon reasonable prior written notice from PepsiCo to
Whitman, to cause the sale of the PepsiCo Acquired Businesses to be consummated
as soon as practicable after Whitman's receipt of such notice and without a vote
of Whitman shareholders if in the good faith determination of PepsiCo the
consummation of such sales is necessary to permit PepsiCo to prepare for another
transaction intended to be entered into by PepsiCo; provided, however, that the
consummation of such transfers will be subject to certain of the conditions
described under "-- Conditions to Closing," certain indemnification provisions
described under "-- Indemnification," the terms of the provisions described
under "-- Working Capital Adjustments" and the execution and delivery of an
employee benefits agreement relating to such sale (the "Whitman Transfer
Employee Benefits Agreement"). The Agreement provides that amount of the
purchase price attributable to the PepsiCo Acquired Businesses or to the New
Whitman Acquired Businesses will in each case be reduced by the aggregate amount
of (1) except for the Assumed Debt, any short-term or long-term indebtedness for
borrowed money owed by any such business to any person on the closing of the
merger (or, if prior to the closing of the merger, upon consummation of the sale
of the PepsiCo Acquired Businesses) and (2) any short-term or long-term
capitalized lease obligations owed by any such business to any person on the
closing of the merger (or, if prior to the closing, upon consummation of the
sale of the PepsiCo Acquired Businesses); provided, however, that to the extent
the aggregate amount of any such indebtedness and any such capitalized lease
obligations exceeds the amount of the applicable purchase price attributable to
such business, the seller of such business will pay the purchaser at the closing
of the merger (or, if prior to the closing, upon consummation of the sale of the
PepsiCo Acquired Businesses) an amount in cash equal to the amount of any such
excess. The term "PepsiCo Subsidiaries" is used in this summary to mean (1)
Merger Sub, (2) the Contributed Operations and (3) the subsidiaries of PepsiCo
constituting the New Whitman Acquired Businesses.
Upon the consummation of the Transactions, based on the number as shares of
Whitman common stock outstanding as of , (1) the holders of the
shares of Whitman common stock issued and outstanding immediately prior to the
effective time of the merger will hold shares of New Whitman common stock
representing in the aggregate approximately 65% of the New Whitman common stock
to be outstanding,
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<PAGE> 33
and (2) PepsiCo will hold shares of New Whitman common stock representing in the
aggregate approximately 35% of the New Whitman common stock to be outstanding.
CONTRIBUTED OPERATIONS
As noted above, pursuant to the Agreement, PepsiCo will contribute to
Merger Sub assets including, but not limited to: certain assets of Pepsi-Cola
Operating Company of St. Louis, Inc., Pepsi-Cola Bottling Company of Ohio, Inc.,
Pepsi-Cola Operating Company of Chesapeake and Indianapolis, Inc. and Pepsi-Cola
Metropolitan Bottling Company, Inc. Pursuant to the Agreement, Merger Sub will
assume, effective as of the consummation of the contribution, all liabilities
and obligations of any nature or claims of such liability or obligation arising
out of or relating to the Contributed Operations, other than certain excluded
liabilities. The liabilities being assumed also include the Assumed Debt, as
outlined above under "-- The Transactions."
CLOSING
The Agreement provides that the closing will take place on the second
business day after satisfaction or waiver of the conditions set forth in the
Agreement (other than those conditions that by their nature are to be satisfied
at the closing, but subject to the fulfillment or waiver of those conditions),
unless another time or date is agreed to by Whitman, Merger Sub and PepsiCo.
REPRESENTATIONS AND WARRANTIES
The Agreement contains representations and warranties by Whitman, including
but not limited to, those as to: (1) Whitman and its subsidiaries' organization,
standing and power to carry on their respective businesses as presently being
conducted; (2) the ownership of Whitman's subsidiaries; (3) Whitman's capital
structure as of January 20, 1999; (4) the execution and delivery and the
validity and enforceability against Whitman of the Agreement and related
agreements to the extent it is a party and non-contravention thereby of certain
other documents and instruments; (5) Whitman's compliance with the requirements
of the Securities Act of 1933 (the "Securities Act") and the Securities Exchange
Act of 1934 (the "Exchange Act"), the accuracy of the Whitman financial
statements, the absence of undisclosed liabilities of Whitman and its
subsidiaries; (6) the accuracy of certain information supplied by Whitman for
inclusion in the Registration Statement on Form S-4 (together with all
amendments, supplements and exhibits thereto, the "Registration Statement"),
filed by Merger Sub and this Proxy Statement/Prospectus; (7) the absence of
certain changes in respect of Whitman; (8) the absence of any undisclosed
material litigation; (9) the absence of changes in benefit plans; (10) certain
employee, pension benefit plan and welfare benefit plan matters; (11) certain
tax matters; (12) compliance with applicable laws; (13) the absence of
undisclosed material contracts; (14) the condition of and title to Whitman's
properties and assets; (15) the absence of any vote necessary to adopt the
Agreement and the transactions contemplated thereby, other than that of the
Whitman shareholders; (16) the absence of any applicable takeover provisions of
Delaware law or other state takeover statutes; (17) brokers' fees; (18) the
receipt of the CSFB Opinion; (19) the Rights Agreement, dated January 20, 1989,
between Whitman and First Chicago Trust Company of New York, as rights agent
(the "Whitman Rights Agreement"); (20) the nature of the purchase of the New
Whitman Acquired Businesses; (21) the sufficiency of assets of the PepsiCo
Acquired Businesses; and (22) Year 2000 compliance.
The Agreement contains representations and warranties by PepsiCo and Merger
Sub, including, but not limited to, those as to: (1) PepsiCo and certain of its
subsidiaries' organization, standing and power to carry on their respective
businesses, as presently being conducted; (2) the ownership of certain PepsiCo
subsidiaries, the capitalization and absence of liabilities of Merger Sub,
absence of voting rights and obligations of the New Whitman Acquired Businesses;
(3) the execution and delivery and the validity and enforceability against
PepsiCo and Merger Sub of the Agreement and related documents to the extent
PepsiCo and/or Merger Sub are parties and non-contravention thereby of certain
other documents and instruments; (4) the accuracy of the financial statements of
the Whitman Acquired Businesses, the absence of undisclosed liabilities of the
Contributed Operations; (5) the accuracy of certain information supplied by
PepsiCo or the Contributed Operations for inclusion in the Registration
Statement and this Proxy Statement/Prospectus; (6) the absence of certain
changes in respect of the PepsiCo Subsidiaries; (7) the absence of any
undisclosed material
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<PAGE> 34
litigation; (8) certain employee, pension benefit plan and welfare benefit plan
matters; (9) certain tax matters; (10) the PepsiCo Subsidiaries' compliance with
applicable laws; (11) the absence of material contracts between the PepsiCo
Subsidiaries and PepsiCo other than those entered in the ordinary course of
business; (12) the condition of and title to the PepsiCo Subsidiaries'
properties and assets; (13) the nature of the purchase of the PepsiCo Acquired
Businesses; (14) the sufficiency of assets of the New Whitman Acquired
Businesses and the Contributed Operations; (15) brokers' fees; and (16) Year
2000 compliance.
CERTAIN COVENANTS OF WHITMAN
Conduct of Business Pending the Merger. From the date of the Agreement
through the closing of the merger, Whitman has agreed to, and to cause each of
its subsidiaries to, conduct its business in the usual, regular and ordinary
course in substantially the same manner as conducted through the date of the
Agreement and to use all reasonable efforts to preserve intact the business
organizations and relationships of Whitman and its subsidiaries. In particular,
except as provided in the Agreement or specified in a schedule thereto or with
the prior written consent of PepsiCo, Whitman will not, among other things: (1)
declare or pay any dividends other than its regular quarterly dividend, split
its stock, or purchase or redeem shares of capital; (2) issue, deliver, sell or
grant shares of capital stock, options, voting debt or warrants; (3) amend its
certificate of incorporation or by-laws; (4) acquire any (a) business or
corporation or (b) material assets except purchases of inventory in the ordinary
course of business consistent with past practice; (5) change the terms of
employment of employees outside of the ordinary course of business; (6) change
its accounting methods; (7) sell, lease, or otherwise dispose of or subject to
any lien any assets; (8) incur indebtedness (subject to certain exceptions); (9)
make any single capital expenditure exceeding $5 million or capital expenditures
exceeding $100 million in the aggregate; (10) make any material tax election;
(11) discharge material liabilities other than in the ordinary course of
business or waive the benefits of any confidentiality agreement; (12) amend the
Whitman Rights Agreement; or (13) authorize, commit or agree to take any of the
foregoing actions. The rights issued under the Whitman Rights Agreement expired
by their terms on January 31, 1999.
No Solicitation. Whitman has agreed that from and after the date of the
Agreement, except as permitted by the Agreement, it will not, nor will it permit
any of its subsidiaries to, nor will it authorize or permit any of its
representatives or those of any of its subsidiaries to, (1) directly or
indirectly solicit, initiate or encourage the submission of any Takeover
Proposal (as defined below); (2) enter into any agreement with respect to any
Takeover Proposal; or (3) directly or indirectly engage in any negotiations or
discussions with third parties or provide any information or data to any person
or to take any other action to facilitate any inquiries that may be reasonably
expected to lead to any Takeover Proposal. "Takeover Proposal" is defined in the
Agreement to mean any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of a business that constitutes 15% or
more of the net revenues, net income or the assets of Whitman and its
subsidiaries, taken as a whole, or 15% or more of any class of equity securities
of Whitman or any of its subsidiaries, any tender offer or exchange offer that
if consummated would result in any person beneficially owning 15% or more of any
class of equity securities of Whitman or any of its subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Whitman or any of its subsidiaries, other than
the transactions contemplated by the Agreement.
Notwithstanding the foregoing, in response to a Superior Proposal (as
defined below) which was not solicited by Whitman the Whitman board of directors
may (subject to certain notice requirements) prior to the Whitman shareholders
meeting participate in discussions or negotiations with the party making such
Superior Proposal and furnishing such third party information concerning Whitman
and its business, properties and assets, provided that such third party executes
a confidentiality agreement with Whitman. "Superior Proposal" is defined in the
Agreement to mean any proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of Whitman common stock
then outstanding or all or substantially all the assets of Whitman and its
subsidiaries taken together and otherwise on terms which the Whitman board of
directors determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation and such other matters as
the Whitman board
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<PAGE> 35
of directors deems relevant) to be more favorable to Whitman shareholders than
the merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Whitman board of directors, is
reasonably capable of being obtained by such third party.
The Agreement provides that neither the Whitman board of directors nor any
committee thereof will (1) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to PepsiCo, the approval or recommendation by the Whitman
board of directors or any such committee of the merger, the Agreement or the
related agreements, (2) approve any letter of intent, agreement in principle,
acquisition agreement or similar agreement (other than a confidentiality
agreement in connection with a Superior Proposal which is entered into by
Whitman in accordance with the provisions described in the preceding paragraph)
relating to any Takeover Proposal (each a "Whitman Acquisition Agreement"), or
(3) approve or recommend, or propose to approve or recommend, any Takeover
Proposal. Notwithstanding the foregoing, in response to an unsolicited Superior
Proposal, the Whitman board of directors may terminate the Agreement (and
concurrently with or after such termination, if it so chooses, cause Whitman to
enter into any Whitman Acquisition Agreement with respect to any Superior
Proposal), but only at a time that is prior to the date of the Whitman
shareholders meeting and is after the fifth business day following PepsiCo's
receipt of written notice advising PepsiCo that the Whitman board of directors
has resolved to accept a Superior Proposal (subject to such termination),
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal. The Agreement further
provides that Whitman promptly will advise PepsiCo orally and in writing of any
Takeover Proposal or any inquiry with respect to or that could reasonably be
expected to lead to any Takeover Proposal, the identity of the person making any
such Takeover Proposal or inquiry and the material terms of any such Takeover
Proposal or inquiry. Whitman will keep PepsiCo fully informed of the status and
material terms of any such Takeover Proposal or inquiry.
CERTAIN COVENANTS IN RESPECT OF PEPSICO AND THE CONTRIBUTED OPERATIONS
Conduct of Business Pending the Merger. From the date of the Agreement
until the closing, PepsiCo has agreed to cause each of the PepsiCo Subsidiaries
to conduct its business in the usual, regular and ordinary course in
substantially the same manner as conducted through the date of the Agreement and
to use all reasonable efforts to preserve intact the business organizations and
relationships of the PepsiCo Subsidiaries. In particular, except as provided for
in the Agreement or specified in a schedule thereto or with the prior written
consent of Whitman, PepsiCo has agreed not to permit any PepsiCo Subsidiary to
do any of the following: (1) in the case of the Whitman Acquired Businesses,
amend their certificates of incorporation or by-laws; (2) acquire any (a)
business or corporation or (b) material assets except purchases of inventory in
the ordinary course of business consistent with past practices; (3) change the
terms of employment of certain transferred employees outside of the ordinary
course of business; (4) change accounting methods; (5) sell, lease, license or
otherwise dispose of, or subject to any lien, any assets; (6) incur indebtedness
(subject to certain exceptions); (7) make any single capital expenditure in
excess of $5 million or capital expenditures exceeding $100 million in the
aggregate; (8) make any material tax election; (9) discharge material
liabilities other than in the ordinary course of business, or waive the benefit
of any confidentiality agreement; (10) in the case of Merger Sub only, (a)
conduct any business, (b) split, combine or reclassify any of its capital stock,
(c) issue, deliver, sell or grant any shares of its capital stock, any
securities having voting rights, or any securities convertible or exchangeable
for securities having voting rights, or (d) otherwise alter its capitalization;
or (11) authorize, commit, or agree to take any of the foregoing actions.
No Solicitation. PepsiCo has agreed that from and after the date of the
Agreement, except as permitted by the Agreement, it will not, nor will it permit
any of its subsidiaries to, nor will it authorize or permit any of its
representatives or those of any of its subsidiaries to, (1) directly or
indirectly solicit, initiate or encourage the submission of any proposal for an
acquisition of all or any part of the New Whitman Acquired Businesses and/or the
Contributed Operations by any other person (each an "Acquisition Proposal"), (2)
enter into any agreement with respect to any Acquisition Proposal or (3)
directly or indirectly engage in any discussions or negotiations regarding, or
provide any non-public information or data to any person, or to take any other
action to facilitate any inquiries that may be reasonably be expected to lead
to, any Acquisition Proposal.
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Listing Application. PepsiCo will cause Merger Sub to prepare and submit
to the NYSE a listing application covering the shares of New Whitman common
stock issuable pursuant to the Agreement.
OTHER COVENANTS
Advice of Changes. Whitman and PepsiCo have agreed to advise the other
orally and in writing of any change or event which has or is reasonably likely
to have a material adverse effect on Whitman or the PepsiCo Subsidiaries, as
applicable.
Confidentiality. Whitman and PepsiCo will afford each other reasonable
access to applicable books and records regarding each other, subject to the
Confidentiality Agreement dated August 24, 1998 (the "Confidentiality
Agreement") between Whitman and PepsiCo. In addition the Agreement provides that
each party will hold any nonpublic information in confidence until such
information becomes publicly available and will use its reasonable efforts to
ensure that such information is not disclosed without the prior written consent
of the other party. In the event of termination of the Agreement for any reason,
each party will promptly return or destroy all documents containing non-public
information so obtained from any other party and its subsidiaries and any copies
made of documents.
Other Actions. Whitman and PepsiCo have agreed not to take any action
reasonably likely to cause (1) the failure of such party to comply in all
material respects with the Agreement; or (2) any material adverse effect on
Whitman or the PepsiCo Subsidiaries.
Termination of Stockholders' Agreement. The Agreement provides that as of
the Effective Time, the Stockholders' Agreement dated as of November 9, 1987
among Whitman, PepsiCo and certain of their respective affiliates will
terminate. Such stockholders' agreement provides, among other things, that
PepsiCo has a right of first refusal to purchase Pepsi General at a price to be
established by two independent experts in the event of a change of control of
Whitman not approved by the incumbent Whitman directors or their approved
successors, or in the event of an attempt by Whitman to transfer its interest in
Pepsi General to a third party.
Reasonable Efforts. Upon the terms and subject to the conditions set forth
in the Agreement, each party to the Agreement has agreed to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the merger and the other transactions
contemplated by the Agreement and the related agreements.
Whitman Stock Plans; Certain Employee Matters. At the effective time of
the merger, by virtue of the merger, the Whitman Stock Incentive Plan and the
Whitman Revised Stock Incentive Plan will be assumed by New Whitman, with the
result that all obligations of Whitman under such Whitman stock plans, including
with respect to awards outstanding at the effective time of the merger under
each such Whitman stock plan, will be obligations of New Whitman following the
effective time of the merger. Prior to the effective time of the merger, Merger
Sub agreed to take all necessary actions for the assumption of the Whitman stock
plans, including the reservation, issuance and listing of shares of New Whitman
common stock issuable thereunder. As soon as practicable after the effective
time of the merger, New Whitman has agreed to prepare and file with the SEC a
registration statement on Form S-8 registering the number of shares of New
Whitman common stock issuable under the Whitman stock plans. Following the
effective time of the merger, New Whitman has agreed to assume and honor all
liabilities under change of control and employment agreements of Whitman, the
existence of which does not constitute a violation of the Agreement, in
accordance with the terms thereof.
Whitman Rights Agreement. The Agreement requires the Whitman board of
directors to take all action reasonably requested in writing by PepsiCo in order
to render the Whitman Rights Agreement inapplicable to the Merger and the other
transactions contemplated by the Agreement and the related agreements. Except as
provided above, the Agreement requires the Whitman board of directors to not,
without the prior written consent of PepsiCo, (1) amend the Whitman Rights
Agreement or (2) take any action with respect to, or
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<PAGE> 37
make any determination under, the Whitman Rights Agreement, including a
redemption of the rights issued under the Whitman Rights Agreement or any action
to facilitate a Takeover Proposal.
Further Assurances; Post-Closing Cooperation. The Agreement provides that
on and after the closing date of the merger each of PepsiCo, on the one hand,
and New Whitman and Pepsi General, on the other, will give such further
assurances to each other and will execute all other instruments, and take such
further actions as may be reasonably necessary effectively to transfer to the
respective other parties legal title to the PepsiCo Acquired Businesses, the New
Whitman Acquired Businesses and the Contributed Operations, as applicable. The
Agreement further provides (1) that each party will cooperate with one another
in connection with the furnishing of information that is reasonably necessary
for financial reporting and accounting matters and in respect of compliance with
disclosure and reporting requirements under the Securities Act and the Exchange
Act and (2) that after the closing of the merger, upon reasonable written
notice, each of New Whitman and PepsiCo will furnish or cause to be furnished to
the other party such information and assistance relating to the New Whitman
Acquired Businesses, the Contributed Operations and the PepsiCo Acquired
Businesses (including reasonable access to employees and books and records) as
is reasonably necessary for the preparation of the New Whitman Statement (as
defined below) and the PepsiCo Statement (as defined below) and the preparation
of tax materials.
Merger Sub Rights Agreement. The Agreement provides that New Whitman will
adopt the Rights Agreement effective upon the closing of the merger. See "Other
Agreements -- Rights Agreement."
Share Repurchase. The Agreement provides that during the 12-month period
after the closing of the merger, New Whitman will repurchase the lesser of (1)
an aggregate of 16 million shares of New Whitman common stock or (2) shares of
New Whitman common stock having an aggregate value of $400 million (such
aggregate value to be measured by the sum of the prices per share paid by New
Whitman in respect of each such purchase), by tender offer, open market
purchase, privately negotiated transaction or otherwise; provided, however, that
in the case of any such repurchase pursuant to a tender offer, (1) the terms and
conditions of such tender offer will be subject to the prior written consent of
PepsiCo, which consent will not be unreasonably withheld, and (2) neither
PepsiCo nor any of its affiliates will tender or otherwise sell any shares of
New Whitman common stock beneficially owned by PepsiCo or any such affiliate in
such tender offer; and provided, further, that New Whitman will be under no
obligation to effect the repurchase (and its obligation to make the repurchase
will be suspended) during any period when (a) New Whitman is under any legal
restriction from doing so, or (b) the New Whitman board of directors determines
in good faith that it is impractical or inadvisable to effect the repurchase.
Indebtedness of Certain PepsiCo Acquired Businesses. The Agreement
provides that PepsiCo and Whitman will use reasonable efforts to obtain the full
and unconditional release of Whitman, effective as of the consummation of the
sale to PepsiCo of the PepsiCo Acquired Businesses, from all liabilities with
respect to indebtedness of the Russian subsidiary of Whitman under its bank
facility; provided, however, that Whitman will be under no obligation to make
any payment in connection with obtaining such release and if PepsiCo and Whitman
are unable to obtain such release prior to consummation of the sale of the
PepsiCo Acquired Businesses, then PepsiCo will, following such sale, promptly
reimburse Whitman or, following the effective time of the merger, New Whitman,
with respect to any payment required to be made by Whitman or New Whitman to any
person in accordance with the terms of such indebtedness.
Services Agreements. The Agreement provides that prior to the consummation
of the sale of the PepsiCo Acquired Businesses, PepsiCo, Whitman, Merger Sub and
one or more other bottlers licensed by PepsiCo will agree on the terms of
definitive services agreements, which will provide, among other things, (1) for
the provision of all support services not located at the respective operating
locations of the bottling businesses to be transferred pursuant to the Agreement
necessary to continue the ongoing operations of such bottling businesses, (2)
that payment for all services provided pursuant to such services agreements will
be made by the party or parties receiving such services to the party or parties
providing such services in an amount equal to the cost (without profit) to the
party or parties providing such services and (3) that no party providing
services pursuant to the services agreements will be liable to any other party
except to the extent of such party's gross negligence or wilful misconduct in
providing such services; provided, however, that the
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<PAGE> 38
amount recoverable from any party providing services pursuant to the services
agreements in respect of any such liability will be limited to the aggregate
amount of proceeds received by, or payable to, such party pursuant to the
services agreements.
Insured Claims. The Agreement provides that PepsiCo and Whitman will abide
by the following covenants with respect to liabilities arising from incidents
which occurred prior to the closing of the merger and for which the party
transferring a bottling business or other asset pursuant to the Agreement
purchased liability insurance, including but not limited to Workers'
Compensation, General Liability and Automobile Liability insurance ("Insured
Liabilities"):
(1)With respect to PepsiCo's Insured Liabilities, Whitman has agreed
to manage and oversee certain third party claims administrators.
(2) PepsiCo has agreed to provide Whitman with access to such
third-party claims administrators and to use its reasonable efforts to
modify its contracts with its third-party claims administrators to allow
for such access, if necessary.
(3) With respect to the Ohio Workers' Compensation claims which arose
prior to January 1, 1997, PepsiCo has agreed to transfer on the Closing
Date the reserve balance of $3,048,500, less the amount paid in respect of
such claims from January 20, 1999 to the closing of the merger, to Whitman
for the payment of all liabilities associated with such claims.
(4) With respect to Whitman's Insured Liabilities, PepsiCo has agreed
to manage and oversee certain third party claims administrators.
(5) Whitman has agreed to provide PepsiCo with access to such
third-party claims administrators, and to use its reasonable efforts to
modify its contracts with its third-party claims administrators to allow
for such access, if necessary.
(6) Payments to third-party claims administrators will be the
responsibility of the party to whom the bottling business or other asset
was transferred pursuant to the Agreement.
(7) Payments for claims will be the responsibility of the party to
whom the bottling business or other asset was transferred pursuant to the
Agreement.
TAX MATTERS
It is the intention of the parties that the contribution, and the
contribution and the merger, collectively, will constitute an exchange under
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code") and
that the merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. Each of the parties has agreed not to take or omit to take
any action that would cause the merger or the contribution not to be so treated.
For a discussion of PepsiCo's and Whitman's conditions to closing relating to
such treatments, see "-- Conditions to Closing."
CONDITIONS TO CLOSING
The respective obligations of PepsiCo, Whitman and Merger Sub to consummate
the merger and the other transactions contemplated to be effected at closing by
the Agreement and the related agreement are subject to the satisfaction or
waiver of certain conditions, including, without limitation: (1) the Agreement
having been adopted by the holders of a majority of the outstanding shares of
Whitman common stock; (2) the termination or expiration of the waiting period
under the HSR Act; (3) the absence of any injunctions or restraints; (4) the
shares of New Whitman common stock required to be issued pursuant to the
Agreement having been authorized for listing on the NYSE; (5) the declaration of
effectiveness of the Registration Statement.
The obligations of PepsiCo and Merger Sub to consummate the merger and the
other transactions contemplated to be effected by the Agreement and the related
agreements are also subject to the following conditions: (1) the representations
and warranties of Whitman will be true and correct in all material respects
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<PAGE> 39
as of the date of the Agreement, and the closing date of the merger as if made
on or as of each such date (except to the extent any such representation or
warranty speaks as of a specific date), except where such failure to be true and
correct does not have and is not reasonably likely to have a material adverse
effect on Whitman; (2) Whitman will have performed, in all material respects,
all obligations required to be performed by Whitman at or prior to the closing
date of the merger; and (3) PepsiCo will have received an opinion from PepsiCo's
counsel reasonably satisfactory to PepsiCo regarding (a) the qualification of
the contribution of the Contributed Operations, and the contribution of the
Contributed Operations and the merger collectively, as an exchange under Section
351 of the Code and (b) the qualification of the merger as a reorganization
under Section 368(a) of the Code.
The obligations of Whitman to consummate the merger and the other
transactions contemplated to be effected by the Agreement and the related
agreements are similarly subject to the following conditions: (1) the
representations and warranties of PepsiCo and Merger Sub will be true and
correct in all material respects as of the date of the Agreement and the closing
date of the merger as if made on or as of each such date (except to the extent
any such representation or warranty speaks as of a specific date), except where
such failure to be true and correct does not have a material adverse effect on
the PepsiCo Subsidiaries; (2) PepsiCo will have performed, in all material
respects, all obligations required to be performed by it at or prior to the
closing date of the merger; (3) Whitman will have received an opinion from
Whitman's counsel reasonably satisfactory to Whitman regarding the qualification
of the merger as a reorganization under Section 368(a) of the Code; (4) the
consummation of the contribution of the Contributed Operations.
INDEMNIFICATION
New Whitman and Pepsi General have agreed subject to certain exceptions to
indemnify PepsiCo and its affiliates and their respective officers, directors,
employees, shareholders, agents and representatives against, and have agreed to
hold them harmless from, any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses) (collectively "Losses"), subject
to adjustment for insurance proceeds and taxes, suffered or incurred by such
party to the extent related to: (1) any Merger Sub assumed liability (except for
liabilities with respect to those taxes which are covered by the provisions
described under "-- Tax Indemnification"); (2) certain breaches of
representations or warranties of Whitman contained in the Agreement (subject to
certain thresholds); and (3) any third party claim arising from or relating to
any information supplied by Whitman or its subsidiaries for inclusion in the
Registration Statement or this Proxy Statement/Prospectus which contains an
untrue statement of a material fact or omits certain material facts.
PepsiCo has agreed subject to certain exceptions to indemnify New Whitman,
Pepsi General and their respective affiliates and their respective officers,
directors, employees, shareholders, agents and representatives against, and has
agreed to hold them harmless from, any Losses suffered or incurred by such party
to the extent related to: (1) certain excluded liabilities (except for
liabilities with respect to taxes which are governed by the provisions described
under "-- Tax Indemnification"); (2) certain breaches of representations or
warranties of PepsiCo contained in the Agreement (subject to certain
thresholds); and (3) any third party claim arising from or relating to any
information supplied by PepsiCo or its subsidiaries for inclusion in the
Registration Statement or this Proxy Statement/Prospectus which contains an
untrue statement of a material fact or omits certain material facts.
In respect of either party's agreement to indemnify, the Agreement requires
that written notice be given to the indemnifying party of a third party claim
made by any person who is not a party to the Agreement against the indemnified
party promptly after receipt by such indemnified party of written notice of the
third party claim. The Agreement provides further that the indemnifying party
will be entitled to participate in and, if it so chooses to assume, with the
indemnified party's cooperation, the defense of any third party claim.
TAX INDEMNIFICATION
New Whitman and Pepsi General have agreed, subject to certain exceptions,
to indemnify PepsiCo and its affiliates (other than New Whitman, Pepsi General,
the New Whitman Acquired Businesses or any of their respective subsidiaries)
against, and have agreed, subject to certain exceptions, to hold them harmless
from
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<PAGE> 40
any Loss suffered or incurred by such party with respect to: (1) any United
States federal, state and local or foreign income or franchise taxes of PepsiCo
Acquired Businesses for any taxable period that ends on or before the closing
date, or the portion that ends on the closing date of any taxable period that
begins before and ends after the closing date (a "Pre-Closing Tax Period") (but
not including any such taxes attributable to actions taken by the PepsiCo
Acquired Businesses or PepsiCo or any of their respective affiliates (other than
New Whitman, Pepsi General, the New Whitman Acquired Businesses or any of their
respective Subsidiaries) outside of the ordinary course of business after the
closing on the closing date); (2) any United States federal, state and local or
foreign income or franchise taxes attributable to Whitman, Pepsi General, its
subsidiaries or affiliates (other than, solely for taxable periods beginning on
or after the closing date, or portions thereof, taxes attributable to the
operation of the PepsiCo Acquired businesses) for which PepsiCo, its
subsidiaries or affiliates (other than New Whitman, Pepsi General, the New
Whitman Acquired Businesses or any of their respective Subsidiaries) may be held
liable solely by virtue of Treasury Regulation Section 1.1502-6 or any similar
provision under state or local law, as transferee or successor, by contract or
otherwise; (3) taxes that are certain specified liabilities to be assumed by
Merger Sub; and (4) taxes of the New Whitman Acquired Businesses to the extent
that PepsiCo does not have an indemnity obligation with respect thereto
described in the following sentence.
PepsiCo has agreed to indemnify New Whitman, Pepsi General and their
respective affiliates other than PepsiCo and its subsidiaries against, and has
agreed, subject to certain exceptions, to hold them harmless from any Loss
suffered or incurred by any such party with respect to: (1) any United States
federal, state and local or foreign income or franchise taxes of the New Whitman
Acquired Businesses for all Pre-Closing Tax Periods (but not including any such
taxes attributable to actions taken by the New Whitman Acquired Businesses or
Pepsi General outside of the ordinary course of business after the closing on
the closing date); (2) any United States federal, state and local or foreign
income or franchise taxes attributable to PepsiCo, its subsidiaries or
affiliates (other than, solely for taxable periods beginning on or after the
closing date, or portions thereof, taxes attributable to the operations of the
Contributed Operations) for which Pepsi General, New Whitman, their subsidiaries
or affiliates (other than PepsiCo and its Subsidiaries) may be held liable
solely by virtue of Treasury Regulation Section 1.1502-6 or any similar
provision under state or local law, as transferee or successor, by contract or
otherwise; (3) taxes that are excluded liabilities; and (4) taxes of the PepsiCo
Acquired Businesses to the extent that New Whitman and Pepsi General do not have
indemnity obligations with respect thereto described in the preceding sentence.
TERMINATION
The Agreement may be terminated and the merger abandoned at any time prior
to the closing as follows: (1) by mutual written consent of Whitman and PepsiCo;
and (2) by either party, if (a) the merger or the other transactions
contemplated by the Agreement and the related agreements have not been
consummated by June 30, 1999, provided that such a right to terminate will not
arise if the failure to consummate the merger or such other transaction is the
result of a wilful and material breach of the Agreement by the party seeking to
terminate the Agreement; (b) any governmental entity issues a permanent
injunction or restraint prohibiting the consummation of the transactions
contemplated by the Agreement or the related agreements; or (c) the Agreement is
not adopted by Whitman shareholders.
The Agreement provides that it may be terminated by PepsiCo, if (1) Whitman
breaches or fails to perform in any material respect any of its representations,
warranties or covenants and such breach (a) would give rise to the failure of a
condition of PepsiCo described above under "-- Conditions to Closing" and (b)
cannot be or has not been cured within 30 days following receipt by Whitman of
notice of such breach and is existing at the time of termination of the
Agreement; or (2) Whitman engages in discussions or negotiations with a third
party in breach of the no solicitation provisions described above.
The Agreement provides that it may be terminated by Whitman if PepsiCo
breaches or fails to perform in any material respect any of its representations,
warranties or covenants and such breach (1) would give rise to the failure of a
condition of Whitman described above under "-- Conditions to Closing" and (2)
cannot be or has not been cured within 30 days following receipt by PepsiCo of
notice of such breach and is existing at the time of termination of the
Agreement.
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<PAGE> 41
The Agreement provides that it may be terminated by Whitman in response to
a Superior Proposal which was not solicited by Whitman and which did not result
from a breach of Whitman's covenant not to solicit any Takeover Proposal,
subject to certain conditions.
In the event of the Agreement's termination as provided above, there will
be no liability or obligation on the part of PepsiCo, Whitman or Merger Sub
except with respect to: the misuse of information obtained pursuant to the
Agreement's "Access to Information" provision; breach of the Confidentiality
Agreement; and the termination and expense provisions of the Agreement; and, if
the sale of the PepsiCo Acquired Businesses occurs prior to the termination, the
indemnification and working capital provisions of the Agreement. A party will be
liable to the extent that such termination results from the willful and material
breach by PepsiCo, Whitman or Merger Sub, as the case may be, of any of their
respective representations or warranties or any of their respective covenants or
agreements contained in the Agreement.
At any time prior to closing of the merger, the parties to the Agreement
may, by signed, written instrument, to the extent legally permitted, extend the
time for performance of any of the obligations arising thereunder, waive any
inaccuracies in the representations and warranties of any party, or waive
compliance with any of the agreements or fulfillment of any of the conditions
contained therein.
TERMINATION FEE
In the event that (1) a Takeover Proposal will have been made known to
Whitman or any of its subsidiaries or has been made directly to its shareholders
generally or any person will have publicly announced an intention to make a
Takeover Proposal and thereafter the Agreement is terminated by either PepsiCo
or Whitman because (a) the merger or the other transactions contemplated by the
related agreements are not consummated by June 30, 1999 or (b) the Agreement is
not adopted by Whitman shareholders, and within twelve months thereafter Whitman
consummates or enters into a definitive agreement relating to any Takeover
Proposal which it concludes is a Superior Proposal or (2) the Agreement is
terminated (a) by Whitman in response to a Superior Proposal which was not
solicited by Whitman and which did not result from a breach of Whitman's
covenant not to solicit any Takeover Proposal or (b) by PepsiCo in response to a
breach by Whitman of its covenant not to solicit any Takeover Proposal, then
Whitman will promptly, but in no event later than the date of such termination,
pay PepsiCo a fee equal to $20 million (less the amount of the payment described
in the next paragraph previously paid to PepsiCo by Whitman, if any), payable by
wire transfer of same day funds.
In the event that the Agreement is terminated by either PepsiCo or Whitman
because the Agreement is not adopted by Whitman shareholders, then Whitman will
promptly, but in no event later than the date of such termination, pay PepsiCo a
fee equal to PepsiCo's documented out-of-pocket expenses incurred in connection
with the transactions contemplated by the Agreement, but in no event will such
fee be in excess of $2 million, payable by wire transfer of same day funds.
EXPENSES
Except as otherwise provided in the Agreement, all fees and expenses
incurred in connection with the merger and the other transactions contemplated
by the Agreement and related agreements will be paid by the party incurring such
fees or expenses, except that each of PepsiCo and Whitman will bear and pay
one-half of the costs and expenses incurred in connection with (1) the filing,
printing and mailing of the Registration Statement and this Proxy
Statement/Prospectus (including SEC filing fees), (2) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees) and (3) if the Merger is consummated, all United States federal, state or
local and all foreign transfer, documentary, sales, use, registration,
value-added and other similar taxes (including applicable real estate transfer
taxes and real property transfer gains taxes and similar taxes imposed on the
transfer of shares of a company holding real estate) incurred in connection with
the contribution of the Contributed Operations, the merger, the sale of the New
Whitman Acquired Businesses, the sale of the PepsiCo Acquired Businesses or a
transfer by Pepsi General of certain vending machine assets to an affiliate of
Pepsi General (to the extent, in the case of such a transfer by Pepsi General,
that no such tax was imposed on the transfer of such assets to Pepsi General).
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<PAGE> 42
WORKING CAPITAL ADJUSTMENTS
Each of the parties to the Agreement acknowledged and agreed that, as of
the close of business on the closing date, each of the New Whitman Acquired
Businesses, the Contributed Operations and the PepsiCo Acquired Businesses
should have a Working Capital Amount (as defined below) equal to the Projected
Working Capital Amount (as defined below) for such business (and each of the
parties will make adjustments as set forth in the Agreement to cause such
business to have such Working Capital Amount), and in furtherance thereof,
within 60 days after the Closing Date, (1) New Whitman will prepare and deliver
to PepsiCo a statement (the "New Whitman Statement") setting forth (A) the
Working Capital Amount as of the close of business on the closing date (the
"Closing Working Capital Amount") of the Contributed Operations, taken as a
whole, and each of the New Whitman Acquired Businesses and (B) the Projected
Working Capital Amount of the Contributed Operations, taken as a whole, and each
of the New Whitman Acquired Businesses as of the close of business on the
closing date, together with a certificate of New Whitman and New Whitman's
independent auditors that the New Whitman Statement has been prepared in
compliance with the requirements of the Agreement and (2) PepsiCo will prepare
and deliver a statement (the "PepsiCo Statement") setting forth (A) the Closing
Working Capital Amount of the PepsiCo Acquired Businesses, and (B) the Projected
Working Capital Amount of the PepsiCo Acquired Businesses as of the close of
business on the closing date, together with a certificate of PepsiCo and
PepsiCo's independent auditors that the PepsiCo Statement has been prepared in
compliance with the requirements of the Agreement. Each of Merger Sub, Whitman
and PepsiCo agreed that, notwithstanding anything to the contrary contained in
the Agreement, (1) there will be excluded from any calculation of the Closing
Working Capital Amount of any of the PepsiCo Acquired Businesses the portion of
any current assets which did not arise in the ordinary course of business
consistent with past practice of any of the PepsiCo Acquired Businesses and (2)
if the transfers of the PepsiCo Acquired Businesses are consummated prior to the
closing in accordance with the Agreement, references contained in this section
"-- Working Capital Adjustments" to "closing date" will be deemed to be
references to the date of consummation of such transfers, references in this
section "-- Working Capital Adjustments" to "New Whitman" will be deemed to be
references to Whitman and the procedures described in this section will commence
as of such date with respect to the PepsiCo Acquired Businesses.
The Agreement also contains provisions for resolution of any disagreements
with respect to the New Whitman Statement or the PepsiCo Statement.
The Agreement provides that in lieu of the accounts receivable and trade
payables of each of the Contributed Operations, PepsiCo will cause a good faith
estimate of the amount of the accounts receivable less the amount of trade
payables (the "Net Receivables Amount") of each of the Contributed Operations as
of the closing date, less the amount equal to the interest for a thirty-day
period on the Net Receivables Amount (calculated at a specified interest rate)
(as so reduced, the "Discounted Net Receivables Amount"), to be included in cash
or cash equivalents in each such Contributed Operation upon the closing date.
The Agreement provides that in the case of any Closing Date Working Capital
Amount which is less than the Projected Working Capital Amount of any of the New
Whitman Acquired Businesses, the Contributed Operations or the PepsiCo Acquired
Businesses, the transferor of such business will, and if the closing date
Working Capital Amount is more than the Projected Working Capital Amount, the
acquiror of such business will, within 10 business days after the applicable
Statement becomes final and binding on New Whitman and PepsiCo or the Accounting
Firm renders its final decision, make payment(s) by wire transfer in immediately
available funds of the amount of each such difference, together with interest
thereon at a rate equal to the rate of interest from time to time announced
publicly by Citibank, N.A. as its prime rate, calculated on the basis of the
actual number of days elapsed over 365, from the closing date to the date of
each such payment.
The Agreement defines "Working Capital Amount," with respect to any
bottling business on any date, to mean current assets minus current liabilities
of such bottling business on such date, determined in accordance with GAAP
applied on a basis consistent with the policies used by such bottling business
in the preparation of its financial statements for fiscal 1997; provided,
however that (1)(A) the amount of any short-term indebtedness for borrowed money
or short-term capitalized lease obligations will be excluded from the
calculation of current liabilities of any bottling business to the extent (and
only to the extent) the amount of such short-term indebtedness for borrowed
money or short-term capitalized lease obligations reduced the
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<PAGE> 43
purchase price attributable to such bottling business in accordance with the
terms of the Agreement, (B) U.S. Tax benefits attributable to losses of the
Polish subsidiaries of PepsiCo and not available as a Tax benefit to such
subsidiaries will be excluded from the calculation of current assets of each of
such subsidiaries, (C) short-term intercompany trade accounts receivable and
payable which arose in the ordinary course of operations for the purchase or
sale of goods and services (which are normally eliminated in consolidation) will
be counted as current assets and current liabilities of each such bottling
business, (D) payables in respect of lease payments relating to vehicle and
other fleet assets for pre-closing periods will be counted as current
liabilities and (E) the Assumed Debt will be excluded from the calculation of
current liabilities of each of the Contributed Operations, (2) for any inventory
to be counted as part of the current assets of any such bottling business, such
inventory must be usable and saleable in the ordinary course of business of such
bottling business within applicable guideline dates for shelf life for the
particular product or package, must be valued at acquisition cost or production
floor cost, and must have a net realizable value at least equal to the values at
which such inventory is carried on the balance sheets relating to such bottling
business and (3) for any receivables to be counted as part of the current assets
of any such bottling business, such receivables must have arisen only from bona
fide transactions in the ordinary course of business of such bottling business,
must not be in dispute, must not be subject to any setoffs, discounts, rebates,
credits, reductions or counterclaims whatsoever, and, with reasonable collection
efforts consistent with good business practices, must be able to be fully paid
within ninety days after the date each such receivable arose, without resort to
collection agencies or legal action.
The Agreement defines "Projected Working Capital Amount" to mean (1) with
respect to any U.S. bottling business, a Working Capital Amount equal to the
product of (x) $.40 and (y) the aggregate number of raw bottle and can cases
sold by such bottling business during the twelve-month period immediately
preceding the closing date, minus, in the case of the Contributed Operations, an
amount equal to the Net Receivables Amount less the Discounted Net Receivables
Amount applicable to each such Contributed Operation, and (2) with respect to
(A) the Slovakian and Czech subsidiaries of PepsiCo (taken as a whole), a
Working Capital Amount equal to the product of (x) $.14 and (y) the aggregate
number of raw bottle and can cases sold by such subsidiaries during the
twelve-month period immediately preceding the closing date of the merger, (B)
the Hungarian subsidiary of PepsiCo, a Working Capital Amount equal to the
product of (x) $(-).06 and (y) the aggregate number of raw bottle and can cases
sold by such subsidiary during the twelve-month period immediately preceding the
closing date, (C) the Polish subsidiary of PepsiCo engaged in distribution
operations, a Working Capital Amount equal to the product of (x) $.40 and (y)
the aggregate number of raw bottle and can cases sold by such subsidiary during
the twelve-month period immediately preceding the closing date, (D) the
operating Polish subsidiary of PepsiCo, a Working Capital Amount equal to
$(-)6,650,000 (provided that PepsiCo will only be obligated for, or entitled to,
its pro rata portion (based on PepsiCo's pro rata ownership interest of such
subsidiary on the closing date of the merger) of any Working Capital Amount less
than, or greater than, the Projected Working Capital Amount for such subsidiary
in accordance with the Agreement) and (E) the Russian subsidiary of Whitman, a
Working Capital Amount equal to the product of (x) the quotient of (1) the sum
of the Working Capital Amounts of such subsidiary at the end of each calendar
month in 1998 divided by 12 and (2) the aggregate number of raw bottle and can
cases sold by such subsidiary during 1998 and (y) the aggregate number of raw
bottle and can cases sold by such subsidiary during the twelve-month period
immediately preceding the closing date of the merger.
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<PAGE> 44
THE SHAREHOLDER AGREEMENT
Following is a summary of certain provisions of the Shareholder Agreement,
which it has been agreed that New Whitman and PepsiCo will execute and deliver
upon the Closing. The following description of the Shareholder Agreement is
qualified in its entirety by reference to the complete text of the form of
Shareholder Agreement, which is incorporated herein by reference and attached
hereto as Appendix D.
GENERAL
As used in this description and in the Shareholder Agreement:
"Beneficial Owner" (and, with correlative meanings, "Beneficially Own" and
"Beneficial Ownership") of any interest means a person who, together with his or
its affiliates, is or may be deemed a beneficial owner of such interest for
purposes of Rule 13d-3 or 13d-5 under the Exchange Act or who, together with his
or its affiliates, has the right to become such a beneficial owner of such
interest (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or
upon the exercise, conversion or exchange of any warrant, right or other
instrument, or otherwise; provided that a person will not be deemed the
Beneficial Owner of voting securities of New Whitman solely as a result of
having been granted a revocable proxy relating to such voting securities in
connection with any one special or annual meeting of shareholders of the New
Whitman (including any postponements or adjournments thereof).
"Independent Director" means any person who is both (1) independent of and
otherwise unaffiliated with any member of the Shareholder Group, and who is not
a director, officer, employee, consultant or advisor (financial, legal or other)
of any member of the Shareholder Group and has not served in any such capacity
in the previous two years and (2) not an officer or employee, consultant or
advisor (financial, legal or other) of Whitman or New Whitman and has not served
in any such capacity in the previous two years.
"Maximum Ownership Percentage" means, calculated at a particular point in
time, a total ownership percentage of 49.0%; provided that in the event of a
Permitted Acquisition which results in the Shareholder Group's total ownership
percentage exceeding 49.0%, the Maximum Ownership Percentage will become the
Shareholder Group's total ownership percentage giving effect to such Permitted
Acquisition.
"Minimum Price" means the highest average of per share closing prices on
the NYSE Composite Tape of the Voting Securities over any 20 consecutive trading
day period during the 18-month period preceding the date of the first public
announcement of a Shareholder Offer.
"Permitted Acquisition" means the acquisition of voting securities of New
Whitman pursuant to (1) a transaction or series of transactions that would not
result, individually or in the aggregate, in any member of the Shareholder
Group, singly or as part of a partnership, limited partnership, syndicate or
other 13D group, directly or indirectly, acquiring, proposing to acquire, or
publicly announcing or otherwise disclosing an intention to propose to acquire,
or offering or agreeing to acquire, by purchase or otherwise, Beneficial
Ownership of any security of New Whitman so as to cause the Shareholder Group's
total ownership percentage to exceed the Maximum Ownership Percentage, (2) a
Shareholder Offer at a price which is not less than the Minimum Price, (3) a
merger or other business combination approved by a majority of the voting power
attributable to voting securities of New Whitman not Beneficially Owned by the
Shareholder Group, (4) a transaction approved by a majority of the Independent
Directors. For purposes of this definition, the value of any securities offered
in exchange for voting securities of New Whitman pursuant to a Shareholder Offer
will be the average of closing prices on the NYSE Composite Tape of such
securities over the five consecutive trading day period preceding the date of
the first public announcement of such Shareholder Offer.
"Shareholder Group" means PepsiCo, any affiliate of PepsiCo (other than New
Whitman or its subsidiaries), any Permitted Significant Transferee (as defined
below) and any person with whom PepsiCo, any affiliate of PepsiCo (other than
New Whitman or its subsidiaries) or any Permitted Significant Transferee is part
of a 13D group.
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"Shareholder Offer" means (1) a tender offer or exchange offer by any
member of the Shareholder Group for all voting securities of New Whitman not
Beneficially Owned by the Shareholder Group or (2) a merger or other business
combination pursuant to which all voting securities of New Whitman not
Beneficially Owned by the Shareholder Group are proposed to be exchanged or
converted.
"Significant Transferee" means a transferee which would have a total
ownership percentage of greater than 20% of New Whitman voting securities after
giving effect to any proposed transfer.
The foregoing definitions notwithstanding, capitalized terms are, in all
cases, used in this Section as defined in the Shareholder Agreement.
CONDUCT BY PEPSICO
Subject to the provisions of the Shareholder Agreement, during the term of
the Shareholder Agreement, PepsiCo has agreed that, without the prior approval
of a majority of the Independent Directors, it will not, and will cause each
member of the Shareholder Group not to, take any of the following actions:
(1) singly or as part of a partnership, limited partnership, syndicate
or other 13D group, directly or indirectly, acquire, propose to acquire, or
publicly announce or otherwise disclose an intention to propose to acquire,
or offer or agree to acquire, by purchase or otherwise, Beneficial
Ownership of any voting security of New Whitman so as to cause the
Shareholder Group's total ownership percentage of New Whitman voting
securities to exceed the Maximum Ownership Percentage, other than pursuant
to a Permitted Acquisition;
(2) form, join or in any way participate in a 13D group with respect
to any voting securities of New Whitman or any securities of its
subsidiaries if such 13D group's total ownership percentage of New Whitman
voting securities would exceed the Maximum Ownership Percentage;
(3) initiate a merger, acquisition or other business combination
transaction relating to New Whitman (other than a merger, acquisition or
business combination of a third party (not a member of the Shareholder
Group) with New Whitman) which would not be, if consummated, a Permitted
Acquisition.
In addition, PepsiCo has agreed that if at any time PepsiCo becomes aware
that the Shareholder Group's total ownership percentage of New Whitman voting
securities exceeds the Maximum Ownership Percentage, other than as permitted
pursuant to the terms of the Shareholder Agreement, then PepsiCo will, or will
cause the Shareholder Group to, consistent with the provisions described under
"-- Transfers by PepsiCo", promptly take all action necessary to reduce the
amount of voting securities of New Whitman Beneficially Owned by the Shareholder
Group such that the Shareholder Group's total ownership percentage of New
Whitman voting securities is not greater than the Maximum Ownership Percentage.
TRANSFERS BY PEPSICO
Except for any requirements of the Securities Act applicable to such
transfer, each of the members of the Shareholder Group may transfer any of the
Voting Securities of New Whitman Beneficially Owned by such member of the
Shareholder Group to any transferee which is not a Significant Transferee
without restriction, and may effect such a transfer to a Significant Transferee
with the prior written consent of a majority of the Independent Directors;
provided, however, that each of such members of the Shareholder Group may
transfer any of such voting securities of New Whitman to any Significant
Transferee without restriction (other than as contemplated in the last sentence
of this paragraph) or obtaining such consent if, at the time of such transfer,
the Shareholder Group Beneficially Owns at least 20% of the outstanding voting
securities of such Significant Transferee and no other person Beneficially Owns
a greater percentage of the outstanding voting securities of such Significant
Transferee than the percentage owned by the Shareholder Group (a "Permitted
Significant Transferee"). The Shareholder Group will obtain the prior written
consent of a majority of the Independent Directors to any transfer by the
Shareholder Group of any voting securities of a Permitted Significant Transferee
if, at the time of such transfer, such Permitted Significant Transferee has a
total ownership percentage of New Whitman voting securities of greater than 20%
and such transfer would result in (1) the Shareholder Group Beneficially Owning
less than 20% of the outstanding voting securities of such Permitted
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<PAGE> 46
Significant Transferee or (2) any other person Beneficially Owning a greater
percentage of the outstanding voting securities of such Permitted Significant
Transferee than the percentage Beneficially Owned by the Shareholder Group after
giving effect to such transfer. None of the foregoing restrictions will apply to
(1) a transfer by any member of the Shareholder Group of any of the voting
securities of New Whitman in a public offering pursuant to which reasonable
efforts are made to achieve a wide distribution of such voting securities or (2)
a transfer of voting securities of New Whitman among members of the Shareholder
Group, provided that any such transferee agrees with New Whitman in writing
prior to each such transfer to be bound by the terms of the Shareholder
Agreement with respect to its Beneficial Ownership of voting securities of New
Whitman.
SPECIAL MEETINGS REQUESTED BY PEPSICO
During the term of the Shareholder Agreement, if the Shareholder Group
requests a special meeting of the shareholders of New Whitman in accordance with
the New Whitman by-laws or if the Shareholder Group nominates an alternative
slate of directors to the slate proposed by the New Whitman board of directors
at any annual meeting of shareholders of New Whitman in accordance with the New
Whitman by-laws, New Whitman agrees that it will not, without PepsiCo's consent,
from the date of receipt of such request for a special meeting or the date of
receipt of such nomination, as the case may be, until the adjournment of the
requested special meeting or the annual meeting, as the case may be, (1) take
any action effecting a material change in its capital structure, (2) declare or
pay a dividend (other than any regular quarterly dividend), (3) materially
increase the compensation of any executive officer, or (4) take any material
action not in the ordinary course of business; provided that this provision will
not restrict the ability of New Whitman to comply with commitments entered into
prior to the date of such request.
TOP-UP RIGHTS
During the term of the Shareholder Agreement, if the Shareholder Group's
total ownership percentage of New Whitman voting securities is below the Maximum
Ownership Percentage, the Shareholder Group may, at its option, purchase voting
securities of New Whitman from time to time in the open market or otherwise in
an amount not in excess of the amount that would cause the Shareholder Group's
total ownership percentage of New Whitman voting securities to exceed the
Maximum Ownership Percentage.
CHARTER, BY-LAWS AND RIGHTS AGREEMENT
During the term of the Shareholder Agreement, New Whitman will not, and the
Shareholder Group will not and will not facilitate any effort to, amend, alter
or repeal, or propose the amendment, alteration or repeal of, any provision of
the New Whitman charter or the New Whitman by-laws in any manner which is
inconsistent with the terms of the Shareholder Agreement. If at any time during
the term of the Shareholder Agreement the provisions of the Shareholder
Agreement conflict with the provisions of the New Whitman charter or the New
Whitman by-laws, New Whitman and PepsiCo will use all reasonable efforts,
consistent with their fiduciary responsibilities, to cause the provisions of the
New Whitman charter and the New Whitman by-laws to be brought into conformity
with the provisions of the Shareholder Agreement.
During the term of the Shareholder Agreement, New Whitman agrees not to (1)
amend any provision of the Rights Agreement in any manner which is inconsistent
with the terms of the Shareholder Agreement or the Agreement and which adversely
affects the rights of the Shareholder Group under the terms of the Shareholder
Agreement or (2) adopt any new rights agreement which is inconsistent with the
terms of the Shareholder Agreement or the Agreement and which adversely affects
the rights of the Shareholder Group under the terms of the Shareholder
Agreement.
NEW WHITMAN BOARD COMPOSITION
Pursuant to the Shareholder Agreement, as of the effective time of the
merger, the New Whitman board of directors will consist of the current directors
of Whitman (not to exceed nine in number) and Robert F. Sharpe, Jr. and Karl M.
von der Heyden.
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Pursuant to the Shareholder Agreement, upon the first retirement,
resignation or other removal from the New Whitman board of directors of one of
the nine directors of Whitman as of the date of the Agreement, whether prior to,
upon or following the effective time of the merger, New Whitman and PepsiCo
agree that they will take appropriate action to cause the New Whitman board of
directors to consist of 10 directors.
Charles S. Locke, currently a director of Whitman who was to retire from
the Whitman board of directors this year in accordance with the retirement
policy applicable to non-employee directors, has notified Whitman that he
intends to resign as of the effective time of the merger. Mr. Locke is the sole
member of the current Whitman board of directors who is not expected to be on
the New Whitman board of directors.
TERM
The Shareholder Agreement will take effect immediately upon the closing of
the merger and will remain in effect until it is terminated on the earliest to
occur of:
(1) the date on which the Shareholder Group's total ownership
percentage of New Whitman voting securities falls below 15%;
(2) subject to the provisions described in the following paragraph,
the date on which a Permitted Acquisition is consummated pursuant to which
the Shareholder Group becomes the Beneficial Owner of not less than 75% of
the voting power attributable to all voting securities of New Whitman;
(3) two years from the first date on which the following two
conditions are met: (a) the Shareholder Group has become the Beneficial
Owner of more than 55% (but less than 75%) of the voting power attributable
to all voting securities of New Whitman and (b) the Shareholder Group has
consummated a Shareholder Offer at a price which is not less than the
Minimum Price pursuant to which at least 10% of the voting power
attributable to voting securities of New Whitman not Beneficially Owned by
the Shareholder Group prior to such Shareholder Offer were acquired by the
Shareholder Group; and
(4) the date of termination provided for in a mutual written agreement
between New Whitman and PepsiCo.
Following the consummation of a Permitted Acquisition pursuant to which the
Shareholder Group becomes the Beneficial Owner of not less than 75% of New
Whitman common stock, New Whitman agrees that for a period of 90 days after such
Permitted Acquisition it will not, without PepsiCo's consent, take any action or
enter into any agreement which (1) restricts the acquisition by the Shareholder
Group of any voting securities of New Whitman, notwithstanding that such
acquisition is not a Permitted Acquisition, (2) restricts in any manner the
transfer of any such voting securities of New Whitman, by the Shareholder Group,
(3) restricts any right of the Shareholder Group to initiate a merger,
acquisition or business combination relating to New Whitman which would not be,
if consummated, a Permitted Acquisition, (4) otherwise restricts in any manner
the ability of any member of the Shareholder Group to take any action with
respect to voting securities of New Whitman, including, in the case of clauses
(1) through (4), amending the Rights Agreement to provide for any such
restriction, (5) effects a material change in its capital structure, (6)
declares or pays a dividend (other than any regular quarterly dividend), (7)
materially increases the compensation of any executive officer or (8) is a
material action not in the ordinary course of business; provided that this
provision will not restrict the ability of New Whitman to comply with
commitments entered into prior to the date of such Permitted Acquisition.
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OTHER AGREEMENTS
The following summary of the key terms of agreements between PepsiCo and
Whitman, or between PepsiCo, Whitman and New Whitman, as the case may be, is
qualified in its entirety by reference to each of the agreements. Definitions
heretofore notwithstanding, capitalized terms used in this Section are, in all
cases, used as defined in those agreements.
PEPSI BEVERAGE AGREEMENTS
General. Upon the closing of the merger New Whitman will enter into a
number of bottling agreements with PepsiCo. These bottling agreements consist
of: (1) a master bottling agreement for beverages bearing the "PEPSI-COLA" and
"PEPSI" trademark, including DIET PEPSI and PEPSI ONE (the "Cola Beverages") in
the United States (the "Master Bottling Agreement"), (2) a bottling and
distribution agreement for non-cola products in the United States (the "Allied
Brands Master Bottling Agreement"), (3) a master fountain syrup agreement (the
"Pepsi Fountain Agreement") and an allied brands fountain agreement (the "Allied
Brands Fountain Agreement" and, together with the Pepsi Fountain Agreement, the
"Fountain Agreements") for fountain syrup in the United States, and (4) an
international master bottling agreement and an international allied brand
bottling agreement similar to the Fountain Agreement for countries outside of
the U.S. (collectively, the "International Agreements").
The Master Bottling Agreement, the Allied Brands Master Bottling Agreement,
the Fountain Agreements and the International Agreements are collectively
referred to as the "Pepsi Beverage Agreements."
Set forth below is a description of the Pepsi Beverage Agreements and other
bottling agreements to which New Whitman is a party.
The Master Bottling Agreement. The Master Bottling Agreement under which
New Whitman will manufacture, package, sell and distribute the Cola Beverages
will be entered into upon the closing of the merger. The Master Bottling
Agreement gives New Whitman the exclusive right to distribute the Cola Beverages
for sale in specified territories in authorized containers. PepsiCo may
determine from time to time what types of containers to authorize for use by New
Whitman. New Whitman will be the sole and exclusive purchaser of concentrates
for the purpose of manufacturing, packaging and distributing the Cola Beverages
in the specified territories. The Master Bottling Agreement provides that New
Whitman will purchase its entire requirements of concentrates for the Cola
Beverages from PepsiCo at prices, and on terms and conditions, as determined
from time to time by PepsiCo. The prices at which New Whitman purchase
concentrate under the Master Bottling Agreement and the level of advertising and
marketing support provided by PepsiCo may vary materially from the levels
provided historically.
Under the Master Bottling Agreement New Whitman is obligated to: (1)
maintain such plant and equipment, trained staff, and distribution and vending
facilities as are capable of manufacturing, packaging and distributing the Cola
Beverages in sufficient quantities to fully meet the demand for these beverages
in its territories; (2) undertake adequate quality control measures prescribed
by PepsiCo and authorize PepsiCo to withdraw products or Cola Beverages from the
market if there are quality or technical difficulties; (3) push vigorously the
sale of the Cola Beverages in its territories; (4) increase and fully meet the
demand for the Cola Beverages in its territories; (5) use all approved means and
spend such funds on advertising and other forms of marketing beverages as may be
reasonably required to meet the objective of increasing and maintaining the
demand for Cola Beverages in the specified territories; (6) maintain such
financial capacity as may be reasonably necessary to assure performance under
the Master Bottling Agreement by it; (7) purchase containers from manufacturers
authorized by PepsiCo; and (8) maintain adequate stocks of containers.
New Whitman and PepsiCo have agreed upon a business plan for the first
three years of the term of the Master Bottling Agreement. The Master Bottling
Agreement requires New Whitman to meet annually with PepsiCo to discuss plans
for the ensuing year and for the following two years. At such meetings, New
Whitman is obligated to present plans that set out in reasonable detail
satisfactory to PepsiCo, its marketing
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plan, management plan and advertising plan with respect to the Cola Beverages
for the year. In addition New Whitman must also present a financial plan showing
that New Whitman has the financial capacity to perform its duties and
obligations under the Master Bottling Agreement, as well as projected sales,
marketing and advertising plans and related equipment placements for the two
years following such year. PepsiCo has the right to approve such plans, which
approval will not be unreasonably withheld.
If New Whitman carries out its plan in all material respects, New Whitman
will be deemed to have satisfied its obligations to push vigorously the sale of
the Cola Beverages and to increase and fully meet the demand for the Cola
Beverages in its territories and to maintain the financial capacity required
under the Master Bottling Agreement. Failure to present a plan or carry out
approved plans in all material respects would constitute an event of default
that, if not cured within 120 days of notice of the failure, would give PepsiCo
the right to terminate the Master Bottling Agreement.
If New Whitman does not present a plan or presents a plan that PepsiCo does
not approve or fails to carry out the plan, such failure will constitute a
primary consideration for determining whether New Whitman has satisfied its
obligations to maintain its financial capacity and to push vigorously the sale
of the Cola Beverages and to increase and fully meet the demand for the Cola
Beverages in its territories.
If New Whitman fails to carry out a plan in all material respects in any
segment of its territory, whether defined geographically or by type of market or
outlet, and if such failure is not cured within six months of notice of the
failure, PepsiCo may reduce the territory covered by the Master Bottling
Agreement by eliminating the territory, market or outlet with respect to which
such failure has occurred.
PepsiCo has no obligation to participate with New Whitman in advertising
and marketing spending, but it may contribute to such expenditures and undertake
independent advertising and marketing activities, as well as cooperative
advertising and sales promotion programs that would require New Whitman's
cooperation and support. Although PepsiCo has advised New Whitman that it
intends to continue to provide cooperative advertising funds, PepsiCo is not
obligated to do so under the Master Bottling Agreement.
The Master Bottling Agreement provides that PepsiCo may in its sole
discretion reformulate any of the Cola Beverages or discontinue any of the Cola
Beverages, subject to certain limitations, so long as all Cola Beverages are not
discontinued. PepsiCo may also introduce new beverages under the PEPSI-COLA or
PEPSI trademarks or any modification thereof. In such event, New Whitman will be
obligated to manufacture, package, distribute and sell such new beverages with
the same obligations as then exist with respect to other Cola Beverages. New
Whitman is prohibited from producing or handling cola products (other than those
of PepsiCo) or other products or packages that imitate, infringe or cause
confusion with the products, trade dress, containers or trademarks of PepsiCo or
from acquiring, directly or indirectly, any ownership interest or entering into
any contract or arrangement, directly or indirectly, with any person that
engages in such prohibited activities. The Master Bottling Agreement also
imposes requirements with respect to the use of PepsiCo's trademarks, authorized
containers, packaging and labeling.
The Master Bottling Agreement provides that New Whitman will not enter into
any contract or other arrangement or participate in the management of any other
PepsiCo bottler without the consent of PepsiCo. If New Whitman acquires control,
directly or indirectly, of any bottler of Cola Beverages, New Whitman must cause
the acquired bottler to amend its bottling appointments for the Cola Beverages
to conform to the terms of the Master Bottling Agreement.
New Whitman has agreed not to acquire or attempt to acquire the right to
manufacture and sell the Cola Beverages outside an area specified by PepsiCo
without PepsiCo's prior written consent. Any acquisition within the area
specified pursuant to the terms of the Master Bottling Agreement would be
subject to PepsiCo's approval, and PepsiCo has agreed not to withhold its
approval if the acquisition has been successfully negotiated and, in PepsiCo's
reasonable judgment, New Whitman has satisfactorily performed its obligations
under the Master Bottling Agreement. The area in which New Whitman has agreed
not to pursue acquisitions currently represents approximately 79% of PepsiCo's
U.S. bottling system in terms of volume.
New Whitman agreed not to distribute or sell any Cola Beverage outside the
authorized territories. A shipment outside the authorized territory will be
deemed a transhipment and be subject to a per-case charge
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determined by PepsiCo in its sole discretion as well as certain other charges
relating to investigative costs and costs of any recall of the transhipped
beverages.
The term of the Master Bottling Agreement is perpetual, subject to
termination by PepsiCo in the event of New Whitman's default. Events of default
include: (1) New Whitman's insolvency, bankruptcy, dissolution, receivership or
the like; (2) the acquisition by any person or group of beneficial ownership of
15% of the voting securities of New Whitman; (3) any disposition of any voting
securities of one of New Whitman's bottling subsidiaries without the consent of
PepsiCo; (4) New Whitman's entry into any business which is prohibited by the
Master Bottling Agreement and this condition remains in place six months after
notice of such condition from PepsiCo; (5) the termination of any agreement for
the manufacture and sale of Cola Beverages between PepsiCo and any person
controlling New Whitman, unless PepsiCo agrees that this provision will not
apply to such termination; and (6) the sale or transfer of all or substantially
all of New Whitman's bottling assets other than to a wholly-owned subsidiary of
New Whitman. If the Master Bottling Agreement is terminated, PepsiCo also has
the right to terminate the remaining Pepsi Beverage Agreements.
PepsiCo may also terminate the agreement if (1) New Whitman fails to make
timely payments of debts it owes PepsiCo; (2) New Whitman's plant or equipment
fails to meet PepsiCo's sanitary standards; (3) the syrups in Cola Beverages
manufactured by New Whitman fail to meet PepsiCo's quality control standards;
(4) the Cola Beverages are not manufactured in conformity with PepsiCo's
instructions; (5) New Whitman fails to present or carry out an approved plan of
operation; or (6) New Whitman materially breaches any other of its obligations
under the agreement.
Upon an event of default, PepsiCo will give New Whitman notice of the
default and an opportunity to cure such default during the next 60 days. If
uncured PepsiCo will give New Whitman further notice and may suspend sales and
require New Whitman to cease production for 60 days. If a default has not been
cured during the second 60 day period, PepsiCo may terminate the Master Bottling
Agreement.
New Whitman is prohibited from assigning, transferring or pledging the
Master Bottling Agreement, or any interest therein, whether voluntarily, or by
operation of law (including by merger or liquidation), without the prior consent
of PepsiCo.
The Master Bottling Agreement will be automatically amended if bottlers,
which purchase 80% or more of all of the concentrates for Cola Beverages
purchased for the account of all bottlers who are parties to agreements
containing substantially the same terms as the Master Bottling Agreement, agree
with PepsiCo to different provisions than those contained in the Master Bottling
Agreement.
Allied Brands Master Bottling Agreement. The beverage products covered by
the Allied Brands Master Bottling Agreement are beverages licensed to New
Whitman by PepsiCo, consisting of MOUNTAIN DEW, DIET MOUNTAIN DEW, SLICE, MUG
root beer and cream soda and ALL SPORT. The Allied Brands Master Bottling
Agreement contains provisions that are similar to those contained in the Master
Bottling Agreement including those with respect to pricing, transshipping,
authorized containers, planning, quality control, plant and equipment,
advertising, financial capacity, events of default, transfer restrictions, term,
and related matters. The Allied Brands Master Bottling Agreement will terminate
if PepsiCo terminates the Master Bottling Agreement. The provisions contained in
the Allied Brands Master Bottling Agreement would prevent New Whitman from
manufacturing, selling or distributing beverage products which imitate, infringe
upon, or cause confusion with, the beverage products covered by the Allied
Brands Master Bottling Agreement. In addition, PepsiCo may elect to discontinue
the manufacture, sale or distribution of a non-cola beverage and terminate the
Allied Brands Master Bottling Agreement upon six months notice to New Whitman.
The Fountain Agreements. The Fountain Agreements grant New Whitman the
exclusive right to manufacture, sell and distribute fountain syrup to local
customers in its territories. The Fountain Agreements also grant New Whitman the
right to act as the exclusive manufacturing, delivery and distribution agent for
national accounts within its territories that elect direct-to-store delivery. In
addition, New Whitman may at the discretion of PepsiCo be granted a right to act
as the manufacturer for fountain syrup to be delivered to national accounts that
elect delivery through independent distributors. Under the Fountain Agreements,
New Whitman will have the exclusive right to service fountain equipment for all
of the national account customers
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within its territories. The Fountain Agreements also provide for PepsiCo to pay
New Whitman certain fees for bottler delivery, brand development, equipment
service and production, as well as a service incentive.
The Fountain Agreements contain provisions that are similar to those
contained in the Master Bottling Agreement including those with respect to
pricing, transshipping (with respect to local customers and national customers
electing direct-to-store delivery only), planning, quality control, plant and
equipment, advertising, financial capacity, events of default, transfer
restrictions and related matters but is substantially different with regard to
term. The Fountain Agreements have an initial term of five years and are
automatically renewable for additional five year periods unless PepsiCo
terminates them for cause. PepsiCo has the right to terminate the Fountain
Agreements without cause at the conclusion of the initial five year period or at
any time during a renewal term upon twenty four months notice. In the event
PepsiCo terminates either of the Fountain Agreements without cause, PepsiCo is
required to pay New Whitman an agreed upon value of all of New Whitman's rights
under such Fountain Agreements.
In addition, the Fountain Agreements will terminate if PepsiCo terminates
the Master Bottling Agreement.
Other Bottling Agreements in the United States. Whitman has bottling
agreements with other licensors of beverage products, including Cadbury
Schweppes plc (for DR PEPPER, 7UP, SCHWEPPES and CANADA DRY), the Pepsi/Lipton
Tea Partnership (for LIPTON BRISK and LIPTON'S ICED TEA) the North American
Coffee Partnership (for STARBUCKS FRAPPUCCINO)) and Proctor & Gamble
Distributing Company (for SUNNY DELIGHT and HAWAIIAN PUNCH), which contain
provisions generally similar in effect to those in the Master Bottling Agreement
as to use of trademarks, trade names, approved containers and labels, sales of
imitations, and causes for termination. Some of these beverage agreements have
limited terms of appointment and, in most instances, prohibit Whitman from
dealing in similar beverage products.
International Bottling Agreements. The International Bottling Agreements
grant New Whitman the exclusive right to manufacture, sell and distribute Cola
Beverages, certain allied brands and fountain syrup in its international
territories. The International Bottling Agreements contain provisions similar to
those contained in the Master Bottling Agreement and the Allied Brands Master
Bottling Agreement including those with respect to authorized containers,
planning, quality control, plant and equipment, advertising, financial capacity,
events of default, transfer restrictions, causes for termination and related
matters.
SERVICES AGREEMENT
Pursuant to the Agreement, prior to the consummation of the sale of the
PepsiCo Acquired Businesses, PepsiCo, Whitman, Merger Sub and one or more other
bottlers licensed by PepsiCo will agree on the terms of a definitive transition
services agreement, which will provide, among other things, (i) for the
provision of all support services not located at the respective operating
locations of the bottling businesses to be transferred pursuant to the Agreement
necessary to continue the ongoing operations of such bottling businesses, (ii)
that payment for all services provided pursuant to such services agreements will
be made by the party or parties receiving such services to the party or parties
providing such services in an amount equal to the cost (without profit) to the
party or parties providing such services and (iii) that no party providing
services pursuant to the services agreements will be liable to any other party
except to the extent of such party's gross negligence or wilful misconduct in
providing such services. The amount recoverable from any party providing
services pursuant to the services agreements in respect of any such liability
will be limited to the aggregate amount of proceeds received by, or payable to,
such party pursuant to the services agreements.
EMPLOYEE BENEFITS AGREEMENT
The Contribution of the Contributed Operations. Under the terms of the
Employee Benefits Agreement, in connection with the contribution of the
Contributed Operations, Merger Sub and its subsidiaries generally will assume
all liabilities arising before, on or after Closing, which relate to or arise
out of employment with PepsiCo and its subsidiaries prior to Closing, of
individuals whose employment is transferred to Merger Sub as
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a result of the contribution of the Contributed Operations ("Transferred
Individuals"). Where such liabilities are tax-qualified pension liabilities
accrued prior to the closing of the merger and funded through a trust, such as
the PepsiCo pension plans and savings plans, the Employee Benefits Agreement
provides for a transfer of assets equal to the lesser of the liabilities assumed
or the amount which can be transferred by law. In certain other cases, these
liabilities are incurred prior to the closing of the merger and are fully
insured through group insurance contracts or are entirely prefunded with pre-tax
employee contributions to a flexible benefit plan. In such cases, PepsiCo has
agreed to retain these liabilities, and, where applicable, to use its best
efforts to cause comparable group insurance contracts to be issued to Merger
Sub. Generally, all other such liabilities assumed by Merger Sub are unfunded
and must be paid out of the assets of Merger Sub and its subsidiaries. These
include, for example, (1) grandfathered post-retirement health and insurance
benefits for certain Transferred Individuals; (2) health and welfare claims
incurred prior to Closing; (3) short-term disability claims; (4) workers
compensation claims; (5) severance benefits; (6) certain performance awards
issued by PepsiCo in 1998; (7) deferred compensation; and (8) generally all
other liabilities arising out of employment with PepsiCo and its subsidiaries
which have not been retained by PepsiCo.
Merger Sub and its subsidiaries have agreed to adopt such plans and
programs as may be necessary to provide to Transferred Individuals, until
December 31, 1999, the same benefits and compensation after Closing as were
provided by PepsiCo prior to the closing of the merger, except with respect to
post-retirement health and life insurance for certain Transferred Individuals,
the pension and savings plans and certain other benefits for management
employees. With respect to its savings plan, Merger Sub has agreed to (i)
provide a 100% match on nonunion salaried employees' elective deferrals up to a
maximum of 6% of covered compensation; (ii) provide a 50% match on nonunion
hourly employees' elective deferrals up to a maximum of 4% of covered
compensation; and (iii) maintain a PepsiCo stock fund in Merger Sub savings plan
for a two-year period, but only for accounts transferred to the Merger Sub
savings plan for Transferred Individuals. With respect to the Merger Sub salary
pension plan, Merger Sub has agreed to recognize all past service of Transferred
Individuals with PepsiCo and its subsidiaries prior to Closing for all purposes
under that plan, including benefit accruals. In addition, Merger Sub has agreed
to assume all collective bargaining agreements contributed to it by PepsiCo with
respect to Transferred Individuals, some of which expire after December 31,
1999.
Pursuant to the Employee Benefits Agreement, PepsiCo has agreed generally
to retain all liabilities relating to employment with PepsiCo and its
subsidiaries prior to, on or after the closing of the merger other than those
liabilities assumed by Merger Sub and its subsidiaries with respect to
Transferred Individuals and to indemnify Merger Sub with respect to certain
ERISA fiduciary liabilities related to offering or maintaining the PepsiCo stock
fund in its savings plan. PepsiCo will discontinue its Sharepower program in
1999 for employees in certain of the Contributed Operations. Furthermore,
PepsiCo has agreed that all PepsiCo stock options and certain awards outstanding
at the closing of the merger will be treated as outstanding for so long as the
Transferred Individual is employed by Merger Sub and its subsidiaries and that
all such stock options will be fully exercisable on and after the closing of the
merger, subject to the remaining terms of such option grant; however, Merger Sub
will pay for the administrative costs and payroll taxes associated with
maintaining or exercising these options following the closing of the merger. To
facilitate Merger Sub's offering of comparable health and welfare benefits to
Transferred Individuals, PepsiCo will administer Merger Sub's plans pursuant to
a services agreement through December 31, 1999, or if later, the expiration of a
collective bargaining agreement requiring maintenance of such benefits and will
use its best efforts to cause all of the vendors utilized by PepsiCo for its
plans to enter comparable contracts with Merger Sub.
The Merger. Under the terms of the Employee Benefits Agreement, upon the
merger, Merger Sub agrees to adopt and maintain all benefit plans and programs
maintained by Whitman and its subsidiaries and all liabilities relating to the
employment of individuals with Whitman and its subsidiaries prior to the closing
of the merger.
The New Whitman Acquired Businesses. The Employee Benefits Agreement will
govern the allocation of assets, liabilities, and responsibilities with respect
to certain employee compensation and benefit plans relating to the New Whitman
Acquired Businesses. The agreement contains general principles which will form
the basis for finalizing the portion of the agreement dealing with the New
Whitman Acquired
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Businesses. That portion of the finalized agreement with respect to the New
Whitman Acquired Businesses will be substantially in the form of the Employee
Benefits Agreement with respect to the Contribution except as hereinafter set
forth.
Under the terms of the Employee Benefits Agreement, in connection with the
sale of the New Whitman Acquired Businesses, New Whitman and its subsidiaries
generally will assume all liabilities arising before, on or after the date such
transaction is consummated ("PepsiCo Transfers Closing") which relate to or
arise out of employment with PepsiCo and its subsidiaries prior to the PepsiCo
Transfers Closing, of individuals whose employment is transferred to New Whitman
and its subsidiaries as a result of such transaction ("PepsiCo Transferred
Individuals"). Where such liabilities are pension liabilities accrued prior to
the PepsiCo Transfers Closing and funded through a trust or are liabilities
incurred prior to the PepsiCo Transfers Closing that are insured through group
insurance contracts, PepsiCo has agreed to retain these liabilities. Generally,
all other such liabilities assumed by New Whitman are unfunded and must be paid
out of the assets of New Whitman or its subsidiaries. These include, for
example, (1) health and welfare claims incurred prior to the PepsiCo Transfers
Closing; (2) short-term disability claims; (3) claims under social programs and
individual contracts; (4) severance benefits; and (5) generally all other
liabilities arising out of employment with PepsiCo and its subsidiaries which
have not been retained by PepsiCo.
New Whitman has agreed to treat all PepsiCo Transferred Individuals through
December 31, 1999 in the same manner as PepsiCo Transferred Individuals
described above, except that PepsiCo will use its best efforts to allow PepsiCo
Transferred Individuals to participate in PepsiCo international benefit plans.
Pursuant to the Employee Benefits Agreement, PepsiCo has agreed generally
to retain all liabilities relating to employment with PepsiCo and its
subsidiaries prior to, on or after the PepsiCo Transfers Closing, other than
those liabilities assumed by New Whitman or its subsidiaries with respect to
PepsiCo Transferred Individuals. Furthermore, PepsiCo has agreed that all stock
options outstanding at the PepsiCo Transfers Closing will be treated as
outstanding for so long as the PepsiCo Transferred Individual is employed by New
Whitman and that all such stock options will be fully exercisable on or after
the PepsiCo Transfers Closing, subject to the remaining terms of such option
grant; however, New Whitman will pay for the administrative costs and payroll
taxes associated with maintaining or exercising these options following the
PepsiCo Transfers Closing.
WHITMAN TRANSFERS EMPLOYEE BENEFITS AGREEMENT
The Whitman Transfers Employee Benefits Agreement will govern the
allocation of assets, liabilities, and responsibilities with respect to certain
employee compensation and benefit plans relating to the PepsiCo Acquired
Businesses. The agreement contains general principles which will form the basis
for finalizing the Whitman Transfers Employee Benefits Agreement in a more
definitive final agreement. The finalized agreement will be substantially in the
form of the Employee Benefits Agreement except as hereinafter set forth.
Under the terms of the Whitman Transfers Employee Benefits Agreement, in
connection with the sale of the PepsiCo Acquired Businesses, PepsiCo and its
subsidiaries generally will assume all liabilities arising before, on or after
the date such transaction is consummated ("Whitman Transfers Closing") which
relate to or arise out of employment with Whitman and its subsidiaries prior to
the Whitman Transfers Closing, of individuals whose employment is transferred to
PepsiCo and its subsidiaries as a result of such transaction ("Whitman
Transferred Individuals"). Where such liabilities are pension liabilities
accrued prior to the Whitman Transfers Closing and funded through a trust, such
as the Whitman tax-qualified pension plans and savings plans, the Whitman
Transfers Employee Benefits Agreement provides for a transfer of assets equal to
the lesser of the liabilities assumed or the amount which can be transferred by
law. In certain other cases, these liabilities are incurred prior to the Whitman
Transfers Closing and are insured through group insurance contracts or prefunded
with pre-tax employee contributions to a flexible benefit plan. In such cases,
Whitman has agreed to retain these liabilities. Generally, all other such
liabilities assumed by PepsiCo are unfunded and must be paid out of the assets
of PepsiCo or its subsidiaries. These include, for example, (1) health and
welfare claims incurred prior to the Whitman Transfers Closing; (2) short-term
disability claims; (3) workers
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compensation claims; (4) severance benefits; (5) claims under social programs or
individual contracts; and (6) generally all other liabilities arising out of
employment with Whitman and its subsidiaries which have not been retained by
Whitman.
PepsiCo has agreed to include all Whitman Transferred Individuals in the
compensation and benefit programs offered by PepsiCo or its subsidiaries in
which similarly situated PepsiCo employees are eligible to participate. With
respect to the PepsiCo hourly pension plan, PepsiCo has agreed to recognize all
past service of Whitman Transferred Individuals with Whitman and its
subsidiaries for all purposes under that plan, including benefit accruals.
Pursuant to the Whitman Transfers Employee Benefits Agreement, Whitman has
agreed generally to retain all liabilities relating to employment with Whitman
and its subsidiaries prior to, on or after the Whitman Transfers Closing, other
than those liabilities assumed by PepsiCo or its subsidiaries with respect to
Whitman Transferred Individuals. Furthermore, Whitman has agreed that all
Whitman stock options outstanding at the Whitman Transfers Closing will be
treated as outstanding for so long as the Whitman Transferred Individual is
employed by PepsiCo and that all such stock options will be fully exercisable on
or after the Whitman Transfers Closing, subject to the remaining terms of such
option grant; however, PepsiCo will pay for the administrative costs and payroll
taxes associated with maintaining or exercising these options following the
Whitman Transfers Closing.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement between PepsiCo and New
Whitman to be entered into on the closing date of the merger (the "Registration
Rights Agreement"), PepsiCo will have the right on four occasions to require New
Whitman to register under the Securities Act (a "Demand Registration") all and
any portion of PepsiCo's shares of New Whitman common stock (the "Shares"),
provided that such Demand Registration covers at least 3% of the New Whitman
common stock then outstanding. In addition, if New Whitman proposes to register
any New Whitman common stock under the Securities Act for purposes of a primary,
secondary or combined offering of such New Whitman common stock to the public,
PepsiCo will have the right to have such number of Shares as PepsiCo requests
included in New Whitman's registration statement (a "Piggy-Back Registration"),
subject to certain limitations and conditions. PepsiCo has agreed not to make
any sale, transfer or other disposition of shares of New Whitman common stock
except in compliance with the registration requirements of the Securities Act
and the rules and regulations thereunder and in accordance with the Registration
Rights Agreement and the Shareholder Agreement.
New Whitman will be entitled to delay any Demand Registration if the filing
of such Demand Registration would: (1) in the good faith judgment of the New
Whitman board of directors, unreasonably impede, delay or otherwise interfere
with any pending or contemplated material acquisition, corporate reorganization
or other similar material transaction, involving New Whitman; (2) based upon
advice from New Whitman's investment banker or financial advisor; materially
adversely affect any pending or contemplated financing, offering or sale of any
class of securities by New Whitman; or (3) in the good faith judgment of the New
Whitman board of directors, require disclosure of material, non-public
information, the disclosure of which would be materially harmful to the
interests of New Whitman and its shareholders. Such delay will be for a
reasonable period of time not to exceed 90 days (in the case of (1) or (2)) or
thirty days (in the case of (3)). New Whitman may not exercise the right
pursuant to clause (1) or (2) above to postpone or delay the filing of any
Demand Registration more than twice in any twelve month period.
RIGHTS AGREEMENT
New Whitman will, as of the closing date of the merger, adopt the Rights
Agreement which is designed to protect New Whitman shareholders from coercive or
unfair takeover tactics. To implement the Rights Agreement, upon consummation of
the merger, the New Whitman board of directors will declare a dividend
distribution of one Right for each share of New Whitman common stock outstanding
at the record date and issued thereafter, subject to certain limitations. After
the public announcement that a person or group has become the beneficial owner
of 15% or more of all outstanding shares of New Whitman common stock (any
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<PAGE> 55
such person or group, an "Acquiring Person") or at the close of business on the
tenth business day after the date of the commencement or announcement of a
tender or exchange offer which would result in such person or group becoming an
Acquiring Person (the earlier of such dates being the "Distribution Date"), New
Whitman will issue separate Rights Certificates (as defined in the Rights
Agreement) to each holder of New Whitman common stock. At any time after the
Distribution Date, each Right may be exercised to purchase from New Whitman one
one-hundredth of a share of Series A Junior Participating Preferred Stock of New
Whitman; par value $0.01 per share, at a purchase price of $ , subject
to adjustment.
The Rights Agreement specifically excludes from the definition of an
Acquiring Person, among other things, (1) PepsiCo, but only to the extent of
shares of New Whitman common stock held or acquired by PepsiCo in accordance
with the merger and the transactions contemplated thereby or in a Permitted
Acquisition (as defined in the Shareholder Agreement); and (2) any transferee
who acquires beneficial ownership (as defined in the Rights Agreement) of shares
of New Whitman common stock from PepsiCo pursuant to certain provisions of the
Shareholder Agreement, but such transferee will be deemed to be an Acquiring
Person if such transferee or any of its affiliates acquires beneficial ownership
of additional shares of New Whitman common stock other than as expressly
permitted under the Shareholder Agreement and such transferee would otherwise be
deemed to be an Acquiring Person. See "The Shareholder Agreement -- Transfers by
PepsiCo."
In the event that a person or group becomes an Acquiring Person, then each
Right not owned by the Acquiring Person will entitle its holder to purchase,
within certain time periods and at the Right's then-current Purchase Price,
shares of New Whitman Common Stock (or, in certain circumstances, one
one-hundredth of a share of New Whitman Preferred Stock) as will equal the
result obtained by (1) multiplying the then current Purchase Price by the then
number of one one-hundredths of a share of New Whitman Preferred Stock for which
a Right was exercisable immediately prior to the first occurrence of a person
becoming an Acquiring Person, and (2) dividing that product by 50% of the then
current per share market price (as defined in the Rights Agreement) of New
Whitman Common Stock on the date of such first occurrence. If, after a person
becomes an Acquiring Person, New Whitman is involved in a merger or other
business combination transaction or sells more than 50% of its assets or earning
power, each Right will entitle the holder to purchase, at the Right's
then-current Purchase Price, shares of common stock of the acquiring company as
will equal the result obtained by (1) multiplying the then current Purchase
Price by the number of one one-hundredths of a share of New Whitman Preferred
Stock for which a Right is then exercisable and (2) dividing the product by 50%
of the then current per share market price of the common stock of such acquiring
company. The Rights, which have no voting rights, expire ten years from the date
of the Rights Agreement. The New Whitman Board of directors may, at its option,
at any time after any person becomes an Acquiring Person, exchange all or part
of the then outstanding and exercisable Rights for New Whitman Common Stock at
an exchange ratio of one share of New Whitman common stock per Right, subject to
adjustment, until such time as any person, together with all affiliates and
associates of such person, has become the beneficial owner of 50% or more of the
New Whitman Common Stock then outstanding. The Rights may be redeemed by New
Whitman under certain circumstances at a purchase price of $0.01 per Right,
subject to adjustment. The existence of the Rights may have the effect of
delaying, deterring or preventing a takeover of New Whitman.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary description of the material U.S. federal income
tax consequences of the merger to holders of Whitman Common Stock who are
citizens or residents of the United States. It does not discuss all the tax
consequences that may be relevant to particular Whitman shareholders in light of
their personal circumstances or to Whitman shareholders subject to special
treatment under the Code (such as insurance companies, financial institutions,
dealers in securities, tax exempt organizations or non-U.S. persons) or to
Whitman shareholders who acquired their shares of Whitman Common Stock pursuant
to the exercise of employee stock options or warrants, or otherwise as
compensation. The summary also does not address the state, local or foreign tax
consequences of the merger or the tax consequences to holders of outstanding
Whitman warrants or stock options.
It is a condition to the obligation of Whitman to consummate the
Transactions, which condition cannot be waived by the Whitman Board, that
Whitman receive a tax opinion (the "Tax Opinion") from Wachtell, Lipton, Rosen &
Katz, dated as of the Closing Date, in form and substance reasonably
satisfactory to Whitman, substantially to the effect that:
(1) the Merger will be treated for U.S. federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code; and
(2) neither Whitman nor its shareholders will recognize gain or loss
for U.S. federal income tax purposes as a result of the Merger.
In rendering the Tax Opinion, Wachtell, Lipton, Rosen & Katz will rely upon
representation letters delivered to them (in form and substance reasonably
satisfactory to them), by Whitman, PepsiCo, and their respective subsidiaries.
The Tax Opinions will be subject to and based upon certain assumptions,
including (1) the accuracy of certain representations, including representations
customary for this type of transaction contained in certificates of Whitman,
PepsiCo and their respective subsidiaries (2) that the representations contained
in such certificates would be true if given on and as of the Closing Date, (3)
that the merger is consummated in accordance with the terms of the Agreement,
and (iv) such other qualifications as are set forth therein. If any such
representations are, or later become, inaccurate, the consequences of the merger
may be different from those described above. The Tax Opinion will not be binding
on the Internal Revenue Service (the "IRS") or a court. Consequently, in
considering whether the merger qualifies for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Code, the IRS or a
court could reach a conclusion contrary to that reached in counsel's opinions.
THIS DISCUSSION AND DESCRIPTION ARE BASED ON CURRENTLY EXISTING PROVISIONS
OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE WITH RETROACTIVE EFFECT, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THIS DISCUSSION AND THE TAX OPINION. NO INFORMATION IS PROVIDED
HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF ANY, OF THE MERGER UNDER
APPLICABLE STATE, LOCAL OR FOREIGN LAWS, OR UNDER ANY UNITED STATES TAX LAWS
OTHER THAN THOSE PERTAINING TO THE INCOME TAX. WHITMAN SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS AND THE POSSIBLE
EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
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DESCRIPTION OF NEW WHITMAN CAPITAL STOCK
The summary of the terms of the stock of New Whitman set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the New Whitman charter that became effective , 1999
and to the New Whitman by-laws. Copies of the form of New Whitman charter and
the form of New Whitman by-laws are attached hereto as Appendices B and C,
respectively.
AUTHORIZED CAPITAL STOCK
Under the New Whitman charter, New Whitman has the authority to issue 362.5
million shares, of which 350 million are shares of New Whitman common stock and
12.5 million are shares of preferred stock, par value $0.01 per share. As of
, 1999, 500 shares of Merger Sub common stock were issued and
outstanding, all of which were held by PepsiCo, and no shares of preferred stock
were issued and outstanding. Under the Whitman charter, Whitman currently has
authority to issue 262.5 million shares, of which 250 million are shares of
Whitman common stock, 2.5 million are shares designated first preferred stock
and 10 million are shares designated second preferred stock. As of ,
1999, shares of Whitman common stock were issued and outstanding,
and there were no shares of first preferred stock or second preferred stock
issued and outstanding.
COMMON STOCK
Subject to any rights or preferences of holders of New Whitman preferred
stock, holders of shares of New Whitman common stock will be entitled to receive
such dividends as from time to time may be declared on the New Whitman common
stock by the New Whitman board of directors.
Except as otherwise provided by law or by resolution or resolutions adopted
by the New Whitman board of directors in accordance with the New Whitman by-laws
designating the rights, powers and preferences of any series of New Whitman
preferred stock, and subject to the provisions of the New Whitman by-laws as
from time to time amended, with respect to the fixing of a record date for the
determination of stockholders entitled to vote, the holders of outstanding
shares of New Whitman common stock will exclusively possess voting power for the
election of directors of New Whitman and for all other purposes, each holder of
record of shares of New Whitman common stock being entitled to one vote for each
share of New Whitman common stock standing in his name on the books of New
Whitman. The New Whitman charter does not provide for cumulative voting for the
election of directors, which means that holders of more than one half of the
outstanding shares of voting securities of New Whitman will be able to elect all
of the directors of New Whitman then standing for election and holders of the
remaining shares will not be able to elect any director.
Shares of New Whitman common stock issued to holders of outstanding shares
of Whitman common stock or to PepsiCo pursuant to the contribution of the
Contributed Operations will be fully paid and nonassessable.
In the event of any liquidation, dissolution or winding up of New Whitman,
whether voluntary or involuntary, subject to any rights or preferences of
holders of New Whitman preferred stock, the holders of New Whitman common stock
will be entitled to share, ratably according to the number of shares of New
Whitman common stock held by them, in all assets of New Whitman available for
distribution to its shareholders.
The New Whitman board of directors may make rules and regulations
concerning the transfer of shares of New Whitman common stock from time to time,
in accordance with the New Whitman by-laws. Except for those restrictions to
which PepsiCo will be subject under the Shareholder Agreement (see "The
Shareholder Agreement -- Transfers by PepsiCo"), there are currently no
restrictions upon the alienability of New Whitman common stock.
Certain provisions of the Shareholder Agreement and certain provisions of
the DGCL, the New Whitman charter and the New Whitman by-laws may affect holders
of New Whitman common stock who own a substantial amount of the shares of New
Whitman common stock. See "The Shareholder Agreement" and "Comparative Rights of
Holders of Whitman and New Whitman Capital Stock." Similarly, certain
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provisions of the New Whitman charter and the New Whitman by-laws may have the
effect of delaying, deferring or preventing a change in control of New Whitman
with respect to an extraordinary corporate transaction, such as a merger,
reorganization, tender offer, sale or transfer of substantially all of the
assets of New Whitman. See "Comparative Rights of Holders of Whitman and New
Whitman Capital Stock."
Holders of New Whitman common stock will have no conversion, sinking fund
or redemption rights.
PREFERRED STOCK
Shares of New Whitman preferred stock may be issued from time to time in
one or more series. The New Whitman board of directors is authorized to fix by
resolution or resolutions adopted by two-thirds of the directors in accordance
with the New Whitman by-laws the voting rights, if any, designations, powers,
preferences and the relative, participation, optional or other rights, if any,
and the qualifications, limitations or restrictions thereof, of any unissued
series of preferred stock; and to fix by such resolution or resolutions the
number of shares constituting such series, and to increase or decrease the
number of shares of any such series (but not below the number of shares thereof
then outstanding).
See also "Other Agreements -- Rights Agreement."
PREEMPTIVE RIGHTS
No holder of shares of New Whitman common stock or New Whitman preferred
stock will have any preemptive rights.
TRANSFER AGENT AND REGISTRAR
The principal transfer agent and registrar for the New Whitman common stock
will be First Chicago Trust Company of New York, transfer agent and registrar
for Whitman common stock.
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COMPARATIVE RIGHTS OF HOLDERS OF WHITMAN
AND NEW WHITMAN CAPITAL STOCK
GENERAL
The rights of holders of Whitman capital stock are currently governed by
Delaware law and by the Whitman charter and the by-laws of Whitman. If the
merger is consummated and becomes effective pursuant to the terms of the
Agreement, the rights of former Whitman shareholders who become New Whitman
shareholders pursuant to the merger and other holders of New Whitman common
stock will consequently be governed by Delaware law and by the New Whitman
charter and the New Whitman by-laws. The following is a summary of the material
differences between the rights of Whitman shareholders under the Whitman charter
and the Whitman by-laws, on the one hand, and the rights of the New Whitman
Shareholders under the New Whitman charter and the New Whitman by-laws on the
other. The summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the Whitman charter and the Whitman
by-laws, copies of which are on file with the Commission, the New Whitman
charter and the New Whitman by-laws, the forms of which are attached hereto as
Appendices B and C, respectively, the form of the Rights Agreement, and
provisions of Delaware law.
PAR VALUE
Shares of New Whitman common stock and New Whitman preferred stock have a
par value of $0.01 per share. Shares of Whitman common stock and Whitman
preferred stock have no par value.
BUSINESS OPPORTUNITY
The New Whitman charter provides that PepsiCo will have the right to
engage, and will have no duty to refrain from engaging, in the same or similar
activities or lines of business as New Whitman and New Whitman will not be
deemed to have an interest or expectancy in any business opportunity in which
PepsiCo engages or seeks to engage merely because New Whitman engages in the
same or similar lines of business as that involved in or implicated by such
business opportunity. In the event that PepsiCo acquires knowledge of a
potential business opportunity which may be deemed to constitute a corporate
opportunity for both PepsiCo and New Whitman, PepsiCo is not required to
communicate the opportunity to New Whitman and will not be liable to New Whitman
or its shareholders for breach of fiduciary duty as a shareholder of New Whitman
by reason of the fact that PepsiCo pursues such business opportunity for itself,
directs such business opportunity to another person, or does not communicate
information regarding such business opportunity to New Whitman.
The New Whitman charter sets forth certain guidelines for a director or
officer of New Whitman who is also a director, officer or employee of PepsiCo
and who acquires knowledge of a corporate opportunity to both PepsiCo and New
Whitman: a business opportunity offered to an officer of New Whitman belongs to
New Whitman, and a business opportunity offered to a director in his or her
capacity as director of New Whitman belongs New Whitman, otherwise the business
opportunity belongs to PepsiCo.
The approval of two-thirds of the New Whitman board of directors is needed
to amend the business opportunity provisions of the New Whitman Certificate.
AFFILIATED TRANSACTION COMMITTEE
The New Whitman by-laws provide for the designation of an affiliated
transaction committee of the New Whitman board of directors which reviews,
considers and passes upon certain transactions with any entity in which PepsiCo
has a 20% or greater equity or other ownership interest which occur other than
in the ordinary course of business and which have an aggregate value exceeding
$10 million.
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ACTION BY WRITTEN CONSENT
The Whitman charter and the Whitman by-laws allowed shareholder action by
written consent, without prior notice, and without a vote. The New Whitman
charter and the New Whitman by-laws do not allow shareholders to act by written
consent.
SPECIAL MEETINGS
The Whitman by-laws only allow special meetings of shareholders to be
called by the Chairman and Chief Executive Officer or by the Whitman board of
directors. The New Whitman by-laws allow the Chairman and Chief Executive
Officer, the New Whitman board of directors or any shareholder who individually
or together with any other entity owns 20% or more of the issued and outstanding
securities of New Whitman entitled to vote generally in the election of
directors of New Whitman to call a special meeting of the shareholders. In the
case of a meeting called by a shareholder, such special meeting will take place
no later than 70 days from the date of receipt of proper notice from the
shareholder requesting the meeting, and the New Whitman board of directors will
fix a record date for shareholders entitled to vote at the special meeting,
which will not be later than 10 days from the receipt of proper notice
requesting the meeting. See "The Shareholder Agreement -- Special Meetings
Requested By PepsiCo."
CERTAIN BOARD VOTING REQUIREMENTS
The Whitman by-laws provide that the act of a majority of the directors
present at any meeting of directors at which a quorum is present will be the act
of the Whitman board of directors. The New Whitman by-laws require the approval
of two-thirds of the whole New Whitman board of directors for certain board
actions, including increasing the size of the New Whitman board of directors,
designating an executive committee, issuing preferred stock and amending the New
Whitman by-laws.
RIGHTS AGREEMENT
The Agreement provides that New Whitman will adopt the Rights Agreement and
that PepsiCo will not be considered an Acquiring Person (as defined in the
Rights Agreement) as a result of the Transactions. Subject to certain
conditions, members of PepsiCo and its transferees will not be considered
Acquiring Persons as a result of acquisitions permitted under the Shareholder
Agreement. See "Other Agreements -- Rights Agreement."
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<PAGE> 61
MARKET PRICES
The shares of Whitman common stock are listed and traded on the NYSE. The
following sets forth the high and low sale prices per share of Whitman common
stock as reported on NYSE Composite Transactions Tape for the fiscal periods
indicated and the dividends paid per share for such fiscal periods:
<TABLE>
<CAPTION>
DIVIDENDS
PER
HIGH LOW SHARE
---- --- ---------
<S> <C> <C> <C>
FISCAL YEAR 1997
First Quarter........................................ $24.625 $21.625 $0.105
Second Quarter....................................... $26.750 $22.625 $0.115
Third Quarter........................................ $27.250 $24.125 $0.115
Fourth Quarter....................................... $28.125 $24.250 $0.115
FISCAL YEAR 1998
First Quarter........................................ $26.625 $15.563 $0.05
Second Quarter....................................... $23.750 $19.000 $0.05
Third Quarter........................................ $23.375 $14.875 $0.05
Fourth Quarter....................................... $25.438 $15.375 $0.05
FISCAL YEAR 1999
First Quarter (through )..............
</TABLE>
On January 22, 1999, the last full trading day prior to the first public
announcement of the execution of the Agreement, the reported closing price per
share of Whitman common stock on the NYSE was $22.0625. On , the
reported closing price per share of Whitman common stock on the NYSE was
$ . Shareholders are urged to obtain current market quotations for
shares of Whitman common stock.
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<PAGE> 62
PEPSICO BOTTLING OPERATIONS
The PepsiCo Bottling Operations, consisting of the Contributed Operations
and the New Whitman Acquired Businesses, manufactures, packages, sells and
distributes carbonated and non-carbonated Pepsi-Cola beverages and certain other
brand beverages in the U.S. and Central Europe. The Contributed Operations
consist of bottling businesses currently conducted by subsidiaries of PepsiCo in
the markets of Dayton, Springfield, Cleveland, Youngstown and Elyria, Ohio, St.
Louis, Missouri, Indianapolis and southern Indiana. The New Whitman Acquired
Businesses consist of subsidiaries of PepsiCo that operate in the Czech
Republic, Slovakia, Hungary and Poland and PepsiCo's interest in a joint venture
in Poland with Whitman.
The brands PBO sells include PEPSI-COLA, DIET PEPSI, MOUNTAIN DEW, LIPTON
BRISK, LIPTON'S ICED TEA, 7UP (outside the U.S.), PEPSI MAX, PEPSI ONE, SLICE,
MUG, AQUAFINA, STARBUCKS FRAPPUCCINO and MIRINDA, which PBO bottles under
licenses from PepsiCo or PepsiCo joint ventures. In some of PBO's territories,
it manufactures, packages, sells and distributes soft drink products under
brands licensed by companies other than PepsiCo, including DR PEPPER and
HAWAIIAN PUNCH (in the U.S.) and Schweppes Tonic, Orange, Lemon and Ginger Ale
products in Central Europe.
The owners of beverage brands either manufacture and sell products
themselves or appoint bottlers to sell, distribute and, in some cases,
manufacture these products pursuant to licenses. Brand owners, such as PepsiCo,
generally own both the beverage trademarks and the secret formulas for the
concentrates, which they also manufacture and sell to their licensed bottlers.
Brand owners also develop new products and packaging for use by their bottlers.
Brand owners develop national marketing, promotion and advertising programs to
support their brands and brand image, and lead and coordinate selling efforts
with respect to national fountain, supermarket and mass merchandising accounts.
They also provide local marketing support to their bottlers.
Bottlers, such as PBO are generally responsible for manufacturing,
packaging, selling and distributing their products under the brand names they
license from brand owners in their exclusive territories. For carbonated soft
drink products, the bottler combines soft drink concentrate with sweeteners and
carbonated water and packages this mixture in bottles or cans. Bottlers may also
have licenses to manufacture syrup for sale to fountain accounts. Under these
licenses, bottlers combine soft drink concentrate with sweeteners to manufacture
syrup for delivery to fountain customers. For non-carbonated beverages, the
bottler either manufactures and packages such products or purchases such
products in finished form and sells them through its distribution system.
The primary distribution channels for the retail sale of carbonated soft
drink products are supermarkets, mass merchandisers, vending machines,
convenience and gas stores, fountain (such as restaurants or cafeterias) and
other (for example, small groceries, drug stores and educational institutions).
The largest channel in the U.S. is supermarkets, but the fastest growing
channels have been mass merchandisers, fountain and convenience and gas stores.
Depending upon the size of the bottler and the particular market, a bottler
delivers products through these channels using either a direct-to-store delivery
system or a warehouse system. In its exclusive territories, each bottler is
responsible for selling products and providing timely service to its existing
customers and identifying and obtaining new customers. Bottlers are also
responsible for local advertising and marketing, as well as the execution in
their territories of national and regional selling programs instituted by brand
owners. The bottling business is capital intensive. Manufacturing operations
require specialized high-speed equipment, and distribution requires extensive
placement of cold drink, vending and fountain equipment as well as investment in
trucks and warehouse facilities.
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<PAGE> 63
PRODUCTS AND PACKAGING
PBO's portfolio of beverage products includes some of the best recognized
trademarks in the world. PBO's three largest brands in terms of volume are
PEPSI-COLA, DIET PEPSI and MOUNTAIN DEW. While the majority of PBO's volume is
derived from brands licensed from PepsiCo and PepsiCo joint ventures, PBO also
sells and distributes brands licensed from others. PBO's principal beverage
brands are set forth below:
<TABLE>
<CAPTION>
CONTRIBUTED OPERATIONS
- - - ----------------------------------------------------------------------------------------------------------
BRANDS LICENSED FROM PEPSICO JOINT
BRANDS LICENSED FROM PEPSICO VENTURES BRANDS LICENSED FROM OTHERS
- - - -------------------------------- ---------------------------------- --------------------------------
<S> <C> <C>
PEPSI-COLA LIPTON BRISK DR. PEPPER
DIET PEPSI LIPTON'S ICED TEA HAWAIIAN PUNCH
MOUNTAIN DEW STARBUCKS FRAPPUCCINO OCEAN SPRAY
DIET MOUNTAIN DEW CITRUS HILL
CAFFEINE FREE PEPSI
CAFFEINE FREE DIET PEPSI
PEPSI ONE
WILD CHERRY PEPSI
SLICE
MUG
AQUAFINA
ALL SPORT
</TABLE>
<TABLE>
<CAPTION>
NEW WHITMAN ACQUIRED BUSINESSES
- - - ----------------------------------------------------------------------------------------------------------
BRANDS LICENSED FROM PEPSICO JOINT
BRANDS LICENSED FROM PEPSICO VENTURES BRANDS LICENSED FROM OTHERS
- - - -------------------------------- ---------------------------------- --------------------------------
<S> <C> <C>
PEPSI-COLA LIPTON ICE TEAS SCHWEPPES TONIC*
PEPSI MAX SCHWEPPES SODA*
PEPSI LIGHT SCHWEPPES LEMON SODA*
MIRINDA SCHWEPPES BITTER LEMON*
7 UP SCHWEPPES ORANGE*
7 UP LIGHT SCHWEPPES SCHIZAN*
MOUNTAIN DEW DR. PEPPER*
CANADA DRY GINGER ALE*
WESSER FRUIT JUICES
HARMATVIZ
AQUA MINERAL
AQUA DIAMANT
</TABLE>
- - - ---------------
* Licensed from Cadbury Schweppes
A number of the brands listed above are licensed by PBO from Cadbury
Schweppes, including Dr. Pepper in the United States and Schweppes Tonic, Canada
Dry Ginger Ale, and Schweppes Orange in Poland, Hungary, the Czech Republic and
Slovakia. The Schweppes brands represent approximately 15% of PBO's total sales
in these Central European countries. The term of the license from Cadbury
Schweppes for these Central European countries expires at the end of 2002. On
December 11, 1998, The Coca-Cola Company and Cadbury Schweppes announced that
The Coca-Cola Company had agreed to buy the Cadbury Schweppes soft drink brands
throughout the world except in the United States, France and South Africa.
PBO's beverages are available in different package types, including two
liter, one liter and 20 ounce bottles, and multi-packs of 6, 12, and 24 cans.
Syrup is also sold in larger packages for fountain use.
TERRITORIES
PBO has the exclusive right to manufacture, sell and distribute Pepsi-Cola
beverages in all or a portion of 4 states, the Czech Republic, Slovakia, Poland
and Hungary.
SALES, MARKETING AND DISTRIBUTION
PBO's business is seasonal and subject to weather conditions, which have a
significant impact on sales. PBO's sales and marketing approach varies by region
and channel to respond to the unique local competitive environment. In the U.S.,
the channels with larger stores can accommodate a number of beverage suppliers
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<PAGE> 64
and, therefore, marketing efforts tend to focus on increasing the amount of
shelf space and the number of displays in any given outlet. In locations where
PBO's products are purchased for immediate consumption, marketing efforts are
aimed not only at securing the account but also on providing equipment that
facilitates the sale of cold product, such as vending machines, visi-coolers and
fountain equipment.
An important aspect of PBO's sales and marketing has been working closely
with PepsiCo to ensure that the mix of new products and packages it is
developing meets the needs of customers in PBO's particular markets. Product
introductions such as PEPSI ONE, a one calorie cola launched in the fourth
quarter of 1998, and AQUAFINA, PepsiCo's water brand, which achieved national
distribution in 1998, further strengthen PBO's portfolio of products. Package
mix is an important consideration in the development of PBO's marketing plans.
Although some packages are more expensive to produce, in certain channels those
packages may have a higher and more stable selling price. For example, a
packaged product that is sold cold for immediate consumption generally has
better margins than product sold to take home.
In the U.S., PBO distributes directly to a majority of customers in PBO's
licensed territories through a direct-to-store distribution system. PBO's sales
force is key to PBO's selling efforts because its members interact continually
with PBO's customers to promote and sell PBO's products. To ensure they have
selling incentive, a large part of PBO's route salesmen's compensation is made
up of commissions based on revenues. Although route salesmen are responsible for
selling to their customers, in certain markets and channels PBO uses a pre-sell
system, where PBO calls accounts in advance to determine how much product to
deliver and whether PBO will provide any additional displays.
In the U.S., this direct-to-store system is used for all packaged goods and
some fountain accounts. PBO delivers fountain syrup to local customers in large
containers rather than in packaged form. PBO has the exclusive right to sell and
deliver fountain syrup to local customers in PBO's territories. PBO has a number
of managers who are responsible for calling on prospective fountain accounts,
developing relationships, selling accounts and interacting with accounts on an
ongoing basis. PBO also serves as PepsiCo's exclusive delivery agent in PBO's
territories for PepsiCo's national fountain account customers that request
direct-to-store delivery. PBO is also the exclusive equipment service agent for
all of PepsiCo's national account customers in PBO's territories.
In international markets, PBO uses both direct-to-store distribution
systems and third party distributors. In the early stages of market development,
it is more common to use third party distributors. As the market grows and
reaches critical mass, there is generally a move toward direct-to-store
distribution systems.
In the less developed international markets, small retail outlets play a
larger role and represent a large percentage of the market. However, with the
emergence of larger, more sophisticated retailers in Central Europe, the
percentage of total soft drink sales which are sold to supermarkets and other
larger accounts is increasing.
RAW MATERIALS AND MANUFACTURING
Expenditures for concentrate and packaging constitute PBO's largest
individual raw material costs. PBO buys various soft drink concentrates from
PepsiCo and other soft drink companies, and mixes them in PBO's plants with
other ingredients, including carbon dioxide and sweeteners. Artificial
sweeteners are included in the concentrates PBO purchases for diet soft drinks.
The product is then bottled in a variety of containers ranging from 12 ounce
cans to two-liter plastic bottles to various glass packages, depending on market
requirements.
In addition to concentrates, PBO purchases sweeteners, glass and plastic
bottles, cans, closures, syrup containers, other packaging materials and carbon
dioxide. PBO generally purchases its raw materials, other than concentrates,
from multiple suppliers.
COMPETITION
The carbonated soft drink business is highly competitive. PBO's principal
competitors are bottlers who produce, package, sell and distribute Coca-Cola
carbonated soft drink products. In addition to Coca-Cola
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<PAGE> 65
bottlers, PBO competes with bottlers and distributors of nationally advertised
and marketed carbonated soft drink products, bottlers and distributors of
regionally advertised and marketed carbonated soft drink products, as well as
bottlers of private label carbonated soft drink products sold in chain stores.
PBO estimates that in 1997 the carbonated soft drink products of PepsiCo
represented 31% of total carbonated soft drink sales in the United States. PBO
estimates that in each U.S. territory in which PBO operates, between 65% and 85%
of soft drink sales from supermarkets, drug stores and mass merchandisers are
accounted for by PBO and Coca-Cola bottlers. The industry competes primarily on
the basis of advertising to create brand awareness, price and price promotions,
retail space management, customer service, consumer points of access, new
products, packaging innovations and distribution methods. PBO believes that
brand recognition is a primary factor affecting PBO's competitive position.
EMPLOYEES
As of December 1998, PBO employed approximately 5,850 workers, of whom
approximately 2,550 were employed in the U.S. and approximately 1,750 of whom
were union members. PepsiCo Bottling Operations considers relations with its
employees to be good and has not experienced significant interruptions of
operations due to labor disagreements. PBO has 10 contracts with its union
employees worldwide, which expire at various times over the next five years.
PROPERTIES
PBO operates 3 soft drink production facilities in the U.S. and 22
distribution and other facilities in the U.S., 8 of which are leased. PBO
operates 12 production facilities in Central Europe, of which 7 are leased and
32 distribution and other facilities in Central Europe, of which 29 are leased.
LEGAL PROCEEDINGS
From time to time PBO is a party to various litigation matters incidental
to the conduct of its business. There is no pending or threatened legal
proceeding to which PBO is a party that, in the opinion of management, is likely
to have a material adverse effect on PBO's future financial results.
GOVERNMENTAL REGULATION
PBO's operations and properties are subject to regulation by various
federal, state and local governmental entities and agencies as well as foreign
government entities. As a producer of food products, PBO is subject to
production, packaging, quality, labeling and distribution standards in each of
the countries where PBO has operations, including, in the United States, those
of the federal Food, Drug and Cosmetic Act. The operations of PBO's production
and distribution facilities are subject to various federal, state and local
environmental laws and workplace regulations both in the U.S. and abroad. These
laws and regulations include, in the United States, the Occupational Safety and
Health Act, the Unfair Labor Standards Act, the Clean Air Act, the Clean Water
Act and laws relating to the maintenance of fuel storage tanks. PBO believes
that its current legal and environmental compliance programs adequately address
such concerns and that PBO is in substantial compliance with applicable laws and
regulations. PBO does not anticipate making any material expenditures in
connection with environmental remediation and compliance. However, compliance
with, or any violation of, current and future laws or regulations could require
material expenditures by it or otherwise have a material adverse effect on PBO's
business, financial condition and results of operations.
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<PAGE> 66
PEPSICO BOTTLING OPERATIONS
SELECTED COMBINED FINANCIAL INFORMATION
The following selected combined financial information of PepsiCo Bottling
Operations should be read in conjunction with, and is qualified in its entirety
by reference to, the Combined Financial Statements and the related Notes thereto
included elsewhere in this Proxy Statement/Prospectus.
The unaudited Condensed Combined Financial Information as of September 5,
1998, and for the thirty-six week periods ended September 5, 1998 and September
6, 1997 has been derived from, and is qualified in its entirety by reference to,
PBO's unaudited Condensed Combined Financial Statements appearing elsewhere in
this Proxy Statement/Prospectus, which have been prepared on a basis consistent
with that of the Combined Financial Statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation. Results of operations for the
thirty-six week period ended September 5, 1998 are not necessarily indicative of
results to be expected for the full fiscal year.
PEPSICO BOTTLING OPERATIONS
SELECTED COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE
THIRTY-SIX WEEKS ENDED
AS OF AND FOR THE FISCAL YEAR ENDED ---------------------------
-------------------------------------------- SEPTEMBER 5, SEPTEMBER 6,
1997 1996 1995 1994(a) 1993 1998 1997
------ ------- ------ ------- ------ ------------ ------------
(IN MILLIONS, EXCEPT PER CASE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Net sales..................... $703.7 $ 726.5 $733.8 $ 627.5 $462.2 $513.8 $502.5
Operating (loss) income....... $(22.1) $ (37.9) $ (2.8) $ (4.9) $ 2.5 $ 0.8 $(11.3)
Net loss...................... $(81.2) $ (86.3) $(57.0) $ (47.7) $(29.8) $(32.1) $(56.5)
BALANCE SHEET
Total assets.................. $857.1 $ 917.8 $931.2 $ 885.2 $768.2 $849.9
Long-term debt................ $ -- $ -- $ 7.1 $ 7.2 $ 3.9 $ --
Advances from PepsiCo......... $746.8 $ 739.6 $703.2 $ 671.1 $577.9 $750.3
OTHER
EBITDA(b)..................... $ 31.4 $ 30.7 $ 59.7 $ 43.5 $ 44.1 $ 20.8
Net cash (used by) provided by
operations.................. $ (0.9) $ 11.6 $(24.3) $ (23.4) $(24.3) $(21.6)
Net cash used by investing
activities.................. $(53.3) $(102.4) $(85.5) $(128.9) $(32.9) $(44.3)
Net cash provided by financing
activities.................. $ 67.6 $ 96.0 $106.8 $ 156.5 $ 40.6 $ 72.7
</TABLE>
- - - ---------------
(a) Fiscal year 1994 consisted of fifty-three weeks. Normally, fiscal years
consist of fifty-two weeks; however, because the fiscal year ends on the
last Saturday in December, a week is added every 5 to 6 years. The
fifty-third week increased net sales by $7.2 million and did not have a
significant impact to net operating loss.
(b) EBITDA is computed as net loss plus the sum of interest expense, income
taxes, depreciation and amortization. PBO has included information
concerning EBITDA because it is used by certain investors as a measure of
PBO's ability to service potential debt. EBITDA is not required under
Generally Accepted Accounting Principles (GAAP) and should not be considered
an alternative to net income or any other measure of performance required by
GAAP or as an indicator of PBO's operating performance, and should be read
in conjunction with the Combined Statements of Cash Flows contained in the
Combined Financial Statements included elsewhere in this registration
statement. EBITDA should also not be used as a measure of liquidity or cash
flows under GAAP.
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<PAGE> 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS, CASH FLOWS AND
LIQUIDITY AND CAPITAL RESOURCES OF THE PEPSICO BOTTLING OPERATIONS
CAUTIONARY STATEMENT
In this report, the management of the PepsiCo Bottling Operations discusses
expectations regarding its future performance, Year 2000 risks, and the impact
of current global economic issues. The management of the PepsiCo Bottling
Operations based these "forward-looking statements" on currently available
competitive, financial and economic data and its operating plans. They are also
inherently uncertain, and investors must recognize that events could turn out to
be significantly different from expectations.
GENERAL
The PepsiCo Bottling Operations includes the operating results of bottling
operations predominantly located in the midwestern part of the United States
(referred to in this discussion as "United States") and the bottling operations
in the Czech Republic, Slovakia, Hungary and Poland (referred to in this
discussion as "Central Europe").
The standard volume measure is raw cases. The term raw cases refers to the
actual physical number of cases. Raw cases for the 36 weeks includes the months
of January through August.
In the discussions below, the year-over-year dollar change in raw cases is
referred to as volume. Price changes over the prior year and the impact of
product, package and country sales mix changes are referred to as effective net
pricing.
RESULTS OF OPERATIONS
The following discussion is for fiscal years ended December 27, 1997 and
December 28, 1996.
NET SALES
<TABLE>
<CAPTION>
% B/(W) CHANGE
---------------
1997 1996 1995 1997 1996
------ ------ ------ ----- ----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
United States.......................... $517.4 $507.0 $498.6 2.1 1.7
Central Europe......................... 186.3 219.5 235.2 (15.1) (6.7)
------ ------ ------
$703.7 $726.5 $733.8 (3.1) (1.0)
====== ====== ======
</TABLE>
Worldwide net sales decreased $22.8 million in 1997. The increase in the
United States of $10.4 million was due to volume growth partially offset by
lower pricing actions taken through the third quarter of 1997 as necessitated by
intense competition. The United States operations increased pricing during the
fourth quarter of 1997. Central Europe's decrease of $33.2 million was primarily
the result of the effect of weaker currencies, in Hungary and in Czech Republic,
which lowered Central Europe's sales by approximately 12 percentage points. To a
lessor extent, the decrease also includes a decline in volume.
In 1996, worldwide net sales decreased $7.3 million. The net sales increase
in the United States of $8.4 million was due to volume growth. The decrease in
Central Europe's net sales of $15.7 million reflects the effect of weaker
currencies, primarily in Hungary, which negatively impacted net sales by
approximately nine percentage points. The decrease was partially offset by
volume growth.
VOLUME
Worldwide raw cases increased 1.1% in 1997. The United States raw cases
grew 4.6%, while Central Europe declined 4.3%. The raw case growth was led by
solid double-digit volume growth by the MOUNTAIN DEW brand and single-digit
volume growth in brand PEPSI. Central Europe's raw case decrease was primarily
driven by a double-digit decline in the Czech Republic due to declining
purchasing power and effects of strong competition.
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<PAGE> 68
Worldwide raw cases increased 1.3% in 1996. The United States contributed
2.1% to the worldwide growth which was due to solid single-digit volume growth
in brand PEPSI, the MUG brand volume growth more than tripling and the MOUNTAIN
DEW brand achieving single-digit volume growth. The Central Europe raw cases
remained even with the prior year as a result of strong double-digit volume
growth in Czech Republic and Slovakia being offset by single-digit declines in
Hungary and Poland.
OPERATING INCOME (LOSS)
<TABLE>
<CAPTION>
% B/(W) CHANGE
--------------
1997 1996 1995 1997 1996
------ ------ ------ ---- ----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating Income (Loss)
United States........................... $ 42.3 $ 36.9 $ 39.1 14.6 (5.6)
Central Europe.......................... (44.6) (56.0) (24.6) 20.4 NM
Allocated Overhead...................... (19.8) (18.8) (17.3) (5.3) (8.7)
------ ------ ------
$(22.1) $(37.9) $ (2.8) 41.7 NM
====== ====== ======
</TABLE>
Operating loss includes net sales less cost of sales and selling, delivery
and administrative expenses ("SD&A"). SD&A comprises selling and delivery
expenses ("S&D"), advertising and marketing ("A&M"), general and administrative
expenses ("G&A"), other income and expense, and equity income or loss from
investments in unconsolidated affiliates. Also included is allocated overhead,
which reflects the PepsiCo Bottling Operations' share of Pepsi-Cola's and
PepsiCo's administrative costs. The allocations were based on a specific
identification of these administrative costs to the PepsiCo Bottling Operations
and, to the extent that such identification was not practicable, based upon the
percentage of the PepsiCo Bottling Operations' sales volume to PepsiCo's related
sales volume. The management of the PepsiCo Bottling Operations believes that
such allocation methodology is reasonable. The expenses allocated to the PepsiCo
Bottling Operations are not necessarily indicative of the expenses that the
PepsiCo Bottling Operations would have incurred had it been a separate,
independent entity.
In 1997, the United States operating income increased $5.4 million
reflecting volume growth and lower cost of sales (excluding the effects of
volume) due to lower packaging costs. The increase was partially offset by a
reduction in pricing. In 1997 operating losses declined in Central Europe by
$11.4 million as a result of lower SD&A expenses and reduced cost of sales
partially offset by a decline in volume. The lower SD&A expenses were due to
equity income of $4.9 million from the PepsiCo Bottling Operations' Poland joint
venture in 1997 compared to a loss of $9.4 million in 1996 and lower G&A
expenses reflecting savings from a 1996 restructuring. These benefits were
partially offset by higher S&D in Hungary and Poland and increased A&M spending
in Poland. The change in the Poland joint venture results was due to a
turnaround in the operations and the absence of a 1996 charge to write-down
excess glass bottles and plastic returnable bottles.
In 1996, United States operating income declined $2.2 million primarily due
to higher SD&A expenses offset by volume growth and lower costs of sales
(excluding the effects of volume). SD&A expenses in the United States increased
at a faster rate than sales primarily due to higher S&D. Central Europe's
operating loss increase of $31.4 million was driven by higher SD&A expenses. The
increase in SD&A expenses was due to higher S&D, an increase in equity losses
from the Poland joint venture and higher G&A. The higher equity loss was
primarily due to the asset write-down.
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<PAGE> 69
INTEREST EXPENSE
<TABLE>
<CAPTION>
% B/(W) CHANGE
--------------
1997 1996 1995 1997 1996
------ ------ ------ ---- ----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
PepsiCo allocation...................... $(46.6) $(48.1) $(48.4) 3.1 0.6
External debt........................... (5.1) (7.7) (14.5) 33.8 46.9
------ ------ ------
Interest expense........................ $(51.7) $(55.8) $(62.9) 7.3 11.3
====== ====== ======
</TABLE>
PepsiCo Bottling Operations has been financed through cash flows from
operations and from advances from PepsiCo. The allocation of PepsiCo's interest
expense was based on PepsiCo's weighted average interest rate applied to the
average balance of advances from PepsiCo. The PepsiCo Bottling Operations'
external debt was used to largely fund international operations and expansion of
infrastructure. The PepsiCo Bottling Operations are expected to have a capital
structure different from the capital structure in the financial statements, and
accordingly interest expense is not indicative of the interest expense that the
PepsiCo Bottling Operations would have incurred as a separate, independent
entity or will incur in future periods.
Interest expense decreased $4.1 million in 1997 and $7.1 million in 1996
due to lower external debt levels.
FOREIGN EXCHANGE LOSSES
The increase in foreign exchange losses in 1997 of $12.5 million resulted
from higher foreign exchange losses in the Czech Republic due to a U.S. dollar
denominated loan from PepsiCo. The increase in foreign exchange losses in 1996
of $1.3 million was driven by Poland.
INCOME TAX BENEFIT
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
($ IN MILLIONS)
<S> <C> <C> <C>
Income tax benefit.......................................... $7.0 $9.3 $9.3
</TABLE>
For both 1997 and 1996, the PepsiCo Bottling Operations' income tax benefit
was low in comparison to the loss before income taxes. This occurred because the
PepsiCo Bottling Operations cannot recognize full tax benefits on the current
losses generated by the Central Europe operations since the realization of the
tax benefit at this time cannot be supported.
RESULTS OF OPERATIONS
The following discussion is for the 36 weeks ended September 5, 1998 and
September 6, 1997.
NET SALES
<TABLE>
<CAPTION>
36 WEEKS ENDED % B/(W)
---------------- -------
9/5/98 9/6/97 CHANGE
------ ------ -------
($ IN MILLIONS)
<S> <C> <C> <C>
United States........................................... $384.9 $366.0 5.2
Central Europe.......................................... 128.9 136.5 (5.6)
------ ------
$513.8 $502.5 2.2
====== ======
</TABLE>
Worldwide net sales increased $11.3 million in 1998. The increase in the
United States of $18.9 was driven by volume growth and higher effective net
pricing. The higher effective net pricing was due to higher pricing in 1998
versus 1997, when competitive pricing existed, and a favorable sales mix shift
to higher-priced single-serve products. The decrease in net sales in Central
Europe of $7.6 million was primarily due to the
63
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 70
effect of weaker currencies, in Hungary and Poland, which reduced sales by
approximately 12 percentage points. This impact was partially offset by higher
effective net pricing primarily in Poland.
VOLUME
Worldwide raw cases increased 2.4%, with the United States contributing
2.8% and Central Europe contributing 1.8%. The United States raw case growth was
led by mid-single-digit growth by the MOUNTAIN DEW brand and strong double-digit
growth by AQUAFINA bottled water. The overall advance was reduced by a decline
in brands PEPSI and MUG. The Central Europe raw case increase was driven by
single-digit growth in Poland and Slovakia.
OPERATING INCOME (LOSS)
<TABLE>
<CAPTION>
36 WEEKS ENDED
---------------- % B/(W)
9/5/98 9/6/97 CHANGE
------ ------ -------
($ IN MILLIONS)
<S> <C> <C> <C>
United States......................................... $ 33.2 $ 29.7 11.8
Central Europe........................................ (19.5) (27.3) 28.6
Allocated Overhead.................................... (12.9) (13.7) 5.8
------ ------
$ 0.8 $(11.3) NM
====== ======
</TABLE>
Allocated Overhead reflects the PepsiCo Bottling Operations' share of
Pepsi-Cola's and PepsiCo's administrative costs. The allocations were based on a
specific identification of these administrative costs to the PepsiCo Bottling
Operations and, to the extent that such identification was not practicable,
based upon the percentage of the PepsiCo Bottling Operations' sales volume to
PepsiCo's related sales volume. The management of the PepsiCo Bottling
Operations believes that such allocation methodology is reasonable. The expenses
allocated to the PepsiCo Bottling Operations are not indicative of the expenses
that the PepsiCo Bottling Operations would have incurred had it been a separate,
independent entity.
Through the third quarter of 1998, the operating income in the United
States increased $3.5 million reflecting higher effective net pricing and volume
growth. These increases were offset by higher cost of sales. SD&A expenses
increased at a significantly slower rate than sales and raw cases. Central
Europe's operating loss declined $7.8 million. The improved level of losses was
due to the benefit of higher effective net pricing which was reduced by the
effect of weaker currencies. The impact of weaker currencies primarily in
Poland, increased the operating loss by approximately 11 percentage points. Also
contributing to the decline in losses was the absence of a 1997 write-off of
excess glass bottles and plastic returnable bottles in the Czech Republic and
Slovakia.
INTEREST EXPENSE
<TABLE>
<CAPTION>
36 WEEKS ENDED
---------------- % B/(W)
9/5/98 9/6/97 CHANGE
------ ------ -------
($ IN MILLIONS)
<S> <C> <C> <C>
PepsiCo allocation...................................... $ 34.0 $ 32.3 (5.3)
External debt........................................... 1.9 3.7 48.6
------ ------
Interest expense........................................ $ 35.9 $ 36.0 0.3
====== ======
</TABLE>
The PepsiCo Bottling Operations have been financed through cash flows from
operations and from advances from PepsiCo. The allocation of PepsiCo's interest
expense was based on PepsiCo's weighted average interest rate applied to the
average balance of advances from PepsiCo. The PepsiCo Bottling Operations'
external debt was largely used to fund international operations. The PepsiCo
Bottling Operations are expected to have a capital structure different from the
capital structure in the financial statements, and accordingly interest expense
is not indicative of the interest expense that the PepsiCo Bottling Operations
would have incurred as separate, independent entity or will incur in future
periods.
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PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 71
Interest expense remained relatively even with the prior year. The increase
in the PepsiCo allocation was due to an increase in PepsiCo's average borrowing
rate. This was offset by a decrease in external interest expense due to lower
debt levels in 1998.
FOREIGN EXCHANGE LOSSES
The decrease in foreign exchange losses of $13.4 million was primarily
driven by the higher foreign exchange losses in 1997 in the Czech Republic as
compared to 1998.
INCOME TAX BENEFIT
<TABLE>
<CAPTION>
36 WEEKS ENDED
----------------
9/5/98 9/6/97
------ ------
($ IN MILLIONS)
<S> <C> <C>
Income tax benefit.......................................... $3.7 $4.9
</TABLE>
For both 1998 and 1997, the PepsiCo Bottling Operations' income tax benefit
was low in comparison to the loss before income taxes. This occurred because the
PepsiCo Bottling Operations cannot recognize full tax benefits on the current
losses generated by the Central Europe operations since the realization of the
tax benefit at this time cannot be supported.
CASH FLOWS
PBO was operated and managed as part of a division of PepsiCo and is
expected to have a capital structure different from the capital structure in the
Combined Financial Statements. Therefore the cash flow discussion below may not
be indicative of cash flows of a separate, independent entity nor will it be
indicative of cash flows in future periods.
1997 versus 1996
Cash and cash equivalents in 1997 increased $11.6 million over the prior
year. The increase was due to a decrease in capital expenditures of $51.1
million which was partially offset by reductions in cash inflows from advances
from PepsiCo of $22.4 million and changes in operating working capital of $8.4
million as well as an increase in net debt payments of $6.0 million including
the decrease in short-term borrowings.
The lower capital expenditures in 1997 reflected the discontinuation of
significant investments to build the infrastructure in Central Europe made in
1996 and 1995 which were not continued in 1997.
1996 versus 1995
Cash and cash equivalents increased $4.7 million in 1996 compared to a
decrease of $2.9 million in 1995. This change was due to a favorable swing in
changes in operating working capital of $50.2 million and an increase in cash
inflows from advances from PepsiCo of $32.4 million which was substantially
offset by a cash outflow change in short-term borrowings of $46.7 million,
reflecting net debt payments in 1996 compared to net debt proceeds, and an
increase in capital expenditures of $24.0 million.
The change in operating working capital was due to the decline in sales and
inventory levels in 1996 as compared to 1995 when the Central Europe operations
incurred significant growth. The cash inflows from advances from PepsiCo was
used, in part, to pay down the short-term borrowings which were incurred in 1995
to fund the build up of the infrastructure in Central Europe.
36 Weeks ended September 5, 1998
Cash and cash equivalents for the 36 weeks ended September 5, 1998
decreased $16.2 million compared to an increase of $4.8 million in the
comparable period in 1997. The change was primarily due to a reduction in cash
provided by financing activities of $32.1 million. This reduction was the result
of a decrease in cash inflows of $79.9 million from advances from PepsiCo
partially offset by a decrease in short-term borrowings
65
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 72
and net debt payments of $47.8 million because in the prior year PepsiCo
advanced the PepsiCo Bottling Operations funds to pay down its short-term
borrowings.
MARKET RISK
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the PepsiCo Bottling Operations are
exposed to are:
- commodity prices, affecting the cost of the PepsiCo Bottling Operations'
products;
- interest rates on debt;
- foreign exchange rates, generating translation and transaction gains and
losses.
Commodities
The PepsiCo Bottling Operations are subject to market risk with respect to
commodities because the PepsiCo Bottling Operations' ability to recover
increased costs through higher pricing may be limited by the competitive
environment in which the PepsiCo Bottling Operations operate.
Interest Rates
The PepsiCo Bottling Operations have operated as part of a larger group.
Under the new combined entity, the PepsiCo Bottling Operations are expected to
have a capital structure different from the capital structure in the combined
financial statements and accordingly, the market risks to which the PepsiCo
Bottling Operations are exposed to may not be indicative of those that the
PepsiCo Bottling Operations would have been exposed to as part of the new
combined group or will be exposed to in future periods.
Foreign Exchange
Operating in international markets may involve exposure to volatile
movements in currency exchange rates. The economic impact of currency exchange
rate movements on the PepsiCo Bottling Operations is complex because such
changes are often linked to variability in real growth, inflation, interest
rates, governmental actions and other factors. These changes, if material, can
cause the PepsiCo Bottling Operations to adjust their financing and operating
strategies. Consequently, isolating the effect of changes in currency rates does
not incorporate these other important economic factors.
Central Europe operations constitute all of the PepsiCo Bottling
Operations' 1997 combined operating loss. As currency exchange rates change,
translation of the income statements of the PepsiCo Bottling Operations'
international businesses into U.S. dollars affects year-over-year comparability
of operating results. The PepsiCo Bottling Operations have not hedged such
translation risks because cash flows from international operations have
generally been reinvested locally, nor have the PepsiCo Bottling Operations
entered into hedges to minimize the volatility of reported earnings.
Changes in currency exchange rates that have an impact on translating the
PepsiCo Bottling Operations' international operating loss include the Czech
Republic and Slovakian Koruna, Hungarian Forint, and Polish Zloty. PepsiCo
Bottling Operations estimates that a 10% change in foreign exchange rates would
impact the operating loss by less than $6.0 million. This represents
approximately 10% of the Central Europe operating loss (see Note
14 -- Geographic Data). The PepsiCo Bottling Operations believe that this
quantitative measure has inherent limitations because, as discussed in the first
paragraph of this section, it does not take into account any governmental
actions or changes in either customer purchasing patterns or the PepsiCo
Bottling Operations' financing and operating strategies. The sensitivity
analyses disregard the possibility that rates can move in opposite directions
and that gains from one category may or may not be offset by losses from another
category and vice versa.
Foreign exchange gains and losses reflect transaction gains and losses and
translation gains and losses arising from the remeasurement into U.S. dollars of
the net monetary assets of businesses in highly inflationary countries.
Transaction gains and losses arise from monetary assets and liabilities
denominated in currencies
66
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 73
other than a business unit's functional currency. Net foreign exchange losses
were $14.4 million, $1.9 million and $.6 million in 1997, 1996 and 1995
respectively.
YEAR 2000
The management of the PepsiCo Bottling Operations has established teams to
identify and correct Year 2000 compliance issues. Information technology systems
with non-compliant code are expected to be modified or replaced with systems
that are Year 2000 compliant. Similar actions are being taken with respect to
systems embedded in manufacturing and other facilities. The teams are also
charged with investigating the Year 2000 readiness of suppliers, customers, and
other third parties and with developing contingency plans where necessary.
Key information technology systems have been inventoried and assessed for
compliance, and detailed plans are in place for required system modifications or
replacements. Remediation and testing activities are well underway with
approximately 50% of the systems already compliant. This percentage is expected
to increase to approximately 76% by year-end 1998, to approximately 88% and 98%
by the end of the first and second quarters of 1999, respectively. Inventories
and assessments of systems embedded in manufacturing and other facilities are in
progress and expected to be complete by year-end; remediation began in the
fourth quarter of 1998 with a mid-year 1999 target completion date. Independent
consultants are monitoring progress against remediation programs and performing
testing at certain key locations. In addition, the progress of the programs is
also monitored by senior management and the board of directors.
PepsiCo Bottling Operations' most significant exposure arises from their
dependence on high volume transaction processing systems, particularly for
production scheduling, inventory cost accounting, purchasing, customer billing
and collection, and payroll. Management of the PepsiCo Bottling Operations
anticipates that any corrective actions to these applications will be completed
by the end of the second quarter of 1999.
The management of the PepsiCo Bottling Operations has identified critical
suppliers, customers and other third parties and has begun to survey their Year
2000 remediation programs. Risk assessments and contingency plans, where
necessary, will be finalized in the second quarter of 1999.
Incremental costs directly related to Year 2000 issues are estimated to be
$4.6 million from 1998 to 2000, of which $1.2 million or 26% has been spent as
of September 5, 1998. Approximately 48% of the total estimated spending
represents costs to modify existing systems. This estimate assumes that the
PepsiCo Bottling Operations will not incur significant Year 2000 related costs
on behalf of its suppliers, customers, or other third parties. These costs will
not necessarily increase their normal level of spending on information
technology due to the deferral of other projects to enable them to focus on Year
2000 remediations.
Contingency plans for Year 2000 related interruptions are being developed
and will include, but not be limited to, the development of emergency backup and
recovery procedures, remediation of existing systems parallel with installation
of new systems, replacement of electronic applications with manual processes,
identification of alternate suppliers and an increase in raw material and
finished goods inventory levels. All plans are expected to be completed by the
end of the second quarter in 1999.
The PepsiCo Bottling Operations' most likely potential risk is a temporary
inability of suppliers to provide supplies or raw materials or of customers to
pay on a timely basis.
The PepsiCo Bottling Operations' Year 2000 efforts are ongoing and its
overall plan, as well as the consideration of contingency plans, will continue
to evolve as new information becomes available. While the management of the
PepsiCo Bottling Operations anticipates no major interruption of its business
activities, that will depend in part, on the ability of third parties to be Year
2000 compliant. Although the PepsiCo Bottling Operations have implemented the
actions described above to address third party issues, the PepsiCo Bottling
Operations have no direct ability to ensure compliance action by such parties.
Accordingly, while the PepsiCo Bottling Operations believe their actions in this
regard should have the effect of lessening Year 2000 risks, it is unable to
eliminate such risks or to estimate the ultimate effect of Year 2000 risks on
the PepsiCo Bottling Operations' operating results.
67
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 74
NEW WHITMAN
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited Pro Forma Combined Statements of Operations of New Whitman
for the nine months ended September 1998 and for the year ended December 1997
present the pro forma combined results of operations of New Whitman assuming
that the transactions contemplated by the Agreement had been completed as of the
beginning of 1997, and include all material adjustments necessary to present the
results of New Whitman on a pro forma basis. The adjustments required to reflect
such transactions, in addition to the amounts reflected for franchises
distributed, contributed and acquired, are set forth in the "Pro Forma
Adjustments" column.
The unaudited Pro Forma Combined Condensed Balance Sheet of New Whitman as
of September 1998 presents the pro forma combined financial position of New
Whitman assuming that the transactions contemplated by the Agreement had been
completed as of that date. The adjustments required to reflect such
transactions, in addition to the amounts reflected for franchises distributed,
contributed and acquired, are set forth in the "Pro Forma Adjustments" column.
The unaudited pro forma combined condensed financial statements of New
Whitman should be read in conjunction with the historical financial statements
and related notes of Whitman incorporated by reference and the historical
financial statements and related notes of PepsiCo Bottling Operations included
elsewhere in this Proxy Statement/Prospectus. The pro forma financial
information presented is for informational purposes only and may not necessarily
reflect future results of operations or the financial position of New Whitman or
what the results of operations or financial position of New Whitman would
actually have been had the transactions occurred on the dates noted above.
68
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 75
NEW WHITMAN
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 1998(A)
----------------------------------------------------------------------
FRANCHISE
WHITMAN FRANCHISE TERRITORIES NEW
CORPORATION TERRITORIES CONTRIBUTED PRO FORMA WHITMAN
AS REPORTED DISTRIBUTED AND ACQUIRED ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Sales.............................. $1,235.9 $(62.7) $513.8 $ -- $1,687.0
Cost of goods sold................. 772.0 (43.8) 315.7 -- 1,043.9
-------- ------ ------ ------ --------
Gross profit..................... 463.9 (18.9) 198.1 -- 643.1
Selling, general and administrative
expenses......................... 289.1 (15.9) 174.4 --(B) 447.6
Allocated division and PepsiCo
corporate costs.................. -- -- 12.9 --(B) 12.9
Amortization expense............... 11.8 (1.2) 10.0 10.5(C) 31.1
-------- ------ ------ ------ --------
Operating income................. 163.0 (1.8) 0.8 (10.5) 151.5
Interest expense, net.............. (26.9) 1.3 (1.9) (31.8)(D) (59.3)
Interest expense allocated by
PepsiCo.......................... -- -- (34.0) 34.0(E) --
Other expense, net................. (12.1) 0.6 (0.7) 6.9(F) (5.3)
-------- ------ ------ ------ --------
Income (loss) before income
taxes......................... 124.0 0.1 (35.8) (1.4) 86.9
Income taxes....................... 56.8 (2.5) (3.7) 3.6(G)
8.0(H) 62.2
-------- ------ ------ ------ --------
Income (loss) from continuing
operations before minority
interest...................... 67.2 2.6 (32.1) (13.0) 24.7
Minority interest.................. 16.5 0.5 -- (17.0)(I) --
-------- ------ ------ ------ --------
Income (loss) from continuing
operations....................... $ 50.7 $ 2.1 $(32.1) $ 4.0 $ 24.7
======== ====== ====== ====== ========
WEIGHTED AVERAGE COMMON SHARES:
Basic............................ 101.2 38.0(J)(K) 139.2
Incremental effect of stock
options....................... 1.7 -- 1.7
-------- ------ --------
Diluted.......................... 102.9 38.0 140.9
======== ====== ========
INCOME FROM CONTINUING OPERATIONS
PER COMMON SHARE:
Basic............................ $ 0.50 $ 0.18
Diluted.......................... $ 0.49 $ 0.18
SUPPLEMENTARY DATA:
EBITDA(L)........................ $ 208.6 $ (5.8) $ 44.1 $ 6.9 $ 253.8
Operating cash flow(L)........... $ 220.7 $ (6.4) $ 44.8 $ -- $ 259.1
Depreciation..................... $ 45.9 $ (3.4) $ 34.0 $ -- $ 76.5
</TABLE>
See accompanying notes to pro forma financial information.
69
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 76
NEW WHITMAN
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 1997(A)
----------------------------------------------------------------------
FRANCHISE
WHITMAN FRANCHISE TERRITORIES NEW
CORPORATION TERRITORIES CONTRIBUTED PRO FORMA WHITMAN
AS REPORTED DISTRIBUTED AND ACQUIRED ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Sales.............................. $1,557.5 $(84.8) $703.7 $ -- $2,176.4
Cost of goods sold................. 972.6 (59.1) 430.5 -- 1,344.0
-------- ------ ------ ------ --------
Gross profit..................... 584.9 (25.7) 273.2 -- 832.4
Selling, general and administrative
expenses......................... 389.7 (20.8) 261.1 --(B) 630.0
Allocated division and PepsiCo
corporate costs.................. -- -- 19.8 --(B) 19.8
Amortization expense............... 15.7 (1.6) 14.4 12.9(C) 41.4
Special charges.................... 49.3 -- -- -- 49.3
-------- ------ ------ ------ --------
Operating income (loss).......... 130.2 (3.3) (22.1) (12.9) 91.9
Interest expense, net.............. (42.3) 1.0 (5.1) (39.8)(D) (86.2)
Interest expense allocated by
PepsiCo.......................... -- -- (46.6) 46.6(E) --
Other expense, net................. (18.0) 1.1 (14.4) 9.3(F) (22.0)
-------- ------ ------ ------ --------
Income (loss) before income
taxes......................... 69.9 (1.2) (88.2) 3.2 (16.3)
Income taxes....................... 37.9 (3.2) (7.0) 6.4(G)
11.7(H) 45.8
-------- ------ ------ ------ --------
Income (loss) from continuing
operations before minority
interest...................... 32.0 2.0 (81.2) (14.9) (62.1)
Minority interest.................. 16.2 0.4 -- (16.6)(I) --
-------- ------ ------ ------ --------
Income (loss) from continuing
operations....................... $ 15.8 $ 1.6 $(81.2) $ 1.7 $ (62.1)
======== ====== ====== ====== ========
WEIGHTED AVERAGE COMMON SHARES:
Basic............................ 101.6 38.0(J)(K) 139.6
Incremental effect of stock
options....................... 1.3 -- 1.3
-------- ------ --------
Diluted.......................... 102.9 38.0 140.9
======== ====== ========
INCOME (LOSS) FROM CONTINUING
OPERATIONS PER COMMON SHARE:
Basic............................ $ 0.16 $ (0.44)
Diluted.......................... $ 0.15 $ (0.44)
SUPPLEMENTARY DATA:
EBITDA(L)........................ $ 235.3 $ (7.5) $ 31.4 $ 9.3 $ 268.5
Operating cash flow(L)........... $ 253.3 $ (8.6) $ 45.8 $ -- $ 290.5
Depreciation..................... $ 58.1 $ (3.7) $ 53.5 $ -- $ 107.9
</TABLE>
See accompanying notes to pro forma financial information.
70
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 77
NEW WHITMAN
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 1998(A)
---------------------------------------------------------------------
FRANCHISE
WHITMAN FRANCHISE TERRITORIES NEW
CORPORATION TERRITORIES CONTRIBUTED PRO FORMA WHITMAN
AS REPORTED DISTRIBUTED AND ACQUIRED ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents......... $ 134.1 $ (1.1) $ 7.0 $ (7.0)(J) $ 133.0
Receivables, net.................. 182.5 (10.9) 85.7 -- 257.3
Inventories....................... 75.3 (6.8) 34.1 -- 102.6
Other current assets.............. 46.3 (3.0) 8.2 -- 51.5
-------- ------- ------ ------- --------
Total current assets........... 438.2 (21.8) 135.0 (7.0) 544.4
-------- ------- ------ ------- --------
Investments......................... 155.5 -- -- -- 155.5
Property, net....................... 463.0 (42.4) 267.1 -- 687.7
Goodwill and other intangibles,
net............................... 450.8 (49.8) 408.3 687.8(J) 1,497.1
Other assets........................ 50.5 (1.6) 39.5 -- 88.4
-------- ------- ------ ------- --------
Total assets................... $1,558.0 $(115.6) $849.9 $ 680.8 $2,973.1
======== ======= ====== ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
CURRENT LIABILITIES:
Short-term debt, including current
maturities of long-term debt... $ -- $ -- $ 12.9 $ (12.9)(J) $ --
Accounts and dividends payable.... 142.6 (8.2) 123.2 -- 257.6
Other current liabilities......... 108.9 (3.4) -- -- 105.5
-------- ------- ------ ------- --------
Total current liabilities...... 251.5 (11.6) 136.1 (12.9) 363.1
-------- ------- ------ ------- --------
Long-term debt...................... 597.0 (17.0) -- 342.0(J)
400.0(K) 1,322.0
Deferred income taxes............... 97.0 -- 10.0 -- 107.0
Other liabilities................... 72.4 (0.2) 11.9 -- 84.1
Minority interest................... 231.2 -- -- (231.2)(J) --
Shareholders' equity................ 308.9 (86.8) 691.9 582.9(J)
(400.0)(K) 1,096.9
-------- ------- ------ ------- --------
Total liabilities and
shareholders' equity......... $1,558.0 $(115.6) $849.9 $ 680.8 $2,973.1
======== ======= ====== ======= ========
</TABLE>
See accompanying notes to pro forma financial information.
71
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 78
NEW WHITMAN
NOTES TO PRO FORMA FINANCIAL INFORMATION
(A) Whitman's domestic operations, including domestic franchises to be
distributed, are included in the pro forma financial information on the
basis of a calendar year end, with a third quarter interim period ending
on September 30, 1998. Whitman's international operations, including
international franchises distributed, are on the basis of a fiscal year
ending October 31, with a third quarter interim period ending July 31,
1998. The franchise territories to be contributed and acquired have a
fiscal year ending on the last Saturday in December and a third quarter
interim period ending on the thirty-sixth Saturday of the year, September
5, 1998. The respective year ends and interim periods have been combined
for the accompanying pro forma presentation.
Certain amounts presented in the financial information of the franchise
territories to be contributed and acquired may be classified in a manner
that differs from the manner in which such amounts have been classified
in Whitman's historical financial statements. Such classification
differences would not change pretax income (loss) or net income (loss).
(B) Adjustments have not been made to give effect to the potential reduction
in administrative expenses that may be realized by New Whitman due to
facility consolidations and other cost savings initiatives. The amount of
such potential savings is not estimable for the pro forma periods
presented.
(C) To adjust amortization expense due to the increase in goodwill and other
intangibles resulting from the Merger, using a forty-year amortization
period.
(D) To record interest expense on net debt to be assumed or incurred by New
Whitman. The borrowings are assumed to bear an annualized interest rate of
6.0%, which is Whitman's estimate of the currently available rate for
borrowings. This rate may change prior to the incurrence of such debt on
or before the Merger Date.
A change in the annualized interest rate of 1/8 of a percentage point
would have the effect of changing interest expense and income (loss)
before income before taxes by $0.9 million and $0.7 million for the year
ended December, 1997 and nine months ended September, 1998, respectively.
In addition, income (loss) from continuing operations would change by $0.5
million and $0.4 million for the year ended December, 1997 and nine months
ended September, 1998, respectively.
(E) To eliminate the intercompany interest expense charged by PepsiCo to the
franchise territories to be contributed and acquired.
(F) To eliminate a corporate charge paid by PGB to PepsiCo.
(G) To record income tax benefits, net, attributable to adjustments (D), (E)
and (F) at a combined Federal and state tax rate of 40%.
(H) To adjust the income taxes related to the franchise territories to be
contributed and acquired assuming these entities were included in the
consolidated tax returns of New Whitman. The adjustment principally
reflects no tax benefits being assumed for goodwill amortization and
foreign net operating losses.
(I) To eliminate the minority interest recorded at Whitman, representing
PepsiCo's 20% interest in PGB.
(J) To reflect the transactions contemplated by the Merger, which include:
(i) the issuance of 54 million common shares of New Whitman to PepsiCo,
valued at $22 per share or $1,188.0 million,
(ii) additional debt to be assumed by New Whitman in the Merger totaling
approximately $262 million, and $25.0 million for estimated
transaction costs. Debt currently outstanding in territories to be
contributed and acquired will be paid off prior to closing, using,
in part, existing
72
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 79
NEW WHITMAN
NOTES TO PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
cash balances, except for Russia, where debt up to a maximum of $20
million will be assumed by PepsiCo,
(iii) the addition and elimination of the historical equity of the
franchise territories to be distributed, contributed and acquired,
respectively,
(iv) the elimination of PepsiCo's 20% minority interest in PGB, and
(v) the allocation of the excess of the total consideration over the
fair value of the assets and liabilities to goodwill and other
intangibles. New Whitman plans to have appraisals performed on the
properties to be contributed and acquired after the Merger is
completed, which may result in adjustments of certain asset
balances, including, but not limited to, property and goodwill and
other intangibles, as well as certain liability balances. The amount
of such adjustments cannot be estimated at this time.
The consideration to be paid to PepsiCo in the Merger is subject to
adjustments based on changes in the working capital accounts of the
distributed, contributed and acquired franchise territories prior to the
completion of the Merger, in accordance with the Contribution and Merger
Agreement. However, such adjustments are not expected to be significant.
(K) To reflect the repurchase of 16 million shares of New Whitman Common
Stock, pursuant to the Contribution and Merger Agreement, and the issuance
of debt to finance the repurchase. The total value of the shares to be
repurchased will not exceed $400.0 million.
The pro forma adjustment assumes an average share price of $25.00 per
share. A reduction in the share price of $1.00 per share would have the
following incremental effects:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER, 1998 DECEMBER, 1998
----------------- --------------
(IN MILLIONS)
<S> <C> <C>
Income (loss) before taxes....................... $0.7 $1.0
Income (loss) from continuing operations......... $0.4 $0.6
</TABLE>
(L) EBITDA is defined as income (loss) before income taxes, excluding special
charges, plus the sum of interest, depreciation and amortization.
Operating cash flow is defined as operating income, excluding special
charges, plus depreciation and amortization. Information concerning EBITDA
and operating cash flow has been included because they are expected to be
used by certain investors as measures of the operating performance and
measures of the ability to service potential debt. EBITDA and operating
cash flow are not required under Generally Accepted Accounting Principles
(GAAP). They should not be considered alternatives to income (loss) from
continuing operations or any other measure of performance required by
GAAP. They also should not be used as measures of cash flow or liquidity
under GAAP.
73
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 80
NEW WHITMAN -- PRELIMINARY 1998 FISCAL YEAR PRO FORMA RESULTS
(UNAUDITED)
The following selected pro forma financial information for the 1998 fiscal
year is based upon preliminary, unaudited results of operations of Whitman and
the contributed and acquired operations of PBO. The pro forma combined amounts
include adjustments necessary to reflect the transactions approved in the
Agreement (including the disposition of certain operations included in Whitman's
historical results), as if such transactions occurred and were completed at the
beginning of 1998. See Notes to Pro Forma Financial Information on pages 72-73
for letter references to pro forma adjustments. These pro forma results are not
necessarily indicative of the future results of the combined entities.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 1998
--------------------------------------------------------------------
FRANCHISE
WHITMAN FRANCHISE TERRITORIES NEW
CORPORATION TERRITORIES CONTRIBUTED PRO FORMA WHITMAN
AS REPORTED DISTRIBUTED AND ACQUIRED ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales................................... $1,635.0 $(77.5) $722.1 $ -- $2,279.6
Cost of goods sold...................... 1,024.5 (52.6) 440.2 -- 1,412.1
-------- ------ ------ ----- --------
Gross profit.......................... 610.5 (24.9) 281.9 -- 867.5
Selling, general and administrative
expenses.............................. 391.1 (21.7) 249.7 --(B) 619.1
Allocated division and PepsiCo corporate
costs................................. -- -- 19.7 --(B) 19.7
Amortization expense.................... 15.6 (1.6) 14.4 12.2(C) 40.6
-------- ------ ------ ----- --------
Operating income (loss)................. 203.8 (1.6) (1.9) (12.2) 188.1
Interest expense, net................... (36.1) 1.8 (4.8) (39.4)(D) (78.5)
Interest expense allocated by PepsiCo... -- -- (46.1) 46.1(E) --
Other expense, net...................... (15.5) 2.3 (0.8) 9.2(F) (4.8)
-------- ------ ------ ----- --------
Income (loss) before income taxes..... 152.2 2.5 (53.6) 3.7 104.8
Income taxes............................ 69.7 (3.5) (4.3) 6.4(G) 68.3
-------- ------ ------ ----- --------
Income (loss) from continuing
operations before minority
interest............................ 82.5 6.0 (49.3) (2.7) 36.5
Minority interest....................... 20.0 1.2 -- (21.2)(I) --
-------- ------ ------ ----- --------
Income (loss) from continuing
operations............................ $ 62.5 $ 4.8 $(49.3) $18.5 $ 36.5
======== ====== ====== ===== ========
WEIGHTED AVERAGE COMMON SHARES:
Basic................................. 101.1 38.0(J)(K) 139.1
Incremental effect of stock options... 1.8 -- 1.8
-------- ----- --------
Diluted............................... 102.9 38.0 140.9
======== ===== ========
INCOME FROM CONTINUING OPERATIONS PER
COMMON SHARE:
Basic................................. $ 0.62 $ 0.26
Diluted............................... $ 0.61 $ 0.26
SUPPLEMENTARY DATA:
Depreciation.......................... $ 62.1 $ (4.4) $ 50.6 $ 6.0 $ 114.3
Operating cash flow(L)................ $ 281.5 $ (7.6) $ 63.1 $ 6.0 $ 343.0
EBITDA(L)............................. $ 266.0 $ (5.3) $ 62.3 $15.2 $ 338.2
</TABLE>
74
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 81
EXPERTS
The consolidated financial statements of Whitman and subsidiaries as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein and upon the
authority of said firm as experts in accounting and auditing.
The audited financial statements of the PepsiCo Bottling Operations, as of
December 27, 1997 and December 28, 1996 and for each of the years in the
three-year period ended December 27, 1997 have been included herein and in the
Registration Statement have been audited by KPMG LLP, independent auditors, as
indicated in their report with respect thereto, and are included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
Representatives of KPMG LLP will be present at the special meeting with the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
LEGAL MATTERS
The validity of the New Whitman common stock to be issued by New Whitman
pursuant to the Transactions will be passed upon by . Certain tax
matters will be passed upon by Wachtell, Lipton, Rosen & Katz.
SHAREHOLDER PROPOSALS
Any Whitman shareholder who wishes to submit a proposal for presentation to
Whitman's 1999 Annual Meeting of Shareholders (which will only be held if the
merger has not been consummated prior to the date the meeting is to be held)
must submit the proposal to Whitman Corporation, 3501 Algonquin Road, Rolling
Meadows, Illinois 60008, Attention: Secretary. Whitman's by-laws establish
advance notice procedures as to (1) business to be brought before an annual
meeting of shareholders other than by or at the direction of the board of
directors, and (2) the nomination, other than by or at the direction of the
board of directors, of candidates for election as directors. Any shareholder who
wishes to submit a proposal to be acted upon at next year's annual meeting or
who proposes to nominate a candidate for election as a director must comply with
such procedures.
Such proposal must have been received by Whitman not later than November
20, 1998 to be included, if appropriate, in Whitman's proxy statement and form
of proxy relating to its 1999 Annual Meeting.
WHERE YOU CAN FIND MORE INFORMATION
Whitman is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, files reports and other information with the
Commission. Reports, proxy statements and other information filed by Whitman can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Whitman's filings with the
Commission are also available to the public from commercial document retrieval
services and at the Website maintained by the Commission at
"http://www.sec.gov." Whitman common stock is listed on the NYSE and such
reports, proxy statements and other information concerning Whitman may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Information about Whitman may also be obtained from Whitman's Website at
"http://www.WhitmanCorp.com."
75
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 82
Merger Sub has filed with the Commission a Registration Statement under the
Securities Act with respect to New Whitman common stock which may be issued to
holders of Whitman common stock, of which Registration Statement this Proxy
Statement/Prospectus constitutes a part. The information contained herein with
respect to Whitman and its affiliates has been provided by Whitman and the
information contained herein with respect to Merger Sub, the Contributed
Operations and PepsiCo has been provided by PepsiCo. The unaudited pro forma
combined condensed financial statements have been prepared by Whitman's
management using historical financial information relating to the Contributed
Operations provided by PepsiCo. See "New Whitman Unaudited Pro Forma Combined
Condensed Financial Information." This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which were omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
This Proxy Statement/Prospectus incorporates documents by reference with
respect to Whitman that are not presented herein or delivered herewith. These
documents (excluding exhibits thereto, unless such exhibits are specifically
incorporated by reference into such documents) are available without charge upon
written or oral request to:
Whitman Corporation
3501 Algonquin Road
Rolling Meadows, Illinois 60008
Attn: Investor Relations
Tel: (847) 818-5000
Whitman will send the requested documents by first-class mail within one
business day of the receipt of the request. In order to ensure timely delivery
of the documents, any request should be made by .
The following documents previously filed by Whitman with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this Proxy
Statement/Prospectus and shall be deemed to be a part hereof:
1. Whitman's Annual Report on Form 10-K, for the year ended December 31,
1997.
2. Whitman's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998.
3. Whitman's Current Reports on Form 8-K dated .
4. Whitman's Proxy Statement dated March 20, 1998, in connection with its
Annual Meeting of Shareholders held on April 30, 1998.
All documents subsequently filed by Whitman pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing thereof. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
76
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 83
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
A&M..................................... 62
Acquiring Person........................ 49
Acquisition Proposal.................... 29
Agreement............................... 11
Allied Brands Fountain Agreement........ 42
Allied Brands Master Bottling
Agreement............................. 42
Assumed Debt............................ 13
Beneficial Owner........................ 38
Bottler Comparables..................... 20
Central Europe.......................... 61
Closing Working Capital Amount.......... 36
Code.................................... 32
Cola Beverages.......................... 42
Concentrate Comparables................. 20
Confidentiality Agreement............... 30
Contributed Operations.................. 13
CSFB.................................... 16
CSFB Opinion............................ 17
DCF..................................... 20
Demand Registration..................... 48
Discounted Net Receivables Amount....... 36
Distribution Date....................... 49
EBITDA.................................. 20
Exchange Act............................ 27
Fountain Agreements..................... 42
FTC..................................... 24
GAAP.................................... 8
G&A..................................... 62
HSR Act................................. 24
Independent Director.................... 38
Insured Liabilities..................... 32
International Agreements................ 42
IRS..................................... 50
Losses.................................. 33
Master Bottling Agreement............... 42
Maximum Ownership Percentage............ 38
Merger Consideration.................... 14
Minimum Price........................... 38
Merger Sub.............................. 11
Net Receivables Amount.................. 36
New Whitman............................. 13
New Whitman Acquired Businesses......... 13
New Whitman Statement................... 36
Notice of Disagreement.................. 35
PBG..................................... 20
PBO..................................... 13
P/E..................................... 20
Pepsi Beverage Agreements............... 42
PepsiCo................................. 13
PepsiCo Acquired Businesses............. 13
PepsiCo Bottling Operations............. 13
Pepsi Fountain Agreement................ 42
Pepsi General........................... 13
PepsiCo Statement....................... 36
PepsiCo Subsidiaries.................... 26
PepsiCo Transferred Individuals......... 47
PepsiCo Transfers Closing............... 47
Permitted Acquisition................... 38
Permitted Significant Transferee........ 39
Piggy-Back Registration................. 48
Pre-Closing Tax Period.................. 34
Projected Working Capital Amount........ 37
Registration Rights Agreement........... 48
Registration Statement.................. 27
Rights.................................. 14
Rights Agreement........................ 14
S&D..................................... 62
SD&A.................................... 62
Securities Act.......................... 27
Shareholder Agreement................... 14
Shareholder Group....................... 38
Shareholder Offer....................... 39
Shares.................................. 48
Significant Transferee.................. 39
Superior Proposal....................... 28
Synergies............................... 19
Takeover Proposal....................... 28
Tax Opinion............................. 50
Transactions............................ 13
Transferred Individuals................. 46
United States........................... 61
Whitman Acquisition Agreement........... 29
Whitman Rights Agreement................ 27
Whitman Transferred Individuals......... 47
Whitman Transfers Closing............... 47
Working Capital Amount.................. 36
</TABLE>
77
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 84
PEPSICO BOTTLING OPERATIONS
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
COMBINED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Combined Statements of Operations --
Fiscal years ended December 27, 1997, December 28, 1996
and December 30, 1995..................................... F-3
Combined Statements of Cash Flows --
Fiscal years ended December 27, 1997, December 28, 1996
and December 30, 1995..................................... F-4
Combined Balance Sheets --
December 27, 1997 and December 28, 1996................... F-5
Combined Statements of Shareholder's Equity and Accumulated
Other Comprehensive Loss --
Fiscal years ended December 27, 1997, December 28, 1996
and December 30, 1995..................................... F-6
Notes to Combined Financial Statements...................... F-7
CONDENSED COMBINED FINANCIAL STATEMENTS
Condensed Combined Statements of Operations --
Thirty-six weeks ended September 5, 1998 and September 6,
1997 (unaudited).......................................... F-17
Condensed Combined Statements of Cash Flows --
Thirty-six weeks ended September 5, 1998 and September 6,
1997 (unaudited).......................................... F-18
Condensed Combined Balance Sheets --
September 5, 1998 (unaudited)and December 27, 1997........ F-19
Notes to Condensed Combined Financial Statements
(unaudited)............................................... F-20
</TABLE>
F-1
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 85
PEPSICO BOTTLING OPERATIONS
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders of
PepsiCo, Inc.:
We have audited the accompanying combined balance sheets of PepsiCo
Bottling Operations ("PBO") as of December 27, 1997 and December 28, 1996 and
the related combined statements of operations, cash flows and shareholder's
equity and accumulated other comprehensive loss for each of the years in the
three-year period ended December 27, 1997. These combined financial statements
are the responsibility of PBO's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of PBO as of December
27, 1997 and December 28, 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 27, 1997, in
conformity with generally accepted accounting principles.
KPMG LLP
New York, New York
January 22, 1999
F-2
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 86
PEPSICO BOTTLING OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996
AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
NET SALES
United States............................................. $517.4 $507.0 $498.6
Central Europe............................................ 186.3 219.5 235.2
------ ------ ------
703.7 726.5 733.8
------ ------ ------
COST OF SALES
United States............................................. 304.2 300.2 296.9
Central Europe............................................ 126.3 148.7 159.6
------ ------ ------
430.5 448.9 456.5
------ ------ ------
GROSS PROFIT................................................ 273.2 277.6 277.3
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES
United States............................................. 170.9 169.9 162.6
Central Europe............................................ 104.6 126.8 100.2
Allocated division and PepsiCo corporate costs............ 19.8 18.8 17.3
------ ------ ------
295.3 315.5 280.1
------ ------ ------
OPERATING LOSS.............................................. (22.1) (37.9) (2.8)
OTHER EXPENSE
Interest expense:
External............................................... 5.1 7.7 14.5
PepsiCo allocation..................................... 46.6 48.1 48.4
------ ------ ------
51.7 55.8 62.9
Foreign exchange losses................................... 14.4 1.9 0.6
------ ------ ------
Total other expense............................... 66.1 57.7 63.5
------ ------ ------
LOSS BEFORE INCOME TAXES.................................... (88.2) (95.6) (66.3)
Income tax benefit........................................ 7.0 9.3 9.3
------ ------ ------
NET LOSS.................................................... $(81.2) $(86.3) $(57.0)
====== ====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-3
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 87
PEPSICO BOTTLING OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996
AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS -- OPERATIONS
Net loss.................................................... $(81.2) $ (86.3) $(57.0)
Adjustments to reconcile net loss to net cash (used)
provided by operating activities:
Depreciation.............................................. 53.5 55.9 48.4
Amortization.............................................. 14.4 14.6 14.7
Deferred income taxes..................................... (7.0) (9.3) (9.3)
Other noncash charges and credits, net.................... 5.4 -- (0.1)
Equity in (income) loss of affiliate...................... (4.9) 9.4 1.9
Changes in operating working capital:
Trade accounts receivable, net......................... 5.6 8.9 (18.5)
Inventories............................................ 5.6 10.4 (14.2)
Prepaid expenses and other current assets.............. 0.5 5.8 (11.1)
Accounts payable and other current liabilities......... 7.7 8.3 18.2
Trade accounts payable to PepsiCo...................... (0.5) (6.1) 2.7
------ ------- ------
Net change in operating working capital................... 18.9 27.3 (22.9)
------ ------- ------
NET CASH (USED BY) PROVIDED BY OPERATIONS................... (0.9) 11.6 (24.3)
------ ------- ------
CASH FLOWS -- INVESTING ACTIVITIES
Capital expenditures........................................ (57.6) (108.7) (84.7)
Investments in and advances to affiliates................... (1.4) (7.9) (4.1)
Proceeds from sales of property, plant, & equipment......... 6.3 9.8 2.1
Other, net.................................................. (0.6) 4.4 1.2
------ ------- ------
NET CASH USED BY INVESTING ACTIVITIES....................... (53.3) (102.4) (85.5)
------ ------- ------
CASH FLOWS -- FINANCING ACTIVITIES
Short-term borrowings -- three months or less, net.......... (22.9) (30.8) 15.9
Proceeds from issuance of long-term debt.................... -- 4.0 --
Payments on long-term debt.................................. (10.5) (0.6) (0.1)
Advances from PepsiCo....................................... 101.0 123.4 91.0
------ ------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 67.6 96.0 106.8
------ ------- ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (1.8) (0.5) 0.1
------ ------- ------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........ 11.6 4.7 (2.9)
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR.............. 11.6 6.9 9.8
------ ------- ------
CASH AND CASH EQUIVALENTS -- END OF YEAR.................... $ 23.2 $ 11.6 $ 6.9
====== ======= ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-4
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 88
PEPSICO BOTTLING OPERATIONS
COMBINED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 23.2 $ 11.6
Trade accounts receivable, less allowance of $4.7 and $5.3
in 1997 and 1996, respectively............................ 70.0 77.0
Inventories................................................. 29.5 36.1
Prepaid expenses and other current assets................... 6.6 7.4
------ ------
TOTAL CURRENT ASSETS.............................. 129.3 132.1
Property, plant and equipment, net.......................... 271.3 321.7
Intangible assets, net...................................... 418.7 434.3
Other assets................................................ 37.8 29.7
------ ------
TOTAL ASSETS...................................... $857.1 $917.8
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities.............. $122.6 $128.7
Short-term borrowings....................................... 15.6 51.5
Trade accounts payable to PepsiCo........................... 2.3 2.8
------ ------
TOTAL CURRENT LIABILITIES......................... 140.5 183.0
Other liabilities........................................... 11.6 14.3
Deferred income taxes....................................... 13.8 20.7
------ ------
TOTAL LIABILITIES................................. 165.9 218.0
------ ------
SHAREHOLDER'S EQUITY
Advances from PepsiCo....................................... 746.8 739.6
Accumulated other comprehensive loss........................ (55.6) (39.8)
------ ------
TOTAL SHAREHOLDER'S EQUITY........................ 691.2 699.8
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY........ $857.1 $917.8
====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-5
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 89
PEPSICO BOTTLING OPERATIONS
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
AND ACCUMULATED OTHER COMPREHENSIVE LOSS
FISCAL YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996
AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
ACCUMULATED
TOTAL OTHER
SHAREHOLDER'S ADVANCES COMPREHENSIVE
EQUITY FROM PEPSICO LOSS
------------- ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994......................... $661.3 $671.1 $ (9.8)
Comprehensive loss:
Net loss........................................... (57.0) (57.0)
Currency translation adjustment.................... (16.8) (16.8)
------
Total comprehensive loss............................. (73.8)
------
Net advances from PepsiCo............................ 89.1 89.1
------ ------ ------
BALANCE AT DECEMBER 30, 1995......................... $676.6 $703.2 $(26.6)
Comprehensive loss:
Net loss........................................... (86.3) (86.3)
Currency translation adjustment.................... (13.2) (13.2)
------
Total comprehensive loss............................. (99.5)
------
Net advances from PepsiCo............................ 122.7 122.7
------ ------ ------
BALANCE AT DECEMBER 28, 1996......................... $699.8 $739.6 $(39.8)
Comprehensive loss:
Net loss........................................... (81.2) (81.2)
Currency translation adjustment.................... (15.8) (15.8)
------
Total comprehensive loss............................. (97.0)
------
Net advances from PepsiCo............................ 88.4 88.4
------ ------ ------
BALANCE AT DECEMBER 27, 1997......................... $691.2 $746.8 $(55.6)
====== ====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-6
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 90
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN MILLIONS)
NOTE 1 -- BUSINESS DESCRIPTION
The accompanying financial statements reflect the combined results of
operations, cash flows and net assets of certain direct and indirect
wholly-owned bottling operations of PepsiCo, Inc. ("PepsiCo"). These bottling
operations (herein referred to as "PepsiCo Bottling Operations" or PBO) present
the carved-out operating results and financial position of PepsiCo's bottling
operations predominantly located in the midwestern part of the United States
(the Heartland) and in certain countries in Central Europe: the Czech Republic,
Slovakia, Poland and Hungary. The financial information in these financial
statements is not necessarily indicative of results that would have been
obtained if PBO had been a separate stand-alone entity.
PBO produces and distributes Pepsi, Diet Pepsi, Mountain Dew and other
brands of carbonated soft drinks and other non-alcoholic beverages.
Approximately 88% of PBO's 1997 net sales were derived from the distribution of
PepsiCo products.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of Combined Financial Statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Presentation
The accompanying Combined Financial Statements include the results of
operations and assets and liabilities directly related to PBO operations. All
intercompany amounts and transactions have been eliminated in combination.
PBO was allocated $19.8 million, $18.8 million and $17.3 million of
overhead costs related to divisional headquarters and PepsiCo corporate
administrative functions in 1997, 1996 and 1995, respectively. The allocations
were based on the specific identification of administrative costs where
practicable and, to the extent that specific identification was not practicable,
based upon PBO's sales volume as a percentage of PepsiCo's related total sales
volume. Such allocated costs are included in selling, delivery and
administrative expenses in the Combined Statements of Operations. Management
believes that such allocation methodology is reasonable. The expenses allocated
to PBO for these services are not necessarily indicative of the expenses that
would have been incurred if PBO had been a separate stand-alone entity.
PBO's operations have been financed through its operating cash flows and
advances from PepsiCo. PBO's interest expense includes an allocation of
PepsiCo's interest expense based on PepsiCo's weighted average interest rate
applied to the average balance of advances from PepsiCo to PBO. PBO was
allocated $46.6 million, $48.1 million and $48.4 million of interest expense
reflecting PepsiCo's average interest rates of 6.2%, 6.2% and 6.6% in 1997, 1996
and 1995, respectively. The interest expense is not necessarily indicative of
interest costs that would have been incurred if PBO had been a separate
independent entity.
Deferred taxes result from temporary differences between the financial
bases and tax bases of PBO's assets and liabilities. Deferred tax assets and
liabilities are adjusted for changes in tax rates and tax laws in the period
that such changes are enacted. Gross potential deferred tax assets are reduced
by a valuation allowance to the extent that it is not "more likely than not"
that such deferred tax assets will be realized.
Historically, PBO results have been included in the consolidated income tax
returns of PepsiCo. PepsiCo manages its tax position on a consolidated basis
which takes into account the results of all of its businesses and global tax
strategies. The income taxes in the Combined Financial Statements are computed
as if PBO had
F-7
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 91
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
actually filed separate tax returns and as such, do not include the tax benefits
that may have been recognized by PepsiCo by utilizing global tax strategies.
Income taxes payable or receivable and allocations from PepsiCo of
corporate overhead and interest costs have been deemed to have been paid by PBO
to PepsiCo, in cash, in the period in which the cost was incurred or the income
taxes were recorded. Cash paid for external interest was $5.1 million, $7.7
million and $14.5 million, for 1997, 1996 and 1995 respectively. There were no
cash payments made for income taxes in 1997, 1996 and 1995.
Fiscal Year
PBO's fiscal year ends on the last Saturday in December and, as a result, a
fifty-third week is added every five or six years. The fiscal years ending 1997,
1996 and 1995 each consisted of fifty-two weeks.
Advertising and Marketing Costs
PBO is involved in a variety of programs to promote its products.
Advertising and marketing costs included in selling, delivery and administrative
expenses in the Combined Statements of Operations are charged ratably in
relation to sales over the year in which incurred. Advertising and Marketing
costs were $32.5 million, $38.9 million and $35.4 million, in 1997, 1996 and
1995, respectively.
Bottler Incentives
PepsiCo and other brand owners, at their sole discretion, provide PBO with
various forms of marketing support. This marketing support is intended to cover
a variety of programs and initiatives, including direct marketplace support,
capital equipment funding and shared media and advertising support. Based on the
objectives of the programs and initiatives, marketing support is recorded as an
adjustment to net sales or a reduction of selling, delivery and administrative
expenses. There are no conditions or other requirements which could result in a
repayment of marketing support received.
Stock-Based Employee Compensation
PBO measures stock-based compensation cost in accordance with Accounting
Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees",
and its related interpretations. PepsiCo's policy is to grant stock options at
fair market value at the date of grant.
Derivative Financial Instruments
PBO did not utilize any derivative financial instruments during 1997, 1996
and 1995.
Cash Equivalents
Cash equivalents represent funds temporarily invested with original
maturities not exceeding three months.
Inventories
Inventories are valued at the lower of cost (computed on the first-in,
first-out method) or net realizable value.
F-8
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 92
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment ("PP&E") is stated at cost. Depreciation is
calculated on a straight-line basis over the estimated useful lives of the
assets as follows: 20 to 33 years for buildings and improvements and 3 to 10
years for machinery and equipment.
Intangible Assets
Intangible assets, which are primarily franchise rights and goodwill are
amortized on a straight-line basis over a period of no more than 40 years.
Recoverability of Long-Lived Assets
PBO reviews all long-lived assets, including intangible assets, annually or
when facts and circumstances indicate that the carrying value of the asset may
not be recoverable.
An impaired asset is written down to its estimated fair value based on the
best information available. Estimated fair value is generally based on either
appraised value or measured by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such estimates.
Foreign Currency Transactions
Foreign exchange losses reflect transaction and translation gains and
losses arising from the re-measurement into U.S. dollars of the net monetary
assets of businesses in highly inflationary countries.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for the reporting and display of net
income and other gains and losses affecting shareholders' equity that are
excluded from net income. The only components of other comprehensive loss are
net loss and the foreign currency translation component of shareholder's equity.
These financial statements reflect the adoption of SFAS 130. Other items of
comprehensive income or loss are reported in the Combined Statements of
Shareholder's Equity and Accumulated Other Comprehensive Loss.
In June 1997, the FASB issued Statement of Financial Accounting Standard
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for reporting information about
operating segments and related disclosures about products and services,
geographic areas and major customers. SFAS 131 requires that the definition of
operating segments align with the measurements used internally to assess
performance. SFAS 131 is a disclosure standard and its adoption will not impact
PBO's financial condition or results of operations. Management believes that the
adoption of SFAS 131 will not have a significant impact on its Combined
Financial Statements.
In June 1998, the FASB issued Statement of Financial Accounting Standard
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. PBO is currently assessing the effects of adopting
SFAS 133, and has not yet made a determination of the impact of its financial
position or results of operations. SFAS 133 will be effective for PBO's first
quarter of fiscal year 2000.
F-9
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 93
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVENTORIES
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Raw materials and supplies.................................. $14.3 $18.0
Finished goods.............................................. 15.2 18.1
----- -----
$29.5 $36.1
===== =====
</TABLE>
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land........................................................ $ 7.6 $ 7.4
Buildings and improvements.................................. 82.5 85.2
Machinery and equipment..................................... 371.6 388.7
Other....................................................... 4.8 9.7
------- -------
466.5 491.0
Accumulated depreciation.................................... (195.2) (169.3)
------- -------
$ 271.3 $ 321.7
======= =======
</TABLE>
NOTE 5 -- INTANGIBLE ASSETS, NET
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Franchise rights and other identifiable intangibles......... $ 384.4 $ 385.5
Goodwill.................................................... 161.8 161.9
------- -------
546.2 547.4
Accumulated amortization.................................... (127.5) (113.1)
------- -------
$ 418.7 $ 434.3
======= =======
</TABLE>
Identifiable intangible assets principally arise from the allocation of the
purchase price of businesses acquired and consist primarily of territorial
franchise rights. Amounts assigned to such identifiable intangibles were based
on independent appraisals or internal estimates. Goodwill represents the
residual purchase price after allocation to all identifiable net assets.
NOTE 6 -- ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Accounts payable............................................ $ 25.2 $ 28.6
Income taxes................................................ 34.0 34.0
Accrued compensation and benefits........................... 15.0 16.0
Accrued advertising......................................... 19.0 14.0
Other current liabilities................................... 29.4 36.1
------ ------
$122.6 $128.7
====== ======
</TABLE>
F-10
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 94
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- SHORT-TERM BORROWINGS
Short-term borrowings on the Combined Balance Sheets primarily represent
loans from financial institutions and bank overdrafts. Interest rates on these
borrowings ranged from 4.0% to 24.3% in 1997 and between 3.8% and 24.0% in 1996.
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Short-term borrowings....................................... $15.6 $44.0
Current portion of long-term debt........................... -- 7.5
----- -----
$15.6 $51.5
===== =====
</TABLE>
NOTE 8 -- PENSION PLANS
U.S. employees of PBO participate in PepsiCo sponsored noncontributory
defined benefit pension plans which cover substantially all full-time salaried
employees, as well as certain hourly employees. Benefits generally are based on
years of service and compensation or stated amounts for each year of service.
All plans but one are funded and contributions are made in amounts not less than
minimum statutory funding requirements nor more than the maximum amount that can
be deducted for U.S. income tax purposes.
Net periodic U.S. pension expense allocated from PepsiCo's plans to PBO was
$1.0 million in 1997, 1996 and 1995. There are no defined benefit pension plans
for PBO's foreign operations.
NOTE 9 -- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Foreign Exchange Risk
As currency exchange rates change, translation of the statements of
operations of our international business into U.S. dollars affects
year-over-year comparability. PBO has not historically hedged translation risks
because cash flows from international operations have generally been reinvested
locally, nor historically has PBO entered into hedges to minimize the volatility
of reported earnings.
Fair Value of Financial Instruments
The carrying amount of PBO's financial instruments approximates fair value
due to the short maturity of PBO's financial instruments and since interest
rates approximate fair value for long-term debt. PBO does not use any financial
instruments for trading or speculative purposes.
NOTE 10 -- EMPLOYEE STOCK OPTION PLANS
The amounts presented below represent options granted under PepsiCo
employee stock option plans. The pro forma amounts below are not necessarily
representative of the effects of stock-based awards on future pro forma net
income because (1) future grants of employee stock options to PBO management may
not be comparable to awards made to employees while PBO was a part of PepsiCo,
and (2) the assumptions used to compute the fair value of any stock option
awards may not be comparable to the PepsiCo assumptions used.
PBO employees were granted stock options under PepsiCo's three long-term
incentive plans -- the SharePower Stock Option Plan ("SharePower"), the
Long-Term Incentive Plan ("LTIP"), and the Stock Option Incentive Plan ("SOIP").
Prior to 1997, SharePower options were granted annually to essentially all
full-time employees. SharePower options generally become exercisable ratably
over 5 years from the grant date and must be exercised within 10 years from the
grant date. There were no SharePower options granted in 1997. The
F-11
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 95
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SharePower options granted in 1998 generally become exercisable in 3 years from
the grant date and must be exercised within 10 years from the grant date.
Most LTIP options were granted every other year to senior management
employees. Most of these options become exercisable after 4 years and must be
exercised within 10 years from the grant date. In addition, the LTIP allows for
grants of performance share units ("PSUs"). The maximum value of a PSU is fixed
at the value of a share of PepsiCo stock at the grant date and vests 4 years
from the grant date. Payment of PSUs are made in cash and/or stock and the
payment amount is determined based on the attainment of prescribed performance
goals. Amounts expensed for PSUs for PBO employees were not material.
SOIP options are granted to middle-management employees and, prior to 1997,
were granted annually. SOIP options are exercisable after one year and must be
exercised within 10 years after their grant date.
Stock option activity:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
(OPTIONS IN THOUSANDS) ------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 2,220 $20.35 2,298 $17.91 2,304 $16.89
Granted..................... -- -- 331 33.31 337 22.33
Exercised................... (340) 16.16 (271) 15.11 (176) 14.09
Forfeited................... (141) 24.21 (138) 21.12 (167) 16.96
PepsiCo
modification(a)........ 133 -- -- -- -- --
----- ------ ----- ------ ----- ------
Outstanding at end of year.... 1,872 $19.39 2,220 $20.35 2,298 $17.91
===== ====== ===== ====== ===== ======
Exercisable at end of year.... 1,180 $16.85 1,089 $15.99 957 $14.64
===== ====== ===== ====== ===== ======
Weighted average fair value of
options granted during the
year........................ $ -- $ 8.90 $ 5.57
====== ====== ======
</TABLE>
Stock options outstanding at December 27, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
WEIGHTED AVG.
RANGE OF REMAINING WEIGHTED AVG. WEIGHTED AVG.
EXERCISE PRICE OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
-------------- ------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$8.17 to $17.57 1,135 4.91 years $14.61 916 $14.45
$17.58 to $32.98 737 7.97 $26.69 264 $25.26
----- -----
1,872 6.12 $19.39 1,180 $16.85
===== =====
</TABLE>
- - - ---------------
(a) In 1997, PepsiCo spun off its restaurant businesses to its shareholders.
Immediately following this spin-off, the number of options exercisable for
PepsiCo capital stock was increased and their exercise prices were decreased
to preserve the economic value of those options that existed just prior to
the spin-off for the holders of PepsiCo stock options.
PBO adopted the disclosure provisions of Statement of Financial Accounting
Standards 123 "Accounting for Stock-Based Compensation," ("SFAS 123") but
continues to measure stock-based compensation cost in accordance with APB
Opinion No. 25 and its related interpretations. If PBO had measured compensation
cost for the PepsiCo stock options granted to its employees in 1997, 1996 and
1995 under the fair value based
F-12
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 96
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
method prescribed by SFAS 123, the net loss would have been changed to the pro
forma amounts set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net loss:
Reported............................................... $(81.2) $(86.3) $(57.0)
Pro forma.............................................. $(82.4) $(86.8) $(57.2)
</TABLE>
The fair value of PepsiCo stock options granted to PBO employees used to
compute pro forma net income disclosures were estimated on the date of grant
using the Black-Scholes option-pricing model based on the following weighted
average assumptions used by PepsiCo:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate................................. 5.8% 6.0% 6.2%
Expected life........................................... 3 years 6 years 5 years
Expected volatility..................................... 20% 20% 20%
Expected dividend yield................................. 1.32% 1.5% 1.75%
</TABLE>
NOTE 11 -- INCOME TAXES
The details of the income tax benefit are set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Current:
Federal................................................. $ -- $ -- $ --
Foreign................................................. -- -- --
State................................................... -- -- --
----- ----- -----
$ -- $ -- $ --
===== ===== =====
Deferred:
Federal................................................. $(6.3) $(8.3) $(7.1)
Foreign................................................. -- -- (1.3)
State................................................... (0.7) (1.0) (0.9)
----- ----- -----
$(7.0) $(9.3) $(9.3)
===== ===== =====
</TABLE>
U.S. and foreign loss before income taxes are set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
U.S...................................................... $(17.7) $(23.4) $(19.7)
Foreign.................................................. (70.5) (72.2) (46.6)
------ ------ ------
Total.................................................... $(88.2) $(95.6) $(66.3)
====== ====== ======
</TABLE>
F-13
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 97
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax benefit calculated at the U.S. Federal
statutory rate to PBO's effective tax benefit rate is set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Income tax benefit computed at the U.S Federal statutory
rate...................................................... 35.0% 35.0% 35.0%
State income tax, net of federal tax benefit................ 0.5 0.7 0.8
Effect of foreign tax rate differences...................... (5.6) (5.6) 0.7
Valuation allowance -- foreign.............................. (18.3) (15.3) (18.6)
Nondeductible amortization of a portion of U.S. intangible
assets.................................................... (1.7) (1.6) (2.4)
Nondeductible expenses...................................... (2.0) (3.4) (1.5)
----- ----- -----
Effective income tax benefit rate........................... 7.9% 9.8% 14.0%
===== ===== =====
</TABLE>
Deferred tax liabilities and assets are attributable to temporary
differences between the financial statement bases and tax bases of certain
assets and liabilities and to net operating loss carryforwards, as set forth
below:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Intangible assets and property, plant and equipment......... $106.5 $95.1
Other....................................................... 2.8 3.7
------ -----
Gross deferred tax liabilities.............................. 109.3 98.8
------ -----
Net operating loss carryforwards............................ 153.9 124.0
Allowance for doubtful accounts............................. 1.1 0.9
Various liabilities and other............................... 7.0 3.0
------ -----
Gross deferred tax assets................................... 162.0 127.9
Deferred tax asset valuation allowance...................... (65.3) (48.9)
------ -----
Net deferred tax assets..................................... 96.7 79.0
------ -----
Net deferred income liability............................... $ 12.6 $19.8
====== =====
Portion recorded in:
Prepaid expenses and other current assets................. $ (1.2) $(0.9)
Deferred income taxes..................................... 13.8 20.7
------ -----
$ 12.6 $19.8
====== =====
</TABLE>
The valuation allowance related to deferred tax assets increased by $16.4
million in 1997 primarily due to additions related to current year operating
losses and temporary differences in a number of foreign and state jurisdictions.
Net operating loss carryforwards totaling $89.4 million at year-end 1997
are available to reduce future taxes and are related to a number of foreign
jurisdictions. These carryforwards expire at various times between 1999 and
2004.
NOTE 12 -- TRANSACTIONS WITH PEPSICO
PBO is a licensed producer and distributor of carbonated soft drinks and
other non-alcoholic beverages on behalf of PepsiCo. In addition, PBO has the
following relationships with PepsiCo.
PBO purchases concentrate from PepsiCo to be used in the production of
carbonated soft drinks and other non-alcoholic beverages.
F-14
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 98
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PepsiCo and PBO share a business objective of increasing availability and
consumption of PepsiCo's brands. Accordingly, PepsiCo provides PBO with various
forms of marketing support to promote PepsiCo's brands. This support covers a
variety of initiatives, including market place support, marketing programs,
capital equipment investment and shared media expense. PepsiCo and PBO each
record their share of the cost of marketing programs in their financial
statements. Based on the objective of the programs and initiatives, marketing
support is recorded as an adjustment to net sales or a reduction of selling,
delivery and administrative expense. There are no conditions or requirements
which could result in the repayment of any support payments received by PBO.
PBO manufactures and distributes fountain products and provides fountain
equipment service to PepsiCo customers in certain territories in accordance with
the Master Bottler Agreement. There are other products which PBO produces and/or
distributes through various arrangements with PepsiCo or partners of PepsiCo.
PBO purchases finished goods and concentrate from the Lipton Tea Partnership and
finished goods from the North American Coffee Partnership. PBO pays a royalty
fee to PepsiCo for the use of the Aquafina trademark.
PepsiCo provides certain administrative support to PBO, including
collection of trade receivables, development and maintenance of information
systems, and insurance coverage.
The Combined Statements of Operations include the following income and
(expense) transactions with PepsiCo.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net sales................................................ $ 13.6 $ 13.4 $ 13.1
Cost of goods sold....................................... $(66.3) $(50.0) $(81.0)
Selling, delivery and administrative expenses............ $ 50.9 $ 49.5 $ 41.0
</TABLE>
NOTE 13 -- CONTINGENCIES
PBO is subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. Management believes that the ultimate liability, if any, in excess of
amounts already recognized arising from such claims or contingencies is not
likely to have a material adverse effect on PBO's annual results of operations
or financial condition.
F-15
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 99
PEPSICO BOTTLING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- GEOGRAPHIC DATA
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
United States.......................................... $619.6 $628.5 $643.7
Central Europe......................................... 237.5 289.3 287.5
------ ------ ------
$857.1 $917.8 $931.2
====== ====== ======
NET SALES:
United States.......................................... $517.4 $507.0 $498.6
Central Europe......................................... 186.3 219.5 235.2
------ ------ ------
$703.7 $726.5 $733.8
====== ====== ======
NET LOSS:
Operating profit (loss):
United States.......................................... $ 42.3 $ 36.9 $ 39.1
Central Europe......................................... (44.6) (56.0) (24.6)
United States allocated overhead....................... (13.4) (12.2) (10.4)
Central Europe allocated overhead...................... (6.4) (6.6) (6.9)
------ ------ ------
(22.1) (37.9) (2.8)
External interest expense -- Central Europe.............. (5.1) (7.7) (14.5)
Foreign exchange losses.................................. (14.4) (1.9) (0.6)
Interest expense allocated from PepsiCo.................. (46.6) (48.1) (48.4)
Income tax benefit....................................... 7.0 9.3 9.3
------ ------ ------
Net loss................................................. $(81.2) $(86.3) $(57.0)
====== ====== ======
</TABLE>
PBO operates in a single industry segment and does not have any significant
export sales from the United States. Other assets on the Combined Balance Sheets
include a $34.6 million, $28.3 million and $29.8 million investment in a Polish
joint venture at December 27, 1997, December 28, 1996, and December 30, 1995,
respectively. PBO's equity income or loss in such joint venture was $4.9 million
equity income in 1997 and $9.4 million and $1.9 million equity loss in 1996 and
1995, respectively.
NOTE 15 -- SUBSEQUENT EVENTS (UNAUDITED)
On January 25, 1999, the Board of Directors of Whitman Corporation
("Whitman") approved an agreement in which PepsiCo will consolidate certain of
its bottling territories and other assets with Whitman's existing bottling
businesses to create a new bottling company referred to as "New Whitman."
PepsiCo will transfer to the new company a number of bottling operations,
including territories in Illinois, Indiana, Missouri and Ohio in the United
States as well as in the Czech Republic, Slovakia, Hungary and Poland. PepsiCo
also will transfer to the new company the 20% stake it currently holds in
Whitman's Pepsi-Cola General Bottlers subsidiary. Whitman will transfer to
PepsiCo operations in: Marion, Virginia; Princeton, West Virginia and St.
Petersburg, Russia.
New Whitman will assume liabilities associated with PepsiCo's U.S.
operations and will acquire PepsiCo's international operations for cash,
resulting in net proceeds to PepsiCo of $300 million. In addition, PepsiCo will
receive 54 million shares of common stock in New Whitman, giving PepsiCo
immediate ownership of approximately 35% of New Whitman.
The merger transaction is subject to the approval of the shareholders of
Whitman.
F-16
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 100
PEPSICO BOTTLING OPERATIONS
CONDENSED COMBINED STATEMENTS OF OPERATIONS
THIRTY-SIX WEEKS ENDED SEPTEMBER 5, 1998 AND SEPTEMBER 6, 1997
<TABLE>
<CAPTION>
36 WEEKS ENDED
----------------------------
SEPTEMBER 5, SEPTEMBER 6,
1998 1997
------------ ------------
(IN MILLIONS, UNAUDITED)
<S> <C> <C>
NET SALES
United States............................................. $384.9 $366.0
Central Europe............................................ 128.9 136.5
------ ------
513.8 502.5
------ ------
COST OF SALES
United States............................................. 230.7 217.2
Central Europe............................................ 85.0 90.1
------ ------
315.7 307.3
------ ------
GROSS PROFIT................................................ 198.1 195.2
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES
United States............................................. 121.0 119.1
Central Europe............................................ 63.4 73.7
Allocated division and PepsiCo corporate costs............ 12.9 13.7
------ ------
197.3 206.5
------ ------
OPERATING INCOME (LOSS)..................................... 0.8 (11.3)
OTHER EXPENSE
Interest expense:
External............................................... 1.9 3.7
PepsiCo allocation..................................... 34.0 32.3
------ ------
35.9 36.0
------ ------
Foreign exchange losses................................... 0.7 14.1
------ ------
Total other expense............................... 36.6 50.1
------ ------
LOSS BEFORE INCOME TAXES.................................... (35.8) (61.4)
Income tax benefit........................................ 3.7 4.9
------ ------
NET LOSS.................................................... $(32.1) $(56.5)
====== ======
</TABLE>
See accompanying Notes to unaudited Condensed Combined Financial Statements.
F-17
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<PAGE> 101
PEPSICO BOTTLING OPERATIONS
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
THIRTY-SIX WEEKS ENDED SEPTEMBER 5, 1998 AND SEPTEMBER 6, 1997
<TABLE>
<CAPTION>
36 WEEKS ENDED
----------------------------
SEPTEMBER 5, SEPTEMBER 6,
1998 1997
------------ ------------
(IN MILLIONS, UNAUDITED)
<S> <C> <C>
CASH FLOWS -- OPERATIONS
Net loss.................................................... $(32.1) $(56.5)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation.............................................. 34.0 36.2
Amortization.............................................. 10.0 10.0
Deferred income taxes..................................... (3.7) (4.9)
Equity in income of affiliate............................. (2.4) (2.4)
Other noncash charges and credits, net.................... (0.4) 3.2
Changes in operating working capital:
Trade accounts receivable, net......................... (14.5) (18.7)
Inventories............................................ (4.7) 4.9
Prepaid expenses and other current assets.............. 0.1 1.0
Accounts payable and other current liabilities......... (8.3) 4.9
Trade accounts payable to PepsiCo...................... (2.3) 0.7
------ ------
Net change in operating working capital................... (29.7) (7.2)
------ ------
NET CASH USED BY OPERATIONS................................. (24.3) (21.6)
------ ------
CASH FLOWS -- INVESTING ACTIVITIES
Capital expenditures........................................ (38.0) (43.7)
Investments in and advances to affiliates................... -- (1.5)
Proceeds from sales of property, plant and equipment........ 6.2 1.4
Other, net.................................................. (1.1) (0.5)
------ ------
NET CASH USED BY INVESTING ACTIVITIES....................... (32.9) (44.3)
------ ------
CASH FLOWS -- FINANCING ACTIVITIES
Short-term borrowings -- three months or less, net.......... (1.7) (42.0)
Payments on long-term debt.................................. -- (7.5)
Advances from PepsiCo....................................... 42.3 122.2
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 40.6 72.7
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 0.4 (2.0)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........ (16.2) 4.8
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR.............. 23.2 11.6
------ ------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 7.0 $ 16.4
====== ======
</TABLE>
See accompanying Notes to unaudited Condensed Combined Financial Statements.
F-18
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<PAGE> 102
PEPSICO BOTTLING OPERATIONS
CONDENSED COMBINED BALANCE SHEETS
SEPTEMBER 5, 1998 AND DECEMBER 27, 1997
<TABLE>
<CAPTION>
SEPTEMBER 5,
1998 DECEMBER 27,
(UNAUDITED) 1997
------------ ------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 7.0 $ 23.2
Trade accounts receivable, less allowance of $5.0 and $4.7
in 1998 and 1997, respectively............................ 85.7 70.0
Inventories................................................. 34.1 29.5
Prepaid expenses and other current assets................... 8.2 6.6
------ ------
TOTAL CURRENT ASSETS.............................. 135.0 129.3
Property, plant and equipment, net.......................... 267.1 271.3
Intangible assets, net...................................... 408.3 418.7
Other assets................................................ 39.5 37.8
------ ------
TOTAL ASSETS...................................... $849.9 $857.1
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities.............. $123.2 $122.6
Short-term borrowings....................................... 12.9 15.6
Trade accounts payable to PepsiCo........................... -- 2.3
------ ------
TOTAL CURRENT LIABILITIES......................... 136.1 140.5
Other liabilities........................................... 11.9 11.6
Deferred income taxes....................................... 10.0 13.8
------ ------
TOTAL LIABILITIES................................. 158.0 165.9
------ ------
SHAREHOLDER'S EQUITY
Advances from PepsiCo....................................... 750.3 746.8
Accumulated other comprehensive loss........................ (58.4) (55.6)
------ ------
TOTAL SHAREHOLDER'S EQUITY........................ 691.9 691.2
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY........ $849.9 $857.1
====== ======
</TABLE>
See accompanying Notes to unaudited Condensed Combined Financial Statements
F-19
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<PAGE> 103
PEPSICO BOTTLING OPERATIONS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN MILLIONS, UNAUDITED)
THIRTY-SIX WEEKS ENDED SEPTEMBER 5, 1998 AND SEPTEMBER 6, 1997
NOTE 1 -- BASIS OF PRESENTATION
The condensed Combined Balance Sheet at September 5, 1998 and the Condensed
Combined Statements of Operations and Cash Flows for the thirty-six weeks ended
September 5, 1998 and September 6, 1997 have not been audited, but have been
prepared in conformity with the accounting principles applied in the PBO audited
Combined Financial Statements for the year ended December 27, 1997. In the
opinion of management, this information includes all material adjustments
necessary for a fair presentation. The results for the thirty-six weeks are not
necessarily indicative of the results expected for the year.
NOTE 2 -- INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 5,
1998
------------
<S> <C>
Raw materials and supplies.................................. $15.2
Finished goods.............................................. 18.9
-----
$34.1
=====
</TABLE>
NOTE 3 -- OTHER COMPREHENSIVE LOSS
Total other comprehensive loss was $34.9 million for the thirty-six weeks
ended September 5, 1998.
NOTE 4 -- SUBSEQUENT EVENTS (UNAUDITED)
On January 25, 1999, the Board of Directors of Whitman Corporation
("Whitman") approved an agreement in which PepsiCo will consolidate certain of
its bottling territories and other assets with Whitman's existing bottling
business to create a new bottling company referred to as "New Whitman." PepsiCo
will transfer to the new company a number of bottling operations, including
territories in Illinois, Indiana, Missouri and Ohio in the United States as well
as in the Czech Republic, the Slovak Republic, Hungary and Poland. PepsiCo also
will transfer to the new company the 20% stake it currently holds in Whitman's
Pepsi-Cola General Bottlers subsidiary. Whitman will transfer to PepsiCo
operations in: Marion, Virginia; Princeton, West Virginia and St. Petersburg,
Russia.
Whitman will assume liabilities associated with PepsiCo's U.S. operations
and will acquire PepsiCo's international operations for cash, resulting in net
proceeds to PepsiCo of $300 million. In addition, PepsiCo will receive 54
million shares of common stock in Whitman, giving PepsiCo immediate ownership of
approximately 35% of the company.
The merger transaction is subject to the approval of the shareholders of
Whitman.
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<PAGE> 104
APPENDIX A
CONTRIBUTION AND MERGER AGREEMENT
DATED AS OF JANUARY 25, 1999
AMONG
WHITMAN CORPORATION,
PEPSICO, INC.,
AND
HEARTLAND TERRITORIES HOLDINGS, INC.
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 105
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
THE CLOSING
SECTION 1.01. Closing..................................................... 2
SECTION 1.02. Certain Definitions......................................... 3
ARTICLE II
THE CONTRIBUTION
SECTION 2.01. Contribution................................................ 3
SECTION 2.02. Assumption of Certain Liabilities........................... 3
SECTION 2.03. Termination of Certain Intercompany Agreements.............. 4
ARTICLE III
THE MERGER; EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 3.01. The Merger.................................................. 4
SECTION 3.02. Effective Time.............................................. 4
SECTION 3.03. Effects..................................................... 4
SECTION 3.04. Certificate of Incorporation and By-laws.................... 4
SECTION 3.05. Directors and Officers of the Surviving Corporation......... 5
SECTION 3.06. Effect on Capital Stock..................................... 5
(a) Capital Stock of Merger Sub............................. 5
(b) Cancelation of Merger Sub-Owned Stock; Conversion of
Treasury Stock............................................ 5
(c) Conversion of Whitman Common Stock...................... 5
(d) Conversion of Whitman Stock Options..................... 5
ARTICLE IV
PURCHASE AND SALE FOLLOWING THE EFFECTIVE TIME
SECTION 4.01. Whitman Transfers........................................... 6
SECTION 4.02. PepsiCo Transfers........................................... 7
SECTION 4.03. Purchases Net of Indebtedness............................... 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties of Whitman................... 8
(a) Organization, Standing and Corporate Power............. 8
(b) Subsidiaries........................................... 8
(c) Capital Structure...................................... 9
(d) Authority; Noncontravention............................ 9
(e) SEC Documents; Financial Statements; Undisclosed
Liabilities............................................ 10
(f) Information Supplied................................... 11
(g) Absence of Certain Changes or Events................... 12
(h) Litigation............................................. 12
(i) Changes in Benefit Plans.............................. 12
</TABLE>
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<PAGE> 106
<TABLE>
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<S> <C> <C>
(j) ERISA Compliance....................................... 13
(k) Taxes.................................................. 14
(l) No Excess Parachute Payments........................... 14
(m) Compliance With Applicable Laws; Permits............... 14
(n) Contracts.............................................. 15
(o) Title to Properties.................................... 15
(p) Voting Requirements.................................... 15
(q) State Takeover Statutes................................ 15
(r) Brokers................................................ 16
(s) Opinion of Financial Advisor........................... 16
(t) Whitman Rights Agreement............................... 16
(u) Nature of Purchase..................................... 16
(v) Sufficiency of Assets.................................. 16
(w) Year 2000 Compliance................................... 16
SECTION 5.02. Representations and Warranties of PepsiCo and Merger Sub.... 17
(a) Organization, Standing and Corporate Power............. 17
(b) PepsiCo Subsidiaries................................... 17
(c) Authority; Noncontravention............................ 17
(d) Financial Statements; Undisclosed Liabilities.......... 18
(e) Information Supplied................................... 19
(f) Absence of Certain Changes or Events................... 19
(g) Litigation............................................. 19
(h) Changes in PepsiCo Benefit Plans....................... 19
(i) ERISA Compliance....................................... 20
(j) Taxes.................................................. 21
(k) No Excess Parachute Payments........................... 21
(l) Compliance With Applicable Laws; Permits............... 21
(m) Contracts.............................................. 22
(n) Title to Properties.................................... 23
(o) Nature of Purchase..................................... 23
(p) Sufficiency of Assets.................................. 23
(q) Brokers................................................ 23
(r) Year 2000 Compliance................................... 23
ARTICLE VI
COVENANTS RELATING TO BUSINESS
SECTION 6.01. Alternative Transactions.................................... 24
SECTION 6.02. Interim Operations of Whitman............................... 24
SECTION 6.03. Interim Operations of PepsiCo Subsidiaries.................. 26
SECTION 6.04. Advice of Changes........................................... 27
SECTION 6.05. Other Actions............................................... 27
ARTICLE VII
ADDITIONAL COVENANTS
SECTION 7.01. Preparation of Form S-4 and the Proxy Statement/Prospectus;
Whitman Stockholders Meeting.............................. 28
SECTION 7.02. Listing Application......................................... 28
</TABLE>
A-ii
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<PAGE> 107
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 7.03. Access to Information; Confidentiality...................... 28
SECTION 7.04. Reasonable Efforts.......................................... 29
SECTION 7.05. Affiliates.................................................. 29
SECTION 7.06. Whitman Stock Options; Whitman Stock Plans; Certain Employee
Matters................................................... 30
SECTION 7.07. Fees and Expenses........................................... 30
SECTION 7.08. Rights Agreement............................................ 31
SECTION 7.09. PGB Stockholders' Agreement................................. 31
SECTION 7.10. Public Announcements........................................ 31
SECTION 7.11. Further Assurances.......................................... 31
SECTION 7.12. Post-Closing Cooperation.................................... 32
SECTION 7.13. Merger Sub Rights Agreement................................. 32
SECTION 7.14. Merger Sub Share Repurchase................................. 32
SECTION 7.15. St. Petersburgco Indebtedness............................... 33
SECTION 7.16. Services Agreements......................................... 33
SECTION 7.17. Section 16b-3............................................... 33
SECTION 7.18. Insured Claims.............................................. 33
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.01. Conditions Precedent........................................ 34
(a) Stockholder Approval.................................... 34
(b) HSR Act................................................. 34
(c) No Injunctions or Restraints............................ 34
(d) NYSE Listing............................................ 34
(e) Form S-4................................................ 34
SECTION 8.02. Conditions to Obligations of PepsiCo and Merger Sub......... 35
(a) Representations and Warranties.......................... 35
(b) Performance of Obligations.............................. 35
(c) Tax Opinion............................................. 35
SECTION 8.03. Conditions to Obligations of Whitman........................ 35
(a) Representations and Warranties.......................... 35
(b) Performance of Obligations.............................. 35
(c) Tax Opinion............................................. 35
(d) Contribution............................................ 35
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination................................................. 36
SECTION 9.02. Effect of Termination....................................... 36
SECTION 9.03. Amendment................................................... 36
SECTION 9.04. Extension; Waiver........................................... 37
</TABLE>
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<PAGE> 108
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnification............................................. 37
(a) Indemnification by Merger Sub and PGB.................. 37
(b) Indemnification by PepsiCo............................. 37
(c) Losses Net of Insurance, Taxes, etc. .................. 38
(d) Procedures Relating to Indemnification................. 38
(e) Termination of Indemnification......................... 39
ARTICLE XI
TAX INDEMNIFICATION; CERTAIN OTHER TAX MATTERS
SECTION 11.01. Tax Indemnification......................................... 40
(a) Tax Indemnification by Merger Sub and PGB.............. 40
(b) Tax Indemnification by PepsiCo......................... 40
(c) Tax Returns and Cooperations........................... 40
(d) Coordination with Article X............................ 41
SECTION 11.02. Certain Other Tax Matters................................... 41
(a) Termination of Tax Sharing Agreements.................. 41
(b) FIRPTA Affidavit....................................... 41
(c) FIRPTA Affidavit....................................... 41
ARTICLE XII
WORKING CAPITAL ADJUSTMENTS
SECTION 12.01. Working Capital Adjustments................................. 41
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.01. Survival of Representations and Warranties.................. 43
SECTION 13.02. Notices..................................................... 43
SECTION 13.03. Assignment.................................................. 44
SECTION 13.04. Severability................................................ 44
SECTION 13.05. Entire Agreement; No Third-Party Beneficiaries.............. 44
SECTION 13.06. Interpretation.............................................. 44
SECTION 13.07. Governing Law............................................... 45
SECTION 13.08. Enforcement................................................. 45
SECTION 13.09. Counterparts................................................ 45
SECTION 13.10. Headings.................................................... 45
</TABLE>
A-iv
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 109
CONTRIBUTION AND MERGER AGREEMENT (this "Agreement") dated as of
January 25, 1999, among Whitman Corporation, a Delaware corporation
("Whitman"), PepsiCo, Inc., a North Carolina corporation ("PepsiCo") and
Heartland Territories Holdings, Inc., a Delaware corporation and a wholly
owned subsidiary of PepsiCo ("Merger Sub").
RECITALS
WHEREAS the respective Boards of Directors of PepsiCo, Merger Sub and
Whitman have approved and found advisable this Agreement and the merger of
Whitman with and into Merger Sub (the "Merger"), upon the terms and subject to
the conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, without par value, of Whitman ("Whitman Common Stock"),
other than shares owned by Merger Sub, will be converted into the Merger
Consideration;
WHEREAS, prior to consummation of the Merger, upon the terms and subject to
the conditions of this Agreement, PepsiCo shall cause each of Pepsi-Cola
Operating Company of St. Louis, Inc., a Missouri corporation and a wholly owned
subsidiary of PepsiCo ("St. Louis Sub"), Pepsi-Cola Bottling Company of Ohio,
Inc., a Delaware corporation and a wholly owned subsidiary of PepsiCo ("Ohio
Sub"), Pepsi-Cola Operating Company of Chesapeake and Indianapolis, Inc., a
Delaware corporation and a wholly owned subsidiary of PepsiCo ("Opco Sub"), and
Pepsi-Cola Metropolitan Bottling Company, Inc., a New Jersey corporation and a
wholly owned subsidiary of PepsiCo ("Metro Sub"), to assign, transfer, convey
and contribute certain assets and liabilities to Merger Sub in exchange for the
issuance by Merger Sub of shares of common stock, par value $0.01 per share, of
Merger Sub ("Merger Sub Common Stock") and the assumption by Merger Sub of such
liabilities (collectively, the "Contribution");
WHEREAS, upon consummation of the Merger, the name of Merger Sub shall be
changed to Whitman Corporation;
WHEREAS, immediately following consummation of the Merger, Merger Sub shall
contribute to Pepsi-Cola General Bottlers, Inc., currently a majority owned
subsidiary of Whitman ("PGB"), all of the operating assets and liabilities
received by Merger Sub in the Contribution;
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Whitman shall sell all of the issued and outstanding shares of capital stock
(and certain related assets) of certain domestic and foreign Subsidiaries of
Whitman to PepsiCo (or its designee) in exchange for an aggregate purchase price
of $137,800,000 (collectively, the "Whitman Transfers");
WHEREAS, immediately following consummation of the Merger, subject to the
terms and conditions of this Agreement, PepsiCo shall sell all of the issued and
outstanding shares of capital stock of certain foreign Subsidiaries owned by
PepsiCo and certain assets of certain domestic Subsidiaries of PepsiCo to PGB in
exchange for an aggregate purchase price of $176,000,000 (collectively, the
"PepsiCo Transfers");
WHEREAS, upon the Closing, PepsiCo and Merger Sub will enter into a
Shareholder Agreement (the "Shareholder Agreement") substantially in the form of
Annex IV hereto;
WHEREAS, upon the Closing, PepsiCo and Merger Sub will enter into a Master
Bottling Agreement (the "Master Bottling Agreement") substantially in the form
of Exhibit A hereto;
WHEREAS, upon the Closing, PepsiCo and Merger Sub will enter into a Master
Fountain Syrup Agreement (the "Master Fountain Syrup Agreement") substantially
in the form of Exhibit B hereto;
WHEREAS, upon the Closing, PepsiCo and Merger Sub will enter into an
International Master Bottling Agreement (the "International Master Bottling
Agreement", and together with the Master Bottling Agreement and the Master
Fountain Syrup Agreement, the "New Pepsi-Cola Bottling Agreements")
substantially in the form of Exhibit C hereto;
WHEREAS, upon the Closing, PepsiCo and Merger Sub will enter into Allied
Brand Agreements in accordance with Schedule I hereto (the "New Allied Brand
Agreements");
A-1
PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 110
WHEREAS, upon the Closing, PepsiCo, Whitman, Merger Sub and one or more
other bottlers licensed by PepsiCo will enter into one or more Transition
Services Agreements (the "Services Agreements") in connection with the
Transactions;
WHEREAS, upon the Closing, PepsiCo and Merger Sub will enter into a
Registration Rights Agreement (the "Registration Rights Agreement"),
substantially in the form of Exhibit D hereto, with respect to the shares of
Merger Sub Common Stock to be issued to the Contributing PepsiCo Subsidiaries
(or their respective designees) in connection with the Contribution;
WHEREAS, upon the Closing, PepsiCo and Merger Sub will enter into an
Employee Benefits Agreement (the "Employee Benefits Agreement") substantially in
the form of Exhibit E-1 hereto and, upon consummation of the Whitman Transfers
(prior to or upon the Closing), PepsiCo (or its designee) and Whitman will enter
into an Employee Benefits Agreement relating to the Whitman Transfers (the
"Whitman Transfers Employee Benefits Agreement") substantially in the form of
Exhibit E-2 hereto;
WHEREAS, for Federal income tax purposes, the parties hereto intend that
(i) the Contribution, and the Contribution and Merger collectively, will qualify
as an exchange under the provisions of Section 351 of the United States Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) the Merger will qualify
as a reorganization under Section 368(a) of the Code; and
WHEREAS the parties desire to make certain representations, warranties,
covenants and agreements in connection with the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the mutual promises set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
ARTICLE I
THE CLOSING
SECTION 1.01. Closing. (a) The closing (the "Closing") of the Merger
shall take place at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue,
New York, New York 10019 at 10:00 a.m. on the second business day following the
satisfaction (or, to the extent permitted by law, waiver by all parties) of the
conditions set forth in Article VIII (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions), or at such other place, time and date as shall be
agreed in writing between the parties hereto. The date on which the Closing
occurs is referred to in this Agreement as the "Closing Date".
(b) Upon the Closing, subject to the terms and conditions of this
Agreement:
(i) Whitman shall, and shall cause its Subsidiaries and affiliates to,
terminate the Whitman Intercompany Agreements, and such Agreements shall
thereafter have no force or effect; provided, however, that Whitman shall,
and shall cause its Subsidiaries and affiliates to, terminate the Whitman
Intercompany Agreements relating to the PepsiCo Acquired Businesses upon
consummation of the Whitman Transfers if such Transfers are consummated
prior to the Closing in accordance with Section 4.01(b), and such
Agreements shall thereafter have no force or effect;
(ii) PepsiCo shall, and shall cause its Subsidiaries and affiliates
to, terminate the PepsiCo Intercompany Agreements relating to the PGB
Acquired Businesses, and such Agreements shall thereafter have no force or
effect;
(iii) PepsiCo and Whitman shall, and shall cause their respective
Subsidiaries and affiliates to, terminate the Old Bottling Agreements;
(iv) PepsiCo and Merger Sub shall execute and deliver the New
Pepsi-Cola Bottling Agreements and the New Allied Brand Agreements;
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PRELIMINARY PROXY STATEMENT -- SUBJECT TO COMPLETION
<PAGE> 111
(v) PepsiCo and Merger Sub shall execute and deliver the Shareholder
Agreement, the Services Agreements (provided that, if the Whitman Transfers
are consummated prior to the Closing, the Services Agreement relating to
the Whitman Transfers shall be executed and delivered by the parties
thereto upon such consummation), the Registration Rights Agreement, the
Employee Benefits Agreement and the Whitman Transfers Employee Benefits
Agreement (provided that, if the Whitman Transfers are consummated prior to
the Closing, the Whitman Transfers Employee Benefits Agreement shall be
executed and delivered by the parties thereto upon such consummation);
(vi) PepsiCo and Whitman shall cause the Merger to be effected as
provided in Section 3.01;
(vii) immediately following consummation of the Merger, PepsiCo and
PGB shall, and Merger Sub shall cause PGB to, effect the PepsiCo Transfers;
and
(viii) PepsiCo and Merger Sub shall effect the Whitman Transfers if
such Transfers have not previously been consummated.
SECTION 1.02. Certain Definitions. Capitalized terms used but not defined
herein shall have the meanings set forth in Annex I attached hereto.
ARTICLE II
THE CONTRIBUTION
SECTION 2.01. Contribution. (a) Prior to the Closing, subject to
subparagraph (b) below:
(i) PepsiCo shall cause St. Louis Sub to assign, transfer, convey and
contribute to Merger Sub, and Merger Sub shall acquire from St. Louis Sub,
all the right, title and interest of St. Louis Sub in, to and under the St.
Louis Sub Bottling Business, free and clear of all Liens, other than
Permitted Liens;
(ii) PepsiCo shall cause Ohio Sub to assign, transfer, convey and
contribute to Merger Sub, and Merger Sub shall acquire from Ohio Sub, all
the right, title and interest of Ohio Sub in, to and under the Ohio Sub
Bottling Business, free and clear of all Liens, other than Permitted Liens;
(iii) PepsiCo shall cause Opco Sub to assign, transfer, convey and
contribute to Merger Sub, and Merger Sub shall acquire from Opco Sub, all
the right, title and interest of Opco Sub in, to and under the Opco Sub
Bottling Business, free and clear of all Liens, other than Permitted Liens;
and
(iv) PepsiCo shall cause Metro Sub to assign, transfer, convey and
contribute to Merger Sub, and Merger Sub shall acquire from Metro Sub, all
the right, title and interest of Metro Sub in, to and under the PGB Shares,
free and clear of all Liens.
(b) Prior to the Closing, in exchange for the St. Louis Sub Bottling
Business, the Ohio Sub Bottling Business, the Opco Sub Bottling Business and the
PGB Shares to be acquired by Merger Sub pursuant to subparagraph (a) above,
Merger Sub shall (i) issue to the Contributing PepsiCo Subsidiaries (or their
respective designees) an aggregate of 53,999,500 shares of Merger Sub Common
Stock and (ii) assume the Merger Sub Assumed Liabilities relating to the St.
Louis Sub Bottling Business, the Ohio Sub Bottling Business, the Opco Sub
Bottling Business and the Contributed Intercompany Indebtedness; provided,
however, that PepsiCo shall provide written notice to Whitman no later than
seven days prior to the Closing of the allocation of such shares among the
Contributing PepsiCo Subsidiaries (or their respective designees).
SECTION 2.02. Assumption of Certain Liabilities. Merger Sub shall assume,
effective as of the consummation of the Contribution, and from and after the
consummation of the Contribution, Merger Sub shall pay, perform and discharge
when due, all liabilities and obligations of any nature, or claims of such
liability or obligation, whether matured or unmatured, liquidated or
unliquidated, fixed or contingent, known or unknown ("Liabilities") arising out
of or relating to (in each case at any time prior to, on or after the
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consummation of the Contribution) the Merger Sub Acquired Businesses, other than
the Excluded Liabilities (the "Merger Sub Assumed Liabilities"), including the
following:
(i) all Liabilities arising out of or related to the operation of the
Merger Sub Acquired Businesses arising at any time prior to, on or after
the consummation of the Contribution, including all Liabilities to the
extent arising out of or relating to the manufacture, distribution or sale
of any products or services of the Merger Sub Acquired Businesses at any
time prior to, on or after the consummation of the Contribution;
(ii) all Liabilities under the Assigned Contracts relating to the
Merger Sub Acquired Businesses which arise at any time prior to, on or
after the consummation of the Contribution;
(iii) all Liabilities to the extent, and as of the date, set forth in
the Employee Benefits Agreement;
(iv) any Taxes (other than United States Federal, state and local, or
foreign income or franchise taxes for any period, or portion thereof,
ending on or prior to the Closing Date and Taxes described in Section
7.07(a)(3)) imposed on the Merger Sub Acquired Businesses relating to any
period, or any portion thereof, starting at any time prior to, on or after
the Closing Date; and
(v) intercompany indebtedness of PepsiCo and the Contributing PepsiCo
Subsidiaries to the extent set forth on Schedule 2.02(v) of the PepsiCo
Disclosure Schedule (the "Contributed Intercompany Indebtedness").
SECTION 2.03. Termination of Certain Intercompany Agreements. PepsiCo
shall, and shall cause its Subsidiaries and affiliates to, terminate the PepsiCo
Intercompany Agreements relating to the Merger Sub Acquired Businesses upon
consummation of the Merger, and such Agreements shall thereafter have no force
or effect.
ARTICLE III
THE MERGER; EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 3.01. The Merger. On the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Whitman shall be merged with and into Merger Sub at the
Effective Time. At the Effective Time, the separate corporate existence of
Whitman shall cease and Merger Sub shall continue as the surviving corporation
(the "Surviving Corporation").
SECTION 3.02. Effective Time. Prior to the Closing, PepsiCo shall
prepare, and on the Closing Date PepsiCo shall file with the Secretary of State
for the State of Delaware, a certificate of merger or other appropriate
documents (in any such case, the "Certificate of Merger") executed in accordance
with the relevant provisions of the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with such Secretary of State, or
at such other time as PepsiCo and Whitman shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being the
"Effective Time").
SECTION 3.03. Effects. The Merger shall have the effects set forth in
Section 259 of the DGCL.
SECTION 3.04. Certificate of Incorporation and By-laws. (a) The
Certificate of Incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be amended as of the Effective Time so as to read in
its entirety in the form set forth as Annex II and, as so amended, such
Certificate of Incorporation shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The By-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be amended as of the Effective Time so as to read in their
entirety in the form set forth as Annex III and, as so amended,
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such By-laws shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
SECTION 3.05. Directors and Officers of the Surviving Corporation. (a)
The Board of Directors of the Surviving Corporation shall be as designated in
accordance with the Shareholder Agreement until the earlier of the resignation
or removal of any individual designated in accordance with the Shareholder
Agreement or until their respective successors are duly elected and qualified,
as the case may be, it being agreed that if any director who has been designated
by PepsiCo shall be unable or unwilling to serve as a director at the Effective
Time PepsiCo shall designate another individual reasonably acceptable to Whitman
to serve in such individual's place.
(b) The officers of Whitman immediately prior to the Effective Time shall
be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
SECTION 3.06. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Whitman Common Stock or any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of
capital stock of Merger Sub shall be converted into and become one fully
paid and nonassessable share of Merger Sub Common Stock.
(b) Cancelation of Merger Sub-Owned Stock; Conversion of Treasury
Stock. Each share of Whitman Common Stock that is owned by Merger Sub
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and no Merger Sub Common Stock or other
consideration shall be delivered in exchange therefor. Each share of
Whitman Common Stock that is owned by Whitman shall be converted into and
become one fully paid and nonassessable share of Merger Sub Common Stock.
(c) Conversion of Whitman Common Stock. Subject to Section 3.06(b),
each issued and outstanding share of Whitman Common Stock shall be
converted into one fully paid and nonassessable share of Merger Sub Common
Stock (the "Merger Consideration"). As of the Effective Time, all such
shares of Whitman Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Whitman Common
Stock shall cease to have any rights with respect thereto, except that,
from and after the Effective Time, certificates representing Whitman Common
Stock immediately prior to the Effective Time shall be deemed for all
purposes to represent the number of shares of Merger Sub Common Stock into
which they were converted pursuant to this subparagraph (c) (provided that
if an exchange of certificates formerly representing Whitman Common Stock
for certificates representing Merger Sub Common Stock is required by law or
applicable rule or regulation, Merger Sub will arrange for such exchange on
a share-for-share basis pursuant to reasonable and customary exchange
procedures).
(d) Conversion of Whitman Stock Options. Each outstanding option to
purchase shares of Whitman Common Stock shall be converted into an option
to purchase an equal number of shares of Merger Sub Common Stock. As of the
Effective Time, all such options to purchase Whitman Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, except that, from and after the Effective Time, each
agreement representing an option to purchase Whitman Common Stock prior to
the Effective Time shall, without any action on the part of the holder
thereof, be deemed to constitute an agreement to purchase an equal number
of shares of Merger Sub Common Stock, subject to all of the same terms and
conditions, including without limitation, duration and price, as shall be
set forth in each such agreement (it being understood that all options
issued prior to January 1, 1999, shall be fully vested in accordance with
the terms of the applicable Whitman Stock Plans).
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ARTICLE IV
PURCHASE AND SALE FOLLOWING THE EFFECTIVE TIME
SECTION 4.01. Whitman Transfers. (a) Upon the Closing, subject to the
terms and conditions of this Agreement, Whitman shall, and following the
Effective Time Merger Sub shall, cause its relevant Subsidiaries to sell,
transfer and convey to PepsiCo (or its designee), and PepsiCo (or its designee)
shall purchase all of such Subsidiaries' right, title and interest in, to and
under the Princetonco Shares, the Marionco Shares and the Neva Holdings LLC
Units, together with related assets, free and clear of all Liens, other than, in
the case of such assets, Permitted Liens, as follows:
(i) As to Princetonco:
(A) PGB shall sell, transfer and convey to PepsiCo (or its
designee) the Princetonco Shares in exchange for an aggregate purchase
price of $40,500,000;
(B) Globe Transport, Inc. shall sell, transfer and convey to
PepsiCo (or its designee) the vehicles and other fleet assets used or
held for use primarily in the operation or conduct of Princetonco's
business in exchange for an aggregate purchase price of $450,000 and the
assumption by PepsiCo (or its designee) of all Liabilities arising out
of or relating to (at any time prior to, on or after the consummation of
the Whitman Transfers) such vehicle and other fleet assets;
(C) Globe Transport, Inc. will assign its leasehold interests in
any vehicles or fleet assets used or held for use primarily in the
operation or conduct of Princetonco's business to PepsiCo (or its
designee) in exchange for the assumption by PepsiCo (or its designee) of
all Liabilities arising out of or relating to (at any time prior to, on
or after the consummation of the Whitman Transfers) such leasehold
interests; and
(D) PCGB, Inc. shall sell, transfer and convey to PepsiCo (or its
designee) the intangible assets used or held for use primarily in the
operation or conduct of Princetonco's business in exchange for an
aggregate purchase price of $5,500,000; provided, however, that PCGB,
Inc. shall retain all Liabilities arising out of or relating to (at any
time prior to, on or after the consummation of the Whitman Transfers)
such intangible assets (other than any such Liabilities arising after
the consummation of the Whitman Transfers as a result of PepsiCo's use
of such intangible assets).
(ii) As to Marionco:
(A) PGB shall sell, transfer and convey to PepsiCo (or its
designee) the Marionco Shares in exchange for an aggregate purchase
price of $63,500,000;
(B) Globe Transport, Inc. shall sell, transfer and convey to
PepsiCo (or its designee) the vehicles and other fleet assets used or
held for use primarily in the operation or conduct of Marionco's
business in exchange for an aggregate purchase price of $550,000 and the
assumption by PepsiCo (or its designee) of all Liabilities arising out
of or relating to (at any time prior to, on or after the consummation of
the Whitman Transfers) such vehicle and other fleet assets;
(C) Globe Transport, Inc. shall assign its leasehold interest in
any vehicles or fleet assets used or held for use primarily in the
operation or conduct of Marionco's business to PepsiCo (or its designee)
in exchange for the assumption by PepsiCo (or its designee) of all
Liabilities arising out of or relating to (at any time prior to, on or
after the consummation of the Whitman Transfers) such leasehold
interests; and
(D) PCGB, Inc. shall sell to PepsiCo (or its designee) the
intangible assets used or held for use primarily in the operation or
conduct of Marionco's business in exchange for an aggregate purchase
price of $7,300,000; provided, however, that PCGB, Inc. shall retain all
Liabilities arising out of or relating to (at any time prior to, on or
after the consummation of the Whitman Transfers) such intangible assets
(other than any such Liabilities arising after the consummation of the
Whitman Transfers as a result of PepsiCo's use of such intangible
assets).
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(iii) As to Neva Holdings LLC, PGB and GB International, Inc. shall
sell, transfer and convey to PepsiCo (or its designee) the Neva Holdings
LLC Units in exchange for an aggregate purchase price of $20,000,000.
(iv) PepsiCo (or its designee) shall assume all Liabilities to the
extent, and as of the date, set forth in the Whitman Transfers Employee
Benefits Agreement.
(b) Notwithstanding the foregoing subparagraph (a) or any other provision
of this Agreement, Whitman and PepsiCo shall, upon reasonable prior written
notice from PepsiCo to Whitman, cause the Whitman Transfers to be consummated as
soon as practicable following Whitman's receipt of such notice if in the good
faith determination of PepsiCo the consummation of the Whitman Transfers prior
to the Closing is reasonably necessary to permit PepsiCo to prepare for another
transaction intended to be entered into by PepsiCo; provided, however, that the
consummation of the Whitman Transfers shall be subject to (i) the satisfaction
(or, to the extent permitted by law, waiver by all parties) of the conditions
set forth in Sections 8.01(b) and (c), Sections 8.02(a) and (b) and Sections
8.03(a) and (b) (and the other conditions set forth in Article VIII shall not be
applicable to the Whitman Transfers), (ii) Section 10.01(a)(ii), Article XII and
Article XIII and (iii) the execution and delivery by PepsiCo (or its designee)
and Whitman of the Whitman Transfers Employee Benefits Agreement (as such
Agreement may be finalized in accordance with the terms thereof).
SECTION 4.02. PepsiCo Transfers. Upon the Closing, immediately following
consummation of the Merger, subject to the terms and conditions of this
Agreement:
(a) PepsiCo shall sell, transfer and convey to PGB, and Whitman shall,
and following the Effective Time Merger Sub shall, cause PGB to purchase
from PepsiCo, all the right, title and interest of PepsiCo in, to and under
each of the Slovackco Shares, the Czechco Shares, the Hungarianco Shares,
the Poland Distributionco Shares and the Polandco Shares, in each case free
and clear of all Liens, in exchange for an aggregate purchase price of
$130,000,000; provided, however, that (i) PepsiCo shall provide PGB with
reasonable prior written notice in advance of the Closing of the individual
portions of such aggregate purchase price attributable to the purchase of
each of the Slovakco Shares, the Czechco Shares, the Hungarianco Shares,
the Poland Distributionco Shares and the Polandco Shares, subject to PGB's
consent as to the allocation of such individual portions of the aggregate
purchase price, which consent shall not be unreasonably withheld, delayed
or conditioned and (ii) if the Poland Approvals shall not have been
obtained prior to the Closing, PepsiCo and Whitman shall cause the
beneficial ownership of the Poland Distributionco Shares and the Polandco
Shares to be transferred from PepsiCo to PGB upon the Closing in exchange
for the purchase price attributable to such Poland Distributionco Shares
and Polandco Shares.
(b) PepsiCo shall cause Gray Hawk Leasing Company to assign, transfer
and convey to PGB (or its designee), and Whitman shall, and following the
Effective Time Merger Sub shall, cause PGB (or its designee) to acquire
from Gray Hawk Leasing Company, all the right, title and interest of Gray
Hawk Leasing Company in, to and under the vending machine assets used or
held for use primarily in the operation or conduct of the St. Louis Sub
Bottling Business, the Ohio Sub Bottling Business and the Opco Sub Bottling
Business, free and clear of all Liens, other than Permitted Liens, in
exchange for an aggregate purchase price of $32,000,000 and the assumption
by PGB (or its designee) of all Liabilities arising out of or relating to
(at any time prior to, on or after the Closing) such vending machine
assets.
(c) PepsiCo shall cause New Bern Transport Company to assign, transfer
and convey to Globe Transport, Inc., and Whitman shall, and following the
Effective Time Merger Sub shall, cause Globe Transport, Inc. to acquire
from New Bern Transport Company, all the right, title and interest of New
Bern Transport Company in, to and under the vehicle and other fleet assets
used or held for use primarily in the operation or conduct of the St. Louis
Sub Bottling Business, the Ohio Sub Bottling Business and the Opco Sub
Bottling Business, free and clear of all Liens, other than Permitted Liens,
in exchange for an aggregate purchase price of $14,000,000 and the
assumption by Globe Transport, Inc. of all Liabilities arising out of or
relating to (at any time prior to, on or after the Closing) such vehicle
and other fleet assets.
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SECTION 4.03. Purchases Net of Indebtedness. The amount of the purchase
price attributable to the PepsiCo Acquired Businesses to be purchased by PepsiCo
(or its designee) pursuant to the Whitman Transfers, or attributable to the PGB
Acquired Businesses to be purchased by PGB pursuant to the PepsiCo Transfers,
shall in each case be reduced by the aggregate amount of (i) except for the
Contributed Intercompany Indebtedness, any short-term or long-term indebtedness
for borrowed money owed by any such Business to any person on the Closing (or,
if prior to the Closing, upon the consummation of the Whitman Transfers) and
(ii) any short-term or long-term capitalized lease obligations (as determined in
accordance with GAAP) owed by any such Business to any person on the Closing
(or, if prior to the Closing, upon the consummation of the Whitman Transfers);
provided, however, that to the extent the aggregate amount of any such
indebtedness and any such capitalized lease obligations exceeds the amount of
the applicable purchase price attributable to such Business, the seller of such
Business shall pay the purchaser at the Closing (or, if prior to the Closing,
upon the consummation of the Whitman Transfers) an amount in cash equal to the
amount of any such excess.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties of Whitman. Except as
disclosed in the Whitman Filed SEC Documents or as set forth on the Disclosure
Schedule delivered by Whitman to PepsiCo prior to the execution of this
Agreement (the "Whitman Disclosure Schedule"), Whitman represents and warrants
to PepsiCo and Merger Sub as follows:
(a) Organization, Standing and Corporate Power. Each of Whitman and
each of its Subsidiaries is a corporation, limited liability company or
partnership duly organized or formed, as applicable, validly existing and,
in the case of a corporation or a limited liability company, in good
standing under the laws of the jurisdiction in which it is incorporated or
formed and has the requisite corporate, limited liability company or
partnership power and authority to carry on its business as now being
conducted. Each of Whitman and each of its Subsidiaries is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
individually or in the aggregate is not reasonably likely to have a
Material Adverse Effect on Whitman. Whitman has made available to PepsiCo
true, complete and correct copies of its certificate of incorporation and
by-laws and the certificates of incorporation and by-laws or certificates
of formation and limited liability company agreements or partnership
agreements, as applicable, of its Subsidiaries, in each case as amended to
the date of this Agreement.
(b) Subsidiaries. (i) Exhibit 21 to Whitman's Annual Report on Form
10-K for the year ended December 31, 1997 (the "Whitman Form 10-K") lists
each Subsidiary of Whitman which as of the date of this Agreement is a
Significant Subsidiary of Whitman. All the outstanding shares of capital
stock of, or other ownership interests in, each Significant Subsidiary have
been validly issued and are fully paid and nonassessable and are owned
directly or indirectly by Whitman (except that, in the case of PGB and its
Subsidiaries, Whitman directly or indirectly owns 80% of such shares), free
and clear of all Liens and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or such other ownership interest). Except for the capital stock of,
or other ownership interests in, its Significant Subsidiaries noted above,
Whitman does not own, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, limited liability
company, joint venture or other entity constituting a Significant
Subsidiary. For purposes of this subparagraph (b)(i), each of Neva Holdings
LLC, Princetonco and Marionco shall be deemed to be a Significant
Subsidiary of Whitman.
(ii) All the outstanding shares of capital stock of St. Petersburgco
have been validly issued and are fully paid and nonassessable and are owned
by Neva Holdings LLC, free and clear of all Liens and free of any other
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or such other ownership interest).
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(iii) Each of St. Petersburgco, Princetonco and Marionco is engaged
exclusively in the Bottling Business within the respective territories set
forth opposite its name in Schedule 5.01(b)(iii) of the Whitman Disclosure
Schedule and, except for such Bottling Business, is not engaged in any
other business. Neva Holdings LLC is not engaged in any business other than
holding shares of capital stock of St. Petersburgco.
(c) Capital Structure. The authorized capital stock of Whitman
consists of 250,000,000 shares of Whitman Common Stock and 12,500,000
shares of preferred stock, without par value. At the close of business on
January 20, 1999, (i) 101,069,077 shares of Whitman Common Stock were
issued and outstanding, (ii) 12,205,753 shares of Whitman Common Stock were
held by Whitman in its treasury, (iii) 6,837,823 shares of Whitman Common
Stock were reserved for issuance pursuant to outstanding options granted
under the Whitman Stock Incentive Plan and the Whitman Revised Stock
Incentive Plan (the "Whitman Stock Plans"), (iv) 2,500,000 shares of Junior
Participating Second Preferred Stock (Series 1) were reserved for issuance
in connection with the rights (the "Whitman Rights") to purchase shares of
Junior Participating Second Preferred Stock (Series 1), issued pursuant to
the Rights Agreement dated as of January 20, 1989, as amended (the "Whitman
Rights Agreement"), between Whitman and First Chicago Trust Company of New
York, as Rights Agent and (v) no shares of preferred stock were
outstanding. Except as set forth above, at the close of business on January
20, 1999, no shares of capital stock or other voting securities of Whitman
were issued, reserved for issuance or outstanding. There are no outstanding
stock appreciation rights ("SARs") which were not granted in tandem with a
related Whitman Stock Option. All outstanding shares of capital stock of
Whitman are, and all shares which may be issued pursuant to the Whitman
Stock Plans will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are not
any bonds, debentures, notes or other indebtedness of Whitman or any of its
Subsidiaries having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
stockholders of Whitman or such Subsidiaries may vote. Whitman has made
available to PepsiCo a true and complete list of all outstanding options
(together with applicable exercise prices and vesting dates) to purchase
capital stock of Whitman ("Whitman Stock Options"). Except as set forth
above, there are not any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Whitman or any of its Subsidiaries is a party or by which any of them is
bound obligating Whitman or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Whitman or of any of its
Subsidiaries or obligating Whitman or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. There are not any
outstanding contractual obligations of Whitman or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of
Whitman or any of its Subsidiaries.
(d) Authority; Noncontravention. Whitman has the requisite corporate
power and authority to enter into this Agreement and the other Transaction
Documents to which it is a party (such other Transaction Documents, the
"Whitman Relevant Agreements") and, subject to adoption of this Agreement
by the holders of a majority of the total voting power of the outstanding
shares of Whitman Common Stock (the "Whitman Stockholder Approval"), to
consummate the transactions contemplated by this Agreement and the Whitman
Relevant Agreements. The execution and delivery by Whitman of this
Agreement and the Whitman Relevant Agreements and the consummation by
Whitman of the Merger and the other transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate
action on the part of Whitman, subject, in the case of this Agreement, to
the Whitman Stockholder Approval. Each of this Agreement and the Whitman
Relevant Agreements has been (or upon execution will be) duly executed and
delivered by Whitman, and constitutes (or upon execution will constitute) a
valid and binding obligation of Whitman, enforceable against Whitman in
accordance with its respective terms. The execution and delivery of this
Agreement and each Whitman Relevant Agreement do not (or upon execution
will not), the consummation of the Merger and the other transactions
contemplated by the Transaction Documents and compliance with the
provisions of this Agreement and each Whitman Relevant Agreement will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) under, or give rise to a right
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of termination, cancelation or acceleration of any obligation under, (i)
the certificate of incorporation or by-laws of Whitman or the comparable
charter or organizational documents of any of its Subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument or permit applicable to Whitman or any of its
Subsidiaries or their respective properties or assets or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Whitman or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults or rights that individually
or in the aggregate are not reasonably likely to have a Material Adverse
Effect on Whitman. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Federal, state or local
government or any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign, including the
European Community (a "Governmental Entity"), is required by or with
respect to Whitman or any of its Subsidiaries in connection with the
execution and delivery of this Agreement and any Whitman Relevant Agreement
or the consummation by Whitman of the Merger and the other transactions
contemplated by the Transaction Documents, except for (A) the filing of a
premerger notification and report form by Whitman under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (together
with the rules and regulations promulgated thereunder, the "HSR Act"), (B)
the filing with the SEC of (I) a proxy statement relating to the Whitman
Stockholder Approval (as amended or supplemented from time to time, the
"Proxy Statement/Prospectus"), (II) a registration statement of Merger Sub
on Form S-4 in connection with the issuance of Merger Sub Common Stock in
the Merger (as amended or supplemented from time to time, the "Form S-4")
and (III) such reports under Section 13(a) of the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder
(the "Exchange Act"), as may be required in connection with this Agreement,
the Merger and the other transactions contemplated by the Transaction
Documents, (C) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities
of other states in which Whitman is qualified to do business and such
filings with Governmental Entities to satisfy the applicable requirements
of state securities or "blue sky" laws, (D) if necessary, the filing of a
notification with the Polish Anti-Monopoly Office and the expiration of the
required waiting period in respect thereof and the obtaining by PGB of a
permit from the Polish Ministry of the Interior for the purchase of shares
of a Polish company owning real estate (collectively, the "Poland
Approvals") and (E) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be made or
obtained, individually or in the aggregate, is not reasonably likely to
have a Material Adverse Effect on Whitman.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities. (i)
Whitman has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1997 (the "Whitman SEC
Documents"). As of their respective dates, the Whitman SEC Documents
complied in all material respects with the requirements of the Securities
Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"), or the Exchange Act, as the case may be,
and none of the Whitman SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except to the
extent that information contained in any Whitman SEC Document has been
revised or superseded by a later filed Whitman SEC Document, none of the
Whitman SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
Whitman included in the Whitman SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Whitman and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). Except for
Liabilities incurred in the
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ordinary course of business consistent with past practice since the date of
the most recent consolidated balance sheet included in the Whitman SEC
Documents and not in violation of this Agreement, neither Whitman nor any
of its Subsidiaries has any Liabilities required by GAAP to be set forth on
a consolidated balance sheet of Whitman and its consolidated Subsidiaries
or in the notes thereto.
(ii) Schedule 5.01(e)(ii) of the Whitman Disclosure Schedule sets
forth the unaudited statements of income for the three years ended December
31, 1997, and the nine months ended September 30, 1998, and the unaudited
balance sheets as of December 31, 1997, and September 30, 1998 (the
"PepsiCo Acquired Businesses Financial Statements"), for the PepsiCo
Acquired Businesses. Except for the omission of footnote disclosures, the
PepsiCo Acquired Businesses Financial Statements have been prepared in
accordance with GAAP, applied on a consistent basis and fairly present the
financial position of each of the PepsiCo Acquired Businesses as of the
dates thereof and the results of operations for the periods then ended
(subject to normal year-end adjustments). Except for Liabilities incurred
in the ordinary course of business consistent with past practice since
September 30, 1998, and not in violation of this Agreement, none of the
Subsidiaries of Whitman included as part of the PepsiCo Acquired Businesses
has any Liabilities required by GAAP to be set forth on a consolidated
balance sheet of such Subsidiary.
(iii) Schedule 5.01(e)(iii) of the Whitman Disclosure Schedule sets
forth the unaudited pro forma consolidated statements of income for the
year ended December 31, 1997, and the nine months ended September 30, 1998,
and the unaudited pro forma consolidated balance sheets as of December 31,
1997, and September 30, 1998 (the "Whitman Pro Forma Financial
Statements"), for Whitman, excluding the PepsiCo Acquired Businesses.
Except for the omission of footnote disclosures, the Whitman Pro Forma
Financial Statements have been prepared in accordance with GAAP, applied on
a consistent basis and fairly present the financial position of Whitman and
its Subsidiaries (excluding the PepsiCo Acquired Businesses) as of the
dates thereof and the results of operations for the periods then ended
(subject to normal year-end adjustments). Except for Liabilities incurred
in the ordinary course of business consistent with past practice since
September 30, 1998, and not in violation of this Agreement, none of Whitman
or its Subsidiaries (excluding the PepsiCo Acquired Businesses) has any
Liabilities required by GAAP to be set forth on a consolidated balance
sheet of Whitman or such Subsidiaries (excluding the PepsiCo Acquired
Businesses).
(f) Information Supplied. None of the information supplied or to be
supplied by Whitman or any of its Subsidiaries for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time the Form
S-4 is filed with the SEC, at any time it is amended or supplemented or at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made not misleading or (ii)
the Proxy Statement/Prospectus will, at the date it is first mailed to
Whitman's stockholders or at the time of the meeting of Whitman's
stockholders held to vote on approval and adoption of this Agreement (the
"Whitman Stockholders Meeting"), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The financial
statements of Whitman included in the Form S-4 and the Proxy
Statement/Prospectus will comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, and will be prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and will fairly present the
consolidated financial position of Whitman and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). The Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act, except that no representation is made
by Whitman with respect to statements made or incorporated by reference
therein based on information supplied by PepsiCo or any PepsiCo Subsidiary
for inclusion or incorporation by reference in the Proxy
Statement/Prospectus.
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(g) Absence of Certain Changes or Events. Except as disclosed in the
Whitman SEC Documents filed since January 1, 1997 and publicly available
prior to the date of this Agreement (the "Whitman Filed SEC Documents"),
since January 1, 1998, Whitman has conducted its business only in the
ordinary course, and there has not been (i) any Material Adverse Change in
Whitman, (ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any
of Whitman's capital stock, other than Whitman's regular quarterly cash
dividend of $.05 per share of Whitman Common Stock, (iii) any split,
combination or reclassification of any of its capital stock or any issuance
or the authorization of any issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, (iv) except
to the extent expressly permitted pursuant to Section 6.02 and Schedule
6.02 of the Whitman Disclosure Schedule, (x) any granting by Whitman or any
of its Subsidiaries to any employee, officer or director of Whitman or any
of its Subsidiaries of any increase in compensation, except for increases
in cash compensation in the ordinary course of business consistent with
past practice or to the extent required under employment agreements in
effect as of the date of this Agreement (true and complete copies of which
have been made available to PepsiCo), (y) any granting by Whitman or any of
its Subsidiaries to any such employee, officer or director of any increase
in severance or termination pay, except to the extent required under any
employment, severance or termination agreements in effect as of the date of
this Agreement (true and complete copies of which have been made available
to PepsiCo) or (z) any entry by Whitman or any of its Subsidiaries into any
employment, consulting, indemnification, severance or termination agreement
with any such employee, officer or director, (v) any damage, destruction or
loss, whether or not covered by insurance, that individually or in the
aggregate has had, or is reasonably likely to have, a Material Adverse
Effect on Whitman or (vi) any change in accounting methods, principles or
practices by Whitman materially affecting its assets, Liabilities or
business, except insofar as may have been required by a change in GAAP.
(h) Litigation. As of the date hereof, there is no suit, action or
proceeding pending or, to the knowledge of Whitman, threatened against or
affecting Whitman, any of its Subsidiaries, or any of its former
Subsidiaries or businesses, that individually or in the aggregate is
reasonably likely to have a Material Adverse Effect on Whitman, nor is
there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against or affecting Whitman, any of its
Subsidiaries, or any of its former Subsidiaries or businesses, that
individually or in the aggregate is reasonably likely to have a Material
Adverse Effect on Whitman.
(i) Changes in Benefit Plans. (i) Since January 1, 1998, except for
the Whitman Revised Stock Incentive Plan, there has not been any adoption
or amendment by Whitman or any of its Subsidiaries of any collective
bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability,
death benefit, hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) maintained, or contributed
to, by Whitman or any of its Subsidiaries providing benefits to any current
or former employee, officer or director of Whitman or any of its
Subsidiaries, as of the Closing Date, or with respect to which Whitman or
any of its Subsidiaries, as of the Closing Date, has any Liability
(collectively, "Whitman Benefit Plans") that is reasonably likely to result
in a Material Adverse Effect on Whitman. There exist no employment,
consulting, severance, termination or indemnification agreements,
arrangements or understandings between Whitman or any of its Subsidiaries
and any current or former employee, officer or director of Whitman or any
of its Subsidiaries.
(ii) All actions taken, or to be taken, in accordance with the
Employee Benefits Agreement by Whitman or any of its Subsidiaries on or
prior to the Effective Time with respect to the Whitman Benefit Plans will
be taken without violating the terms of the Whitman Benefit Plans, ERISA or
the Code.
(iii) All actions required under the Employee Benefits Agreement to be
taken by PepsiCo or its designee on or after the Effective Time with
respect to the employees of Princetonco, Marionco, Neva Holdings LLC or St.
Petersburgco may be taken without violating the terms of any Whitman
Benefit Plans, ERISA or the Code.
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(iv) Except as otherwise provided in the Employee Benefits Agreement,
neither Whitman nor any of its Subsidiaries, nor any employee or director
of any of them, has taken any action, has agreed in contract (excluding
collective bargaining agreements), or otherwise has created facts and
circumstances that are reasonably likely to preclude PepsiCo from taking
any action required to be taken by PepsiCo under the Employee Benefits
Agreement without incurring any Liability.
(j) ERISA Compliance. (i) Schedule 5.01(j) of the Whitman Disclosure
Schedule contains a list and brief description of all Whitman Benefit Plans
which are "employee pension benefit plans" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
and which are subject to Title IV of ERISA (sometimes referred to herein as
"Whitman Pension Plans"), "employee welfare benefit plans" (as defined in
Section 3(1) of ERISA) and all other Whitman Benefit Plans. Whitman has
made available to PepsiCo true, complete and correct copies of (w) each
Whitman Benefit Plan (or, in the case of any unwritten Whitman Benefit
Plans, descriptions thereof), (x) the most recent annual report on Form
5500 filed with the Internal Revenue Service with respect to each Whitman
Benefit Plan (if any such report was required), (y) the most recent summary
plan description for each Whitman Benefit Plan for which such summary plan
description is required and (z) each trust agreement and group annuity
contract relating to any Whitman Benefit Plan.
(ii) All Whitman Pension Plans have been the subject of determination
letters from the Internal Revenue Service to the effect that such Whitman
Pension Plans are qualified and exempt from Federal income Taxes under
Section 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the knowledge of Whitman, has
revocation been threatened, nor has any such Whitman Pension Plan been
amended since the date of its most recent determination letter or
application therefor in any respect that would adversely affect its
qualification or materially increase its costs.
(iii) No Whitman Pension Plan, other than any Whitman Pension Plan
that is a "multiemployer plan" (as such term is defined in Section
4001(a)(3) of ERISA; collectively, the "Whitman Multiemployer Pension
Plans"), had, as of the respective last annual valuation date for each such
Whitman Pension Plan, an accumulated benefit obligation, determined in
accordance with Financial Accounting Standard Number 87, in excess of fair
market value of the assets of such Whitman Pension Plan. None of the
Whitman Pension Plans has an "accumulated funding deficiency" (as such term
is defined in Section 302 of ERISA or Section 412 of the Code), whether or
not waived. None of Whitman, any of its Subsidiaries, any officer of
Whitman or any of its Subsidiaries, any of the Whitman Benefit Plans which
are subject to ERISA, including the Whitman Pension Plans, any trusts
created thereunder or, to Whitman's knowledge, any trustee or administrator
thereof has engaged in a "prohibited transaction" (as such term is defined
in Section 406 of ERISA or Section 4975 of the Code) or any other breach of
fiduciary responsibility that could subject Whitman, any of its
Subsidiaries or any officer of Whitman or any of its Subsidiaries to the
Tax or penalty on prohibited transactions imposed by such Section 4975 or
to any Liability under Section 502(i) or (1) of ERISA. None of the Whitman
Pension Plans has been terminated during the last five years and Whitman is
not aware of any basis for any Whitman Pension Plans to have been
terminated. Neither Whitman nor any of its Subsidiaries has incurred a
"complete withdrawal" or a "partial withdrawal" (as such terms are defined
in Section 4203 and Section 4205, respectively, of ERISA) with respect to
any of the Whitman Multiemployer Pension Plans which is reasonably likely
to have a Material Adverse Effect on Whitman.
(iv) With respect to any Whitman Benefit Plan that is an employee
welfare benefit plan (x) each such Whitman Benefit Plan that is a "group
health plan", as such term is defined in Section 5000(b)(1) of the Code,
complies with the applicable requirements of Section 4980B(f) of the Code
and (y) each such Whitman Benefit Plan (including any such Plan covering
retirees or other former employees) may be amended or terminated on or at
any time after the Closing without a Material Adverse Effect on Whitman.
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(v) Neither Whitman nor any of its Subsidiaries has any outstanding
Liability imposed under ERISA or, with respect to any employee welfare
benefit plan, the Code, other than claims for benefits and expenses in the
ordinary course of business.
(k) Taxes. (i) Each of Whitman and each of its Subsidiaries has filed
all Tax Returns required to be filed by it, or requests for extensions to
file such Tax Returns have been timely filed and granted, and has paid (or
there have been paid on its behalf) all Taxes shown to be due on such Tax
Returns, except where the failure to file such Tax Returns or pay such
Taxes is not reasonably likely to have a Material Adverse Effect on
Whitman. All such Tax Returns are true, correct and complete in all
material respects. No deficiencies for any material Taxes have been
proposed, asserted or assessed in writing against Whitman or any of its
Subsidiaries, and no requests for waivers of the time to assess any such
Taxes are pending, except with respect to any deficiency for Taxes that
individually or in the aggregate is not reasonably likely to have a
Material Adverse Effect on Whitman.
(ii) Neva Holdings LLC is not and has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code. None of the assets being transferred in the sale of Neva Holdings LLC
is a United States real property interest within the meaning of Section
897(c)(1) of the Code.
(iii) No foreign Subsidiary of Whitman that is being transferred
pursuant to the Whitman Transfers is a party to any tax sharing agreement
or arrangement.
(l) No Excess Parachute Payments. Other than payments that may be
made to the persons referred to in Schedule 5.01(l) (the "Whitman
Executives"), any amount that could be received (whether in cash or
property or the vesting of property) as a result of the Merger or the
Whitman Transfers by any employee, officer or director of Whitman or any of
its affiliates who is a "disqualified individual" (as such term is defined
in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or
Whitman Benefit Plan currently in effect would not be characterized as an
"excess parachute payment" (as such term is defined in Section 280G(b)(1)
of the Code). Whitman has made available to PepsiCo information concerning
payment obligations which may be incurred as a result of the Merger or the
Whitman Transfers and a subsequent termination of employment under existing
change in control and other similar agreements.
(m) Compliance With Applicable Laws; Permits. (i) Whitman and its
Subsidiaries are in compliance in all respects with all judgments, orders,
decrees, statutes, laws, ordinances, rules and regulations applicable to
Whitman, any of its Subsidiaries and their respective properties or assets,
except for instances of noncompliance that individually or in the aggregate
are not reasonably likely to have a Material Adverse Effect on Whitman.
Neither Whitman nor any of its Subsidiaries has received any written notice
regarding any matter that is not fully resolved from a Governmental Entity
that alleges that Whitman or any of its Subsidiaries is not in compliance
with any such judgments, orders, decrees, statutes, laws, ordinances, rules
or regulations and Whitman has and is in compliance with all permits,
licenses, registrations and filings ("Permits") required for the operation
of the business of Whitman and its Subsidiaries as currently conducted,
except for those notices, instances of noncompliance or lack of Permits
that individually or in the aggregate are not reasonably likely to have a
Material Adverse Effect on Whitman.
(ii) There is no suit, action, proceeding or inquiry pending or, to
the knowledge of Whitman, threatened before any court, Governmental Entity
or other forum in which Whitman, any of its Subsidiaries, or any of its
former Subsidiaries or businesses, has been or, with respect to threatened
suits, actions and proceedings, may be named as a defendant (A) for alleged
noncompliance with any Environmental Law or (B) relating to the release
into the environment of, or human exposure to, any Hazardous Material,
whether or not occurring at, on, under or involving a site currently or
formerly owned, leased or operated by Whitman, or any of its Subsidiaries,
or any of its former Subsidiaries or businesses, except for any such suits,
actions, proceedings and inquiries which, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect on Whitman.
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(iii) During the period of ownership or operation by Whitman, its
Subsidiaries or any of its former Subsidiaries or businesses of any of
their respective currently or formerly owned, leased or operated
properties, there have been no releases of Hazardous Material in, on, under
or affecting such properties or, to the knowledge of Whitman, any
surrounding site, except in each case for those which, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect
on Whitman. Prior to the period of ownership or operation by Whitman, its
Subsidiaries or any of its former Subsidiaries or businesses of any of such
properties, to the knowledge of Whitman, there were no releases of
Hazardous Material in, on, under or affecting any such property or any
surrounding site, except in each case for those which, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect
on Whitman.
(iv) Neither Whitman nor any of its Subsidiaries is subject to any
order, decree, injunction or other arrangement with any Governmental Entity
or any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to any Hazardous
Material, except for any such order, decree, injunction, arrangement,
indemnity or other agreement which, individually or in the aggregate, is
not reasonably likely to have a Material Adverse Effect on Whitman.
(v) No products shipped, sold or delivered on or prior to the Closing
Date by or for Whitman or any of its Subsidiaries were, and no food or food
ingredients included in the Inventory of Whitman or any of its Subsidiaries
on or prior to the Closing Date and which are used by Whitman or any of its
Subsidiaries, were or are adulterated or misbranded within the meaning of
the Federal Food, Drug & Cosmetic Act and the regulations promulgated
thereunder or comparable food laws and regulations of any jurisdiction of
any Governmental Entity to which such products have been or are intended to
be shipped, sold or delivered, except for any such adulteration or
misbranding which, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect on Whitman.
(n) Contracts. Other than contracts or agreements that are required
to be filed and have been filed (or incorporated by reference) as an
Exhibit to the Whitman Form 10-K or contracts or agreements that have been
entered into after December 31, 1997 by Whitman or any of its Subsidiaries
in the ordinary course of business, there are no contracts or agreements
that would have been required to be filed as an Exhibit to an Annual Report
on Form 10-K that are material to the business, financial position or
results of operations of Whitman and its Subsidiaries, including (A) any
employment, severance, termination, consulting or retirement contract
providing for aggregate payments to any person in any calendar year in
excess of $250,000, (B) any contract relating to the borrowing of money or
the guarantee of any such obligation or (C) any material contract or
agreement between or among Whitman and its Subsidiaries.
(o) Title to Properties. Each of Whitman and each of its Subsidiaries
has, in the case of personal property, good and valid title to or valid
leasehold interests in, and in the case of real property, good and
marketable title to or valid leasehold interests in, all its properties and
assets, except for such as are no longer used or useful in the conduct of
its businesses or as have been disposed of in the ordinary course of
business and except for defects in title, easements, restrictive covenants
and similar encumbrances or impediments that individually or in the
aggregate are not reasonably likely to have a Material Adverse Effect on
Whitman. All such assets and properties are free and clear of all Liens
except for Permitted Liens.
(p) Voting Requirements. The Whitman Stockholder Approval is the only
vote of the holders of any class or series of Whitman's capital stock
necessary to approve the Merger, this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby; provided,
however, that if the Whitman Transfers are consummated prior to the Merger
in accordance with Section 4.01, no vote of the holders of any class or
series of Whitman's capital stock will be necessary to approve the Whitman
Transfers.
(q) State Takeover Statutes. The Board of Directors of Whitman has
approved the Merger, this Agreement and the Whitman Relevant Agreements,
and such approval is sufficient to render inapplicable to the Merger, this
Agreement and the Whitman Relevant Agreements and the transactions
contemplated hereby, thereby and by the other Transaction Documents the
provisions of Section 203 of the
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DGCL. To Whitman's knowledge, no other state takeover statute or similar
statute or regulation applies or purports to apply to Whitman with respect
to the Merger, this Agreement, the Whitman Relevant Agreements and the
other Transaction Documents and the transactions contemplated hereby and
thereby.
(r) Brokers. Except for Credit Suisse First Boston Corporation, no
broker, investment banker, financial advisor or other person is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the Merger and the other transactions
contemplated by the Transaction Documents based upon arrangements made by
or on behalf of Whitman. Whitman will deliver to PepsiCo true and complete
copies of all agreements under which any such fees or expenses are payable
and all indemnification and other agreements related to the engagement of
the persons to whom such fees are payable promptly following the date of
this Agreement.
(s) Opinion of Financial Advisor. Whitman has received the opinion of
Credit Suisse First Boston Corporation, dated the date of this Agreement,
to the effect that, as of such date, the Merger Consideration is fair from
a financial point of view to the Whitman stockholders, a signed copy of
which will be delivered to PepsiCo promptly upon receipt.
(t) Whitman Rights Agreement. The Whitman Rights Agreement has been
amended (the "Whitman Rights Plan Amendment") to ensure that (y) none of
Merger Sub, PepsiCo or any of the other PepsiCo Subsidiaries is deemed to
be an Acquiring Person (as defined in the Whitman Rights Agreement)
pursuant to the Whitman Rights Agreement and (z) a Distribution Date or a
Shares Acquisition Date (as such terms are defined in the Whitman Rights
Agreement) does not occur, in the case of clauses (y) and (z), solely by
reason of the execution of this Agreement or the other Transaction
Documents or the consummation of the Merger or the other transactions
contemplated by the Transaction Documents.
(u) Nature of Purchase. (i) Whitman is not acquiring the Whitman
Acquired Foreign Shares with a view to the resale or distribution of the
Whitman Acquired Foreign Shares or any part thereof.
(ii) Whitman is an "accredited investor" within the meaning of Rule
501 under the Securities Act.
(v) Sufficiency of Assets. (i) Each of the PepsiCo Acquired
Businesses contains substantially all of the assets, properties and rights
owned, used or held for use primarily in connection with, or that otherwise
primarily relate to or are required for the conduct of, such PepsiCo
Acquired Businesses as presently conducted by Whitman and its Subsidiaries
on the date of this Agreement.
(ii) Schedule 5.01(v) of the Whitman Disclosure Schedule sets forth,
with respect to each of the PepsiCo Acquired Businesses, a true and
complete list (under corresponding headings) of (A) the Premises, U.S.
Personal Property (as of the date indicated on such Schedule) and material
Permits of such PepsiCo Acquired Business and (B) each Contract of such
PepsiCo Acquired Business that (i) has not been entered into the ordinary
course of business, (ii) may not be terminated by such PepsiCo Acquired
Business within one year or (iii) provides for aggregate payments by such
PepsiCo Acquired Business in any calendar year in excess of $250,000.
(w) Year 2000 Compliance. Whitman and each of its Subsidiaries has
(i) initiated a review and assessment of all areas within its business and
operations (including those affected by suppliers and vendors) that could
be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by Whitman or any of its Subsidiaries (or its
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates
after December 31, 1999), (ii) developed a plan and timetable for
addressing the Year 2000 Problem on a timely basis, and (iii) as of the
date of this Agreement, implemented such plan in accordance with such
timetable. To the knowledge of Whitman, all computer applications of
Whitman and its Subsidiaries (including those of its suppliers and vendors)
that are material to Whitman and its Subsidiaries will on a timely basis be
able to perform properly date-sensitive functions for all dates before and
after January 1, 2000, except to the extent that any failure to do so,
individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect on Whitman.
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SECTION 5.02. Representations and Warranties of PepsiCo and Merger
Sub. Except as disclosed in the PepsiCo Filed SEC Documents or as set forth on
the Disclosure Schedule delivered by PepsiCo to Whitman prior to the execution
of this Agreement (the "PepsiCo Disclosure Schedule"), each of PepsiCo and
Merger Sub represents and warrants to Whitman as follows:
(a) Organization, Standing and Corporate Power. Each of PepsiCo and
each PepsiCo Subsidiary is a corporation, limited liability company or
partnership duly organized or formed, as applicable, validly existing and,
in the case of a corporation or a limited liability company, in good
standing under the laws of the jurisdiction in which it is incorporated or
formed and has the requisite corporate, limited liability company or
partnership power and authority to carry on its business as now being
conducted. Each PepsiCo Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed individually or in the
aggregate is not reasonably likely to have a Material Adverse Effect on the
PepsiCo Subsidiaries. PepsiCo has made available to Whitman true, complete
and correct copies of its certificate of incorporation and by-laws and the
certificates of incorporation and by-laws or certificates of formation and
limited liability company agreements or partnership agreements, as
applicable, of each of the PepsiCo Subsidiaries, in each case as amended to
the date of this Agreement.
(b) PepsiCo Subsidiaries. (i) With respect to such PepsiCo
Subsidiaries that are corporations, all the outstanding shares of capital
stock of each such Subsidiary have been validly issued and are fully paid
and nonassessable and are owned by PepsiCo, by another Subsidiary of
PepsiCo or by PepsiCo and another such Subsidiary, free and clear of all
Liens. With respect to such PepsiCo Subsidiaries that are limited liability
companies or partnerships, all the outstanding limited liability company
interests or partnership interests of each such PepsiCo Subsidiary have
been validly issued and are owned by PepsiCo, free and clear of all Liens.
(ii) Each of the PepsiCo Subsidiaries is engaged exclusively in the
Bottling Business within the respective territories set forth opposite
its name in Schedule 5.02(b)(ii) of the PepsiCo Disclosure Schedule and,
except for such Bottling Business, is not engaged in any other business.
(iii) As of the date of this Agreement, the issued and outstanding
shares of capital stock of Merger Sub consist solely of 500 shares of
Merger Sub Common Stock held by PepsiCo. Merger Sub has no Liabilities
other than those under this Agreement and the other Transaction
Documents.
(iv) There are not (A) any bonds, debentures, notes or other
indebtedness of any of the PGB Acquired Businesses or any of their
respective Subsidiaries having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters
on which stockholders of the PGB Acquired Businesses or any of their
respective Subsidiaries may vote; (B) any securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of
any kind to which any of the PGB Acquired Businesses or any of their
respective Subsidiaries is a party or by which any of them is bound
obligating any of the PGB Acquired Businesses or of any of their
respective Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
voting securities of any of the PGB Acquired Businesses or of any of
their respective Subsidiaries or obligating any of the PGB Acquired
Businesses or any of their respective Subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking or (C) any outstanding
contractual obligations of any of the PGB Acquired Businesses or any of
their respective Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of any of the PGB Acquired Businesses or any
of their respective Subsidiaries.
(c) Authority; Noncontravention. PepsiCo has the requisite corporate
power and authority to enter into this Agreement and the other Transaction
Documents to which it is a party (such other Transaction Documents, the
"PepsiCo Relevant Agreements") and to consummate the transactions
contemplated by each of this Agreement and the PepsiCo Relevant Agreements.
The execution and delivery by PepsiCo of this Agreement and the PepsiCo
Relevant Agreements and the consummation by
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PepsiCo of the Merger and the other transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate
action on the part of PepsiCo. No approval of the stockholders of PepsiCo
is required in connection with the execution and delivery of the
Transaction Documents or the consummation of the transactions contemplated
thereby. Each of this Agreement and the PepsiCo Relevant Agreements has
been (or upon execution will be) duly executed and delivered by PepsiCo,
and constitutes (or upon execution will constitute) a valid and binding
obligation of PepsiCo, enforceable against PepsiCo in accordance with its
respective terms. The execution and delivery of this Agreement and each
PepsiCo Relevant Agreement do not (or upon execution will not), the
consummation of the Merger and the other transactions contemplated by the
Transaction Documents and compliance with the provisions of this Agreement
and each PepsiCo Relevant Agreement will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time or
both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation under (i) the certificate of incorporation
or by-laws of PepsiCo or the comparable charter or organizational documents
of any PepsiCo Subsidiary, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument or permit
applicable to PepsiCo or any PepsiCo Subsidiary or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to PepsiCo or any
PepsiCo Subsidiary or their respective properties or assets, other than, in
the case of clause (ii) or (iii), any such conflicts, violations, defaults
or rights that individually or in the aggregate are not reasonably likely
to have a Material Adverse Effect on the PepsiCo Subsidiaries. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to PepsiCo or
any PepsiCo Subsidiary in connection with the execution and delivery of
this Agreement and any PepsiCo Relevant Agreement or the consummation by
PepsiCo of the Merger and the other transactions contemplated by the
Transaction Documents, except for (A) the filing of a premerger
notification and report form by PepsiCo under the HSR Act, (B) the filing
with the SEC of (I) the Form S-4, (II) a registration statement of Merger
Sub on Form S-8 under the Securities Act (the "Form S-8") and (III) such
reports under Section 13(a) of the Exchange Act as may be required in
connection with this Agreement, the Merger and the other transactions
contemplated by the Transaction Documents, (C) the filing of the
Certificate of Merger with the Delaware Secretary of State and the filing
of appropriate documents with the relevant authorities of other states in
which PepsiCo or any PepsiCo Subsidiary is qualified to do business and
such filings with Governmental Entities to satisfy applicable requirements
of state securities or "blue sky" laws, (D) such filings with and approvals
of the New York Stock Exchange, Inc. (the "NYSE"), to permit the shares of
Merger Sub Common Stock that are to be issued in the Contribution and the
Merger to be listed on the NYSE, (E) the Poland Approvals and (F) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be made or obtained,
individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect on the PepsiCo Subsidiaries.
(d) Financial Statements; Undisclosed Liabilities. Schedule 5.02(d)
of the PepsiCo Disclosure Schedule sets forth the unaudited pro forma
condensed combined statements of operations and the unaudited pro forma
condensed combined statements of cash flows for the thirty-six week periods
ended September 6, 1997, and September 5, 1998, and the unaudited pro forma
condensed combined balance sheets as of December 27, 1997, and September 5,
1998, for the Merger Sub Acquired Businesses and the PGB Acquired
Businesses (the "Merger Sub/PGB Acquired Businesses Financial Statements").
The Merger Sub/PGB Acquired Businesses Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of each of the Merger
Sub Acquired Businesses and the PGB Acquired Businesses as of the dates
thereof and the consolidated results of the operations and cash flows of
each of the Merger Sub Acquired Businesses and the PGB Acquired Businesses
for the periods then ended (subject to normal year-end audit adjustments).
Except for any other Liabilities incurred in the ordinary course of
business consistent with past practice since September 5, 1998, none of the
PepsiCo Subsidiaries has any Liabilities required by GAAP to be set forth
on a consolidated balance sheet of such PepsiCo Subsidiary or in the notes
thereto.
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(e) Information Supplied. None of the information supplied or to be
supplied by PepsiCo or any of its Subsidiaries for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time the Form
S-4 is filed with the SEC, at any time it is amended or supplemented or at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading or
(ii) the Proxy Statement/Prospectus will, at the date it is first mailed to
Whitman's stockholders or at the time of the Whitman Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Form S-4 will comply as to form in all material
respects with the requirements of the Securities Act, except that no
representation is made by PepsiCo with respect to statements made or
incorporated by reference therein based on information supplied by Whitman
or any Subsidiary of Whitman for inclusion or incorporation by reference in
the Form S-4.
(f) Absence of Certain Changes or Events. Except as disclosed in the
reports, schedules, forms, statements and other documents required to be
filed by PepsiCo with the SEC since January 1, 1997 and publicly available
prior to the date of this Agreement (the "PepsiCo Filed SEC Documents"),
since September 5, 1998, PepsiCo has conducted the business of each of the
PepsiCo Subsidiaries only in the ordinary course, and there has not been
(i) any Material Adverse Change in the PepsiCo Subsidiaries , (ii) any
granting by any of the PepsiCo Subsidiaries to any Transferred Individual
of any increase in compensation, except for increases in cash compensation
in the ordinary course of business consistent with past practice or to the
extent required under employment agreements in effect as of the date of
this Agreement (true and complete copies of which have been made available
to Whitman), (y) any granting by any of the PepsiCo Subsidiaries to any
such Transferred Individual of any increase in severance or termination
pay, except to the extent required under any employment, severance or
termination agreements in effect as of the date of this Agreement (true and
complete copies of which have been made available to Whitman) or (z) any
entry by any of the PepsiCo Subsidiaries into any employment, consulting,
indemnification, severance or termination agreement with any such
Transferred Individual, (iii) any damage, destruction or loss, whether or
not covered by insurance, that individually or in the aggregate has had, or
is reasonably likely to have, a Material Adverse Effect on the PepsiCo
Subsidiaries or (iv) any change in accounting methods, principles or
practices by any of the PepsiCo Subsidiaries materially affecting the
assets, Liabilities or business of any of the Merger Sub Acquired
Businesses or the PepsiCo Acquired Businesses, except insofar as may have
been required by a change in GAAP.
(g) Litigation. As of the date hereof, there is no suit, action or
proceeding pending or, to the knowledge of PepsiCo, threatened against or
affecting any PepsiCo Subsidiary, or any former Subsidiary or business of
any PepsiCo Subsidiary, that individually or in the aggregate is reasonably
likely to have a Material Adverse Effect on the PepsiCo Subsidiaries, nor
is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against or affecting any
PepsiCo Subsidiary, or any former Subsidiary or business of any PepsiCo
Subsidiary, that individually or in the aggregate is reasonably likely to
have a Material Adverse Effect on the PepsiCo Subsidiaries.
(h) Changes in PepsiCo Benefit Plans. (i) Other than the cessation of
stock option grants under the PepsiCo SharePower Program, since September
5, 1998, there has not been any adoption or amendment by PepsiCo or any of
its Subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether or not legally binding)
maintained, or contributed to, by PepsiCo or any of its Subsidiaries as of
the Closing Date, providing benefits to any current or former employee,
officer or director of PepsiCo or any of its Subsidiaries or with respect
to which PepsiCo or any of its Subsidiaries as of the Closing Date has any
Liability (collectively, "PepsiCo Benefit Plans") that is reasonably likely
to result in a Material Adverse Effect on the PepsiCo Subsidiaries. There
exist no employment, consulting, severance, termination or indemnification
agree-
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ments, arrangements or understandings between PepsiCo or any of its
Subsidiaries and any current or former employee, officer or director of any
PepsiCo Subsidiary who is a Transferred Individual.
(ii) All actions taken, or to be taken, in accordance with the
Employee Benefits Agreement by PepsiCo or any of its Subsidiaries on or
prior to the Effective Time with respect to the PepsiCo Benefit Plans, will
be taken without violating the terms of the PepsiCo Benefit Plans, ERISA or
the Code.
(iii) All actions required under the Employee Benefits Agreement to be
taken, or caused to be taken, by Merger Sub on or after the Effective Time
with respect to the PepsiCo Benefit Plans or successor plans or programs to
the PepsiCo Benefit Plans, in any case maintained by Merger Sub in
accordance with the Employee Benefits Agreement (the "Merger Sub Benefit
Plans"), may be taken without violating the terms of the PepsiCo Benefit
Plans, the Merger Sub Benefit Plans, ERISA or the Code.
(iv) Except as otherwise specifically required of Merger Sub as
provided in the Employee Benefits Agreement, neither PepsiCo nor any of its
Subsidiaries, nor any employee or director of any of them, has taken any
action, has agreed in contract (excluding collective bargaining
agreements), or otherwise has created facts and circumstances that are
reasonably likely to preclude Merger Sub (A) from amending or terminating,
without incurring any Liability (other than Liabilities incurred without
regard to such amendment or termination), any portion or all of any of the
Merger Sub Benefit Plans which are Merger Sub Health and Welfare Plans (as
defined in the Employee Benefits Agreement) or (B) from taking any action
required to be taken by Merger Sub pursuant to the Employee Benefits
Agreement without incurring any Liability.
(i) ERISA Compliance. (i) Schedule 5.02(i) of the PepsiCo Disclosure
Schedule contains a list and brief description of all PepsiCo Benefit Plans
which are "employee pension benefit plans" (as defined in Section 3(2) of
ERISA) which are subject to Title IV of ERISA and which relate to any
Transferred Individual (sometimes referred to herein as "PepsiCo Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA) and all other PepsiCo Benefit Plans which relate to any Transferred
Individual. PepsiCo has made available to Whitman true, complete and
correct copies of (w) each PepsiCo Benefit Plan (or, in the case of any
unwritten PepsiCo Subsidiary Benefit Plans, descriptions thereof), (x) the
most recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each PepsiCo Benefit Plan (if any such report was
required), (y) the most recent summary plan description for each PepsiCo
Benefit Plan for which such summary plan description is required and (z)
each trust agreement and group annuity contract relating to any PepsiCo
Benefit Plan; provided, however, that clauses (w), (x), (y) and (z) shall
only apply to those PepsiCo Benefit Plans providing a benefit to a
Transferred Individual.
(ii) All PepsiCo Pension Plans have been the subject of determination
letters from the Internal Revenue Service to the effect that such PepsiCo
Pension Plans are qualified and exempt from Federal income Taxes under
Section 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the knowledge of PepsiCo, has
revocation been threatened, nor has any such PepsiCo Pension Plan been
amended since the date of its most recent determination letter or
application therefor in any respect that would adversely affect its
qualification or materially increase its costs.
(iii) No Pension Plan that PepsiCo or any of its Subsidiaries
maintains, or to which PepsiCo or any of its Subsidiaries is obligated to
contribute, other than any such Pension Plan that is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA; collectively, the
"PepsiCo Multiemployer Pension Plans"), had, as of the respective last
annual valuation date for each such PepsiCo Pension Plan, an accumulated
benefit obligation, determined in accordance with Financial Accounting
Standard Number 87, in excess of fair market value of the assets of such
PepsiCo Pension Plan. None of the PepsiCo Pension Plans has an "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived. Except for any of the
following relating to employees other than the Transferred Individuals,
none of PepsiCo, any Subsidiary of PepsiCo, any officer of PepsiCo or any
Subsidiary of PepsiCo or any of the PepsiCo Benefit Plans
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which are subject to ERISA, including the PepsiCo Pension Plans, any trusts
created thereunder, or, to PepsiCo's knowledge, any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code) or any
other breach of fiduciary responsibility that could subject PepsiCo or any
officer of PepsiCo to the Tax or penalty on prohibited transactions imposed
by such Section 4975 or to any Liability under Section 502(i) or (1) of
ERISA. None of the PepsiCo Pension Plans nor any of such trusts has been
terminated during the last five years and PepsiCo is not aware of any basis
for any PepsiCo Pension Plan to have been terminated. Neither PepsiCo nor
any of its Subsidiaries has incurred a "complete withdrawal" or a "partial
withdrawal" (as such terms are defined in Section 4203 and Section 4205,
respectively, of ERISA) with respect to any of the PepsiCo Multiemployer
Pension Plans which is reasonably likely to have a Material Adverse Effect
on the PepsiCo Subsidiaries.
(iv) With respect to any PepsiCo Benefit Plan that is an employee
welfare benefit plan (x) each such PepsiCo Benefit Plan that is a "group
health plan", as such term is defined in Section 5000(b)(1) of the Code,
complies with the applicable requirements of Section 4980B(f) of the Code
and (y) each such PepsiCo Benefit Plan (including any such Plan covering
retirees or other former employees) may be amended or terminated on or at
any time after the Closing without Material Adverse Effect on the PepsiCo
Subsidiaries.
(v) None of the PepsiCo Subsidiaries has any outstanding Liability
relating to any Transferred Individual imposed under ERISA or, with respect
to any employee welfare benefit plan, the Code, other than claims for
benefits and expenses in the ordinary course of business.
(j) Taxes. (i) Each of PepsiCo and each of its Subsidiaries has filed
all Tax Returns required to be filed by it, or requests for extensions to
file such Tax Returns have been timely filed and granted, and has paid (or
there have been paid on its behalf) all Taxes shown to be due on such Tax
Returns, except where the failure to file such Tax Returns or pay such
Taxes is not reasonably likely to have a Material Adverse Effect on the
PepsiCo Subsidiaries. All such Tax Returns are true, correct and complete
in all material respects. No deficiencies for any material Taxes have been
proposed, asserted or assessed in writing against any of the PepsiCo
Subsidiaries, and no requests for waivers of the time to assess any such
Taxes are pending, except with respect to any deficiency for Taxes that
individually or in the aggregate is not reasonably likely to have a
Material Adverse Effect on the PepsiCo Subsidiaries.
(ii) None of Czechco, Hungarianco, Polandco, Poland Distributionco or
Slovackco is or has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code. None of the assets
being transferred in the Contribution or the PepsiCo Transfers is a United
States real property interest within the meaning of Section 897(c)(1) of
the Code.
(iii) No foreign Subsidiary of PepsiCo that is being transferred
pursuant to the PepsiCo Transfers is a party to any tax sharing agreement
or arrangement.
(k) No Excess Parachute Payments. Other than payments that may be
made to the persons referred to in Schedule 5.02(k) (the "PepsiCo
Subsidiary Executives"), any amount that could be received (whether in cash
or property or the vesting of property) as a result of the Merger or the
PepsiCo Transfers by any employee, officer or director of PepsiCo or any of
its affiliates who is a "disqualified individual" (as such term is defined
in proposed Treasury Regulation Section 1.280G-1) and who is a Transferred
Individual under any employment, severance or termination agreement, other
compensation arrangement or PepsiCo Subsidiary Benefit Plan currently in
effect would not be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code). PepsiCo has made
available to Whitman information concerning payment obligations which may
be incurred as a result of the Merger or the PepsiCo Transfers and a
subsequent termination of employment under existing change in control and
other similar agreements.
(l) Compliance With Applicable Laws; Permits. (i) Each PepsiCo
Subsidiary is in compliance in all respects with all judgments, orders,
decrees, statutes, laws, ordinances, rules and regulations applicable to
any such PepsiCo Subsidiary and any such PepsiCo Subsidiary's properties or
assets, except for
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instances of noncompliance that individually or in the aggregate are not
reasonably likely to have a Material Adverse Effect on the PepsiCo
Subsidiaries. None of the PepsiCo Subsidiaries has received any notice
regarding any matter that is not fully resolved from a Governmental Entity
that alleges that such PepsiCo Subsidiary is not in compliance with any
such judgments, orders, decrees, statutes, laws, ordinances, rules or
regulations and each of the PepsiCo Subsidiaries has and is in compliance
with all Permits required for the operation of its business as currently
conducted, except for those notices, instances of noncompliance or lack of
Permits that, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect on the PepsiCo Subsidiaries.
(ii) There is no suit, action, proceeding or inquiry pending or, to
the knowledge of PepsiCo, threatened before any court, Governmental Entity
or other forum in which any of the PepsiCo Subsidiaries, or any of their
respective former Subsidiaries or businesses, has been or, with respect to
threatened suits, actions and proceedings, may be named as a defendant (A)
for alleged noncompliance with any Environmental Law or (B) relating to the
release into the environment of, or human exposure to, any Hazardous
Material, whether or not occurring at, on, under or involving a site
currently or formerly owned, leased or operated by the PepsiCo Subsidiaries
or any of their respective former Subsidiaries or businesses, except for
any such suits, actions, proceedings and inquiries which, individually or
in the aggregate, are not reasonably likely to have a Material Adverse
Effect on the PepsiCo Subsidiaries.
(iii) During the period of ownership or operation by the PepsiCo
Subsidiaries or any of their respective former Subsidiaries or businesses
of any of their respective currently or formerly owned, leased or operated
properties, there have been no releases of Hazardous Material in, on, under
or affecting such properties or, to the knowledge of PepsiCo, any
surrounding site, except in each case for those which, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect
on the PepsiCo Subsidiaries. Prior to the period of ownership or operation
by the PepsiCo Subsidiaries or any of their respective former Subsidiaries
or businesses of any of such properties, to the knowledge of PepsiCo, there
were no releases of Hazardous Material in, on, under or affecting any such
property or any surrounding site, except in each case for those which,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect on the PepsiCo Subsidiaries.
(iv) None of the PepsiCo Subsidiaries or their respective Subsidiaries
is subject to any order, decree, injunction or other arrangement with any
Governmental Entity or any indemnity or other agreement with any third
party relating to liability under any Environmental Law or relating to any
Hazardous Material, except for any such order, decree, injunction,
arrangement, indemnity or other agreement which, individually or in the
aggregate, is not reasonably likely to have a Material Adverse Effect on
the PepsiCo Subsidiaries.
(v) No products shipped, sold or delivered on or prior to the Closing
Date by or for any of the PepsiCo Subsidiaries were, and no food or food
ingredients included in the Inventory of any PepsiCo Subsidiary on or prior
to the Closing Date and which are used by any PepsiCo Subsidiary, were or
are adulterated or misbranded within the meaning of the Federal Food, Drug
& Cosmetic Act and the regulations promulgated thereunder or comparable
food laws and regulations of any jurisdiction of any Governmental Entity to
which such products have been or are intended to be shipped, sold or
delivered, except for any such adulteration or misbranding which,
individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect on the PepsiCo Subsidiaries.
(m) Contracts. Other than contracts or agreements entered into by any
PepsiCo Subsidiary in the ordinary course of business, there are no
contracts or agreements that would have been required to be filed as an
Exhibit to an Annual Report on Form 10-K if the PepsiCo Subsidiaries (taken
as a whole) were a company required to file periodic reports pursuant to
the Exchange Act that are material to the business, financial position or
results of operations of the PepsiCo Subsidiaries, including (A) any
employment, severance, termination, consulting or retirement contract
providing for aggregate payments to any person in any calendar year in
excess of $250,000, (B) any contract relating to the borrowing of
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money or the guarantee of any such obligation or (C) any material contract
or agreement between or among PepsiCo and the PepsiCo Subsidiaries.
(n) Title to Properties. Each PepsiCo Subsidiary has, in the case of
personal property, good and valid title to or valid leasehold interests in,
and in the case of real property, good and marketable title to or valid
leasehold interests in, all its properties and assets, except for such as
are no longer used or useful in the conduct of its businesses or as have
been disposed of in the ordinary course of business and except for defects
in title, easements, restrictive covenants and similar encumbrances or
impediments that individually or in the aggregate are not reasonably likely
to have a Material Adverse Effect on the PepsiCo Subsidiaries. All such
assets and properties are free and clear of all Liens except for Permitted
Liens.
(o) Nature of Purchase. (i) None of Ohio Sub, St. Louis Sub, Opco Sub
or Metro Sub is acquiring shares of Merger Sub Common Stock with a view to
the resale or distribution of such shares of Merger Sub Common Stock or any
part thereof.
(ii) Merger Sub is not acquiring the PGB Shares with a view to the
resale or distribution of the PGB Shares or any part thereof.
(iii) Each of Ohio Sub, St. Louis Sub, Opco Sub, Metro Sub and Merger
Sub is an "accredited investor" within the meaning of Rule 501 under the
Securities Act.
(p) Sufficiency of Assets. (i) Except for the Excluded Assets, each
of the Merger Sub Acquired Businesses and the PGB Acquired Businesses
contains substantially all of the assets, properties and rights owned, used
or held for use primarily in connection with, or that otherwise primarily
relate to or are required for the conduct of, such Merger Sub Acquired
Businesses and PGB Acquired Businesses as presently conducted by PepsiCo
and the PepsiCo Subsidiaries on the date of this Agreement.
(ii) Schedule 5.02(p) of the PepsiCo Disclosure Schedule sets forth,
with respect to each of the Merger Sub Acquired Businesses and the PGB
Acquired Businesses, a true and complete list (under corresponding
headings) of (A) the Premises, U.S. Personal Property (as of the date
indicated on such Schedule) and material Permits of such Business and (B)
each Contract of such Business that (i) has not been entered into in the
ordinary course of business, (ii) may not be terminated by such Business
within one year or (iii) provides for aggregate payments by such Business
in any calendar year in excess of $250,000.
(q) Brokers. Except for Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the fees and expenses of which will be borne by PepsiCo), no
broker, investment banker, financial advisor or other person is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the Merger and the other transactions
contemplated by the Transaction Documents based upon arrangements made by
or on behalf of PepsiCo or any of the PepsiCo Subsidiaries.
(r) Year 2000 Compliance. Each of the PepsiCo Subsidiaries has (i)
initiated a review and assessment of all areas within its business and
operations (including those affected by suppliers and vendors) that could
be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by any of the PepsiCo Subsidiaries (or its
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates
after December 31, 1999), (ii) developed a plan and timetable for
addressing the Year 2000 Problem on a timely basis and (iii) as of the date
of this Agreement, implemented such plan in accordance with such timetable.
To the knowledge of PepsiCo, all computer applications of each of the
PepsiCo Subsidiaries (including those of its suppliers and vendors) that
are material to the PepsiCo Subsidiaries will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that any failure to do so,
individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect on the PepsiCo Subsidiaries.
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ARTICLE VI
COVENANTS RELATING TO BUSINESS
SECTION 6.01. Alternative Transactions. (a) Whitman shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, Whitman or any of its Subsidiaries to, (i)
directly or indirectly solicit, initiate or encourage the submission of, any
Takeover Proposal, (ii) enter into any agreement with respect to any Takeover
Proposal or (iii) directly or indirectly participate in any discussions with
third parties or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal; provided, however, that at any time
prior to the date of the Whitman Stockholders Meeting (the "Applicable Period"),
Whitman may, in response to a Superior Proposal which was not solicited by it
and which did not otherwise result from a breach of this Section 6.01(a), and
subject to providing prior written notice of its decision to take such action to
PepsiCo (the "Whitman Notice") and compliance with Section 6.01(c) following
delivery of the Whitman Notice (x) furnish information with respect to Whitman
and its Subsidiaries to any person making a Superior Proposal pursuant to a
customary confidentiality agreement (as determined by Whitman after consultation
with its outside counsel) and (y) participate in discussions or negotiations
regarding such Superior Proposal.
(b) Neither the Board of Directors of Whitman nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to PepsiCo, the approval or recommendation by the Board of Directors of
Whitman or any such committee of the Merger, this Agreement or the other
Transaction Documents, (ii) approve any letter of intent, agreement in
principle, acquisition agreement or similar agreement (other than a
confidentiality agreement in connection with a Superior Proposal which is
entered into by Whitman in accordance with Section 6.01(a)) relating to any
Takeover Proposal (each, a "Whitman Acquisition Agreement") or (iii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal.
Notwithstanding the foregoing, in response to a Superior Proposal which was not
solicited by Whitman and which did not otherwise result from a breach of Section
6.01(a), the Board of Directors of Whitman may (subject to this sentence)
terminate this Agreement (and concurrently with or after such termination, if it
so chooses, cause Whitman to enter into any Whitman Acquisition Agreement with
respect to any Whitman Superior Proposal), but only at a time that is during the
Applicable Period and is after the fifth business day following PepsiCo's
receipt of written notice advising PepsiCo that the Board of Directors of
Whitman has resolved to accept a Superior Proposal (subject to such
termination), specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal.
(c) Whitman promptly shall advise PepsiCo orally and in writing of any
Takeover Proposal or any inquiry with respect to or that could reasonably be
expected to lead to any Takeover Proposal, the identity of the person making any
such Takeover Proposal or inquiry and the material terms of any such Takeover
Proposal or inquiry. Whitman shall keep PepsiCo fully informed of the status and
material terms of any such Takeover Proposal or inquiry.
(d) PepsiCo shall not, nor shall it permit any of its Subsidiaries to, nor
shall it authorize or permit any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, PepsiCo or
any of its Subsidiaries to, (i) directly or indirectly solicit, initiate or
encourage the submission of, any Acquisition Proposal, (ii) enter into any
agreement with respect to any Acquisition Proposal or (iii) directly or
indirectly participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal.
SECTION 6.02. Interim Operations of Whitman. During the period from the
date of this Agreement to the Closing, Whitman shall, and shall cause each of
its Subsidiaries to, conduct its business in the usual, regular and ordinary
course in substantially the same manner as previously conducted (including
scheduled capital expenditures and with respect to matters relating to cash
management, accounts receivable and accounts payable) and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and keep its
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relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them to the end that its goodwill and
ongoing business shall be unimpaired at the Closing. In addition, subject to the
foregoing sentence and without limiting the generality of the foregoing, except
for matters set forth in the Whitman Disclosure Schedule or otherwise
contemplated by this Agreement or the other Transaction Documents, from the date
of this Agreement to the Closing, Whitman shall not, and shall not permit any of
its Subsidiaries to, do any of the following without the prior written consent
of PepsiCo:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than (1)
dividends and distributions by a direct or indirect Subsidiary of Whitman
to its parent and (2) regular quarterly cash dividends with respect to
Whitman Common Stock, not in excess of $.05 per share, with usual
declaration, record and payment dates and in accordance with Whitman's past
dividend policy, (B) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of
Whitman or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell or grant (A) any shares of its capital
stock, (B) any bonds, debentures, notes or other indebtedness having the
right to vote or any other voting securities, (C) any securities
convertible into or exchangeable for, or any options, warrants or rights to
acquire, any such shares, voting securities or convertible or exchangeable
securities or (D) any "phantom" stock, "phantom" stock rights, stock
appreciation rights or stock-based performance units, other than the
issuance of Whitman Common Stock upon the exercise of Whitman Stock Options
in accordance with their present terms;
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
material assets, except purchases of inventory in the ordinary course of
business consistent with past practice;
(v) (A) grant to any employee, officer or director of Whitman or any
of its Subsidiaries any increase in compensation, except for increases in
cash compensation in the ordinary course of business consistent with past
practice or to the extent required under employment agreements in effect as
of the date of this Agreement, (B) grant to any employee, officer or
director of Whitman or any of its Subsidiaries any increase in severance or
termination pay, except to the extent required under any agreement in
effect as of the date of this Agreement, (C) enter into any employment,
consulting, indemnification, severance or termination agreement with any
such employee, officer or director, (D) establish, adopt, enter into or
amend in any material respect any collective bargaining agreement or
Whitman Benefit Plan or (E) take any action to accelerate any rights or
benefits, or make any material determinations not in the ordinary course of
business consistent with past practice, under any collective bargaining
agreement or Whitman Benefit Plan;
(vi) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, Liabilities or
results of operations of Whitman, except insofar as may be required by a
change in GAAP;
(vii) sell, lease, license or otherwise dispose of or subject to any
Lien (x) any PepsiCo Acquired Businesses or (y) any other properties or
assets, except sales of inventory and excess or obsolete assets in the
ordinary course of business consistent with past practice;
(viii) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Whitman or any
of its Subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
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incurred in the ordinary course of business consistent with past practice,
or (B) make any loans, advances or capital contributions to, or investments
in, any other person, other than to or in Whitman or any direct or indirect
wholly owned Subsidiary of Whitman;
(ix) make or agree to make any new capital expenditure or expenditures
that, individually, is in excess of $5,000,000 or, in the aggregate, are in
excess of $100,000,000; provided, however, that, notwithstanding the
foregoing, Whitman shall not, and shall cause its Subsidiaries to not, make
or agree to make any new capital expenditure relating to the PepsiCo
Acquired Businesses that, individually, is in excess of $1,000,000 or, in
the aggregate, are in excess of $5,000,000;
(x) make any material Tax election or settle or compromise any
material Tax Liability or refund, except to the extent already provided for
in the Whitman Filed SEC Documents;
(xi) (A) pay, discharge or satisfy any material claims or material
Liabilities, other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of Liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of Whitman included in the Whitman Filed SEC Documents or
incurred in the ordinary course of business consistent with past practice,
(B) cancel any material indebtedness (individually or in the aggregate) or
waive any claims or rights of substantial value or (C) waive the benefits
of, or agree to modify in any manner, any confidentiality, standstill or
similar agreement to which Whitman or any of its Subsidiaries is a party;
(xii) amend the Whitman Rights Agreement; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions.
SECTION 6.03. Interim Operations of PepsiCo Subsidiaries. (a) During the
period from the date of this Agreement to the Closing, PepsiCo shall cause each
of the PepsiCo Subsidiaries to conduct its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted
(including scheduled capital expenditures and with respect to matters relating
to cash management, accounts receivable and accounts payable) and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and keep its relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with them to the end
that the goodwill and ongoing business of each of the PepsiCo Subsidiaries shall
be unimpaired at the Closing. In addition, subject to the foregoing sentence and
without limiting the generality of the foregoing, except for matters set forth
in the PepsiCo Disclosure Schedule or otherwise contemplated by this Agreement
or the other Transaction Documents, from the date of this Agreement to the
Closing, PepsiCo shall not permit any PepsiCo Subsidiary to do any of the
following without the prior written consent of Whitman:
(i) in the case of the PGB Acquired Businesses only, amend its
certificate of incorporation, by-laws or other comparable charter or
organizational documents;
(ii) except for the acquisition of any Excluded Asset, acquire or
agree to acquire (A) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof or (B) any material assets,
except purchases of inventory in the ordinary course of business consistent
with past practice;
(iii) (A) grant to any Transferred Individual any increase in
compensation, except in the ordinary course of business consistent with
past practice or to the extent required under employment agreements in
effect as of the date of this Agreement, (B) grant to any Transferred
Individual of any PepsiCo Subsidiary any increase in severance or
termination pay, except to the extent required under any agreement in
effect as of the date of this Agreement, (C) enter into any employment,
consulting, indemnification, severance or termination agreement with any
such Transferred Individual, (D) establish, adopt, enter into or amend in
any material respect any collective bargaining agreement or PepsiCo
Subsidiary Benefit Plan to the extent relating to any Transferred
Individual or (E) take any
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action to accelerate any rights or benefits, or make any material
determinations not in the ordinary course of business consistent with past
practice, under any collective bargaining agreement or PepsiCo Subsidiary
Benefit Plan to the extent relating to any Transferred Individual;
(iv) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, Liabilities or
results of operations of any of the PepsiCo Subsidiaries, except insofar as
may be required by a change in GAAP;
(v) except with respect to Excluded Assets, sell, lease, license or
otherwise dispose of or subject to any Lien any of the assets of the
PepsiCo Subsidiaries, except sales of inventory and excess or obsolete
assets in the ordinary course of business consistent with past practice;
(vi) except with respect to any such indebtedness, loans, advances,
capital contributions, or investments which is an Excluded Liability, (A)
incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or capital
contributions to, or investments in, any other person, other than to or in
any investment existing on the date of this Agreement;
(vii) except with respect to any Excluded Liability, make or agree to
make any new capital expenditure or expenditures that (with respect to the
PepsiCo Subsidiaries taken as a whole), individually, is in excess of
$5,000,000 or, in the aggregate, are in excess of $100,000,000;
(viii) make any material Tax election or settle or compromise any
material Tax Liability (other than any such material Tax Liability which is
an Excluded Liability) or refund, except to the extent already provided for
in the PepsiCo Filed SEC Documents;
(ix) (A) except with respect to any Excluded Liability, pay, discharge
or satisfy any material claims or material Liabilities, other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of
Liabilities reflected or reserved against in the Merger Sub/PGB Acquired
Businesses Financial Statements or incurred in the ordinary course of
business consistent with past practice, (B) except with respect to any
Excluded Liability, cancel any material indebtedness (individually or in
the aggregate) or waive any claims or rights of substantial value or (C)
waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which any PepsiCo
Subsidiary is a party;
(x) in the case of Merger Sub only, (A) conduct any business, (B)
split, combine or reclassify any of its capital stock, (C) issue, deliver,
sell or grant any shares of its capital stock, any securities having voting
rights, or any securities convertible or exchangeable for securities having
voting rights, or (D) otherwise alter its capitalization; or
(xi) authorize any of, or commit or agree to take any of, the
foregoing actions.
SECTION 6.04. Advice of Changes. Whitman and PepsiCo shall promptly
advise the other orally and in writing of any change or event having, or which
is reasonably likely to have, a Material Adverse Effect on Whitman or the
PepsiCo Subsidiaries, as applicable; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
SECTION 6.05. Other Actions. Subject to Section 7.04, each of Whitman and
PepsiCo hereby agrees to take no action, and agrees that they will not permit
any of their respective Subsidiaries to take any action, that would reasonably
be likely to cause:
(a) the failure of any such party to perform and comply in all
material respects with all agreements, obligations and conditions required
by this Agreement or the other Transaction Documents to be performed or
complied with by such party on or prior to the Closing Date;
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(b) any Material Adverse Effect on Whitman or the PepsiCo
Subsidiaries, as applicable; or
(c) the inability of the Contribution, and the Contribution and Merger
collectively, to constitute a tax-free transaction described in Section 351
or the inability of the Merger to constitute a tax-free transaction
described in Section 368(a) of the Code or the inability of Whitman or
PepsiCo to obtain the opinions of counsel referred to in Sections 8.02(c)
and 8.03(c).
ARTICLE VII
ADDITIONAL COVENANTS
SECTION 7.01. Preparation of Form S-4 and the Proxy Statement/Prospectus;
Whitman Stockholders Meeting. (a) Each party shall cooperate in the preparation
of the Form S-4 and the Proxy Statement/ Prospectus and all pre- and
post-effective amendments thereto and the filing thereof with the SEC. Such
cooperation shall include (i) preparation of historical and pro forma financial
statements relating to such party required to be included in such filings, (ii)
provision of financial and other information relating to such party required to
be included in such filings, (iii) engagement of accountants to report on and
provide comfort letters in customary form in respect of financial information
provided by such party for inclusion in such filings (which comfort letters will
be received by Whitman in accordance with customary practice) and (iv)
responding to comments relating to such party received from the staff of the SEC
in respect of such filings promptly after receipt thereof.
(b) Each party shall be entitled to review any materials related to the
Proxy Statement/Prospectus at any time and from time to time prior to their
mailing to the Whitman stockholders, and to comment thereon, and Whitman shall
incorporate into such materials PepsiCo's comments thereon so that such
materials are reasonably acceptable to each party. PepsiCo shall, on behalf of
Merger Sub, prepare and cause Merger Sub to file with the SEC the Form S-4 in
which the Proxy Statement/Prospectus will be included as a prospectus, as
promptly as practicable after comments are received from the SEC staff on the
initial filing of the Proxy Statement/Prospectus. Each of PepsiCo and Merger Sub
shall use its reasonable efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. Whitman will
use its reasonable efforts to cause the Proxy Statement/Prospectus to be mailed
to Whitman's stockholders as promptly as practicable after the date the Form S-4
is declared effective under the Securities Act. PepsiCo, Merger Sub and Whitman
shall also take all reasonable efforts to cause any action (other than
qualifying to do business in any jurisdiction in which Whitman is not now so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Merger Sub Common Stock in the Contribution and
the Merger.
(c) Whitman will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold the Whitman Stockholders
Meeting, and will use its reasonable efforts to cause the Whitman Stockholders
Meeting to be held as promptly as practicable after the date the Proxy
Statement/ Prospectus is mailed to the Whitman Stockholders. Whitman will,
through its Board of Directors, recommend to its stockholders adoption of this
Agreement and will use its reasonable efforts to cause the Whitman Stockholder
Approval to be obtained at the Whitman Stockholders Meeting; provided, however,
that Whitman's obligations to recommend such adoption and to cause such adoption
to be obtained shall be subject to the fiduciary obligations of the Board of
Directors of Whitman. Without limiting the generality of the foregoing, Whitman
agrees that its obligations pursuant to the first sentence of this Section
7.01(c) shall not be affected by the commencement, public proposal, public
disclosure or communication to Whitman of any Takeover Proposal.
SECTION 7.02. Listing Application. PepsiCo shall cause Merger Sub to
prepare and submit to the NYSE listing applications covering the shares of
Merger Sub Common Stock issuable by Merger Sub pursuant to the Contribution and
the Merger, and shall use their respective reasonable efforts to obtain, prior
to the Effective Time, approval for the listing of such stock, subject to
official notice of issuance.
SECTION 7.03. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement dated as of August 24, 1998, between Whitman and
PepsiCo (the "Confidentiality Agreement"), and subject
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to applicable legal restrictions, Whitman shall afford to PepsiCo, and PepsiCo
shall afford to Whitman, and, in each case, to the officers, employees,
accountants, counsel, financial advisors and other representatives of such
parties, reasonable access during normal business hours during the period prior
to the Closing to (i) in the case of Whitman, all its respective properties,
books, contracts, commitments, personnel and records and (ii) in the case of
PepsiCo, all the properties, books, contracts, commitments, personnel and
records in respect of each of the PepsiCo Subsidiaries. Each of the foregoing
parties agrees to use its reasonable efforts in good faith to obtain all waivers
and consents necessary under any confidentiality or non-disclosure agreement
(other than any such agreement with a party seeking disclosure hereunder, as to
which the party seeking disclosure shall be deemed to have waived such
confidentiality or non-disclosure with respect to itself) to afford reasonable
access to the applicable party. During such period, Whitman shall, and shall
cause each of its Subsidiaries to, furnish promptly to PepsiCo a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of Federal or state securities laws.
During such period, subject to applicable legal restrictions, each of Whitman
and its Subsidiaries and PepsiCo and the PepsiCo Subsidiaries shall furnish or
cause to be furnished all other information concerning its business, properties
and personnel as such other party may reasonably request. Except as required by
law, each party will hold, and will cause its respective officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any nonpublic information in confidence until such time as
such information becomes publicly available (otherwise than through the wrongful
act of any such person) and shall use its reasonable efforts to ensure that such
persons do not disclose such information to others without the prior written
consent of the applicable party from whom such information was received. In the
event of the termination of this Agreement for any reason, each party shall
promptly return or destroy all documents containing nonpublic information so
obtained from any other party or any of its Subsidiaries and any copies made of
such documents.
SECTION 7.04. Reasonable Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each party agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by the Transaction Documents. In the event an Assigned Contract
relates both to a business being transferred and a business being retained by
PepsiCo or Whitman or any of their respective Subsidiaries, each party will use
its reasonable efforts to cause such Assigned Contract to be divided into
separate contracts for each of the transferred business and the retained
business, or otherwise to cause the same economic and business terms to govern
(by subcontract, sublicense or otherwise). To the extent that any Assigned
Contract to be assigned by PepsiCo or Whitman (or any of their respective
Subsidiaries) to the other party or any of its respective Subsidiaries pursuant
to this Agreement is not assignable without the consent or without novation of a
third party, and such consent is not obtained or novation effected, as the case
may be, this Agreement shall not constitute an assignment or an attempted
assignment thereof and PepsiCo and Whitman shall enter into alternative
arrangements with respect thereto satisfactory to PepsiCo and Whitman. To the
extent any such agreements and/or related services cannot be assigned or can be
assigned but only with cost to the party assigning such agreement and/or related
services, such party shall use reasonable efforts to provide the benefits and
pass on the costs of such agreements and/or related services to the party to
which such agreements and/or services were to be assigned hereunder. In
connection with and without limiting the foregoing, each of Whitman and PepsiCo
and their respective Boards of Directors shall (i) take all reasonable action
necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, this Agreement, the other
Transaction Documents or the other transactions contemplated hereby or thereby
and (ii) if any state takeover statute or similar statute or regulation becomes
applicable to the Merger, this Agreement, the other Transaction Documents or the
other transactions contemplated hereby or thereby, take all reasonable action
necessary to ensure that the Merger and the other transactions contemplated by
the Transaction Documents may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and the other transactions contemplated
by the Transaction Documents.
SECTION 7.05. Affiliates. Prior to the Closing Date, Whitman shall
deliver to Merger Sub a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of
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Whitman, "affiliates" of Whitman for purposes of Rule 145 under the Securities
Act. Whitman shall use its reasonable efforts to cause each such person to
deliver to Merger Sub on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit F hereto.
SECTION 7.06. Whitman Stock Options; Whitman Stock Plans; Certain Employee
Matters. (a) At the Effective Time, by virtue of the Merger, the Whitman Stock
Plans shall be assumed by Merger Sub, with the result that all obligations of
Whitman under the Whitman Stock Plans, including with respect to awards
outstanding at the Effective Time under each Whitman Stock Plan, shall be
obligations of Merger Sub following the Effective Time. Prior to the Effective
Time, Merger Sub shall take all necessary actions (including, if required to
comply with Section 162(m) of the Code (and the regulations thereunder) or
applicable law or rule of the NYSE, obtaining the approval of its stockholders)
for the assumption of the Whitman Stock Plans, including the reservation,
issuance and listing of shares of Merger Sub Common Stock issuable thereunder.
As soon as practicable after the Effective Time, Merger Sub shall prepare and
file with the SEC a registration statement on Form S-8 registering the number of
shares of Merger Sub Common Stock issuable under the Whitman Stock Plans.
(b) As soon as practicable after the Effective Time, Merger Sub shall
deliver to the holders of Whitman Stock Options appropriate notices setting
forth such holders' rights pursuant to the respective Whitman Stock Plans and
the agreements evidencing the grants of such Whitman Stock Options and that such
Whitman Stock Options and agreements shall be assumed by Merger Sub and shall
continue in effect on the same terms and conditions, except that all such
options issued prior to January 1, 1999, shall be fully vested in accordance
with the terms of the applicable Whitman Stock Plans.
(c) Except as otherwise contemplated by this Section 7.06 and except to the
extent required under the respective terms of the Whitman Stock Options, all
restrictions or limitations on transfer and vesting with respect to Whitman
Stock Options awarded under the Whitman Stock Plans or any other plan, program
or arrangement of Whitman or any of its Subsidiaries, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in full
force and effect with respect to such options after giving effect to the Merger
and the assumption by Merger Sub as set forth above.
(d) Following the Effective Time, Merger Sub will assume and honor all
Liabilities under change in control and employment agreements of Whitman, the
existence of which does not constitute a violation of this Agreement, in
accordance with the terms thereof.
(e) As of the Effective Time, Merger Sub will assume and honor all
Liabilities relating to the Transferred Individuals to the extent set forth in
the Employee Benefits Agreement.
SECTION 7.07. Fees and Expenses. (a) Except as provided in this Section
7.07, all fees and expenses incurred in connection with the Merger and the other
transactions contemplated by the Transaction Documents shall be paid by the
party incurring such fees or expenses, whether or not the Merger is consummated,
except that each of PepsiCo and Whitman shall bear and pay one-half of the costs
and expenses incurred in connection with (1) the filing, printing and mailing of
the Form S-4 and the Proxy Statement/Prospectus (including SEC filing fees), (2)
the filings of the premerger notification and report forms under the HSR Act
(including filing fees) and (3) if the Merger is consummated, all United States
Federal, state or local and all foreign transfer, documentary, sales, use,
registration, value-added and other similar taxes (including applicable real
estate transfer taxes and real property transfer gains taxes and similar taxes
imposed on the transfer of shares of a company holding real estate) incurred in
connection with the Contribution, the Merger, the PepsiCo Transfers, the Whitman
Transfers or a transfer by PGB (or its designee) of the assets described in
Section 4.02(b) to an affiliate of PGB (to the extent, in the case of such a
transfer by PGB (or its designee), that no such tax was imposed on the transfer
of such assets to PGB (or its designee)).
(b) In the event that (1) a Takeover Proposal shall have been made known to
Whitman or any of its Subsidiaries or has been made directly to its stockholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a Takeover Proposal and thereafter this Agreement is
terminated by either PepsiCo or Whitman pursuant to Section 9.01(b)(i) or (iii)
and within
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twelve months thereafter Whitman consummates or enters into a definitive
agreement relating to any Takeover Proposal which it concludes is a Superior
Proposal or (2) this Agreement is terminated (x) by Whitman pursuant to Section
9.01(e) or (y) by PepsiCo pursuant to Section 9.01(f), then Whitman shall
promptly, but in no event later than the date of such termination, pay PepsiCo a
fee equal to $20,000,000 (the "Termination Fee") (less the amount of the
Break-up Payment previously paid to PepsiCo by Whitman, if any), payable by wire
transfer of same day funds.
(c) In the event that this Agreement is terminated by either PepsiCo or
Whitman pursuant to Section 9.01(b)(iii), then Whitman shall promptly, but in no
event later than the date of such termination, pay PepsiCo a fee equal to
PepsiCo's documented out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement, but in no event shall such fee be
in excess of $2,000,000 (the "Break-up Payment"), payable by wire transfer of
same day funds.
(d) Whitman acknowledges that the agreements contained in Section 7.07(b)
and (c) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, PepsiCo would not enter into this Agreement;
accordingly, if Whitman fails promptly to pay the amount(s) due pursuant to
Section 7.07(b) and (c), and, in order to obtain such payment, PepsiCo commences
a suit which results in a judgment against Whitman for the fee(s) set forth in
Section 7.07(b) and (c), Whitman shall pay to PepsiCo its costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on the amount of the fee(s) at the prime rate of Citibank N.A. in
effect on the date such payment was required to be made.
SECTION 7.08. Rights Agreement. The Board of Directors of Whitman shall
take all further action (in addition to that referred to in Section 5.01(t))
reasonably requested in writing by PepsiCo in order to render Whitman's Rights
Agreement inapplicable to the Merger and the other transactions contemplated by
the Transaction Documents. Except as provided above with respect to the Merger
and the other transactions contemplated by the Transaction Documents, Whitman's
Board of Directors shall not, without the prior written consent of PepsiCo, (a)
amend the Whitman Rights Agreement or (b) take any action with respect to, or
make any determination under, the Whitman Rights Agreement, including a
redemption of the Whitman Rights or any action to facilitate a Takeover
Proposal.
SECTION 7.09. PGB Stockholders' Agreement. PepsiCo and Whitman agree
that, as of the Effective Time, the Stockholders' Agreement dated as of November
9, 1987, among Whitman (formerly named IC Industries, Inc.), IC Products
Company, PepsiCo and Metro Sub shall terminate and be of no further force or
effect in accordance with the provisions of Section 3.02(a)(ii) of such
agreement.
SECTION 7.10. Public Announcements. Whitman and PepsiCo will consult with
each other before issuing, and provide each other the opportunity to review,
comment upon and concur with, any press release or other public statements with
respect to the transactions contemplated by this Agreement, including the
Merger, and the other Transaction Documents, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
either party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement and the other
Transaction Documents shall be in the form heretofore agreed to by the parties.
SECTION 7.11. Further Assurances. (a) On and after the Closing Date, each
of Merger Sub and PGB shall (i) give such further assurances to PepsiCo and
shall execute, acknowledge and deliver all such acknowledgments and other
instruments, and take such further actions as may be reasonably necessary or
appropriate effectively to vest in PepsiCo (or its designee) the full legal and
equitable title to the PepsiCo Acquired Businesses and (ii) use its reasonable
efforts to assist PepsiCo (or its designee) in the orderly transition of the
operations of the PepsiCo Acquired Businesses acquired by PepsiCo (or its
designee). Nothing in this Section 7.11(a) shall be construed to require Merger
Sub or PGB to incur, without reimbursement from PepsiCo, any costs or expenses
in connection with any such undertakings.
(b) On and after the Closing Date, each of PepsiCo and the relevant PepsiCo
Subsidiaries shall (i) give such further assurances to Merger Sub and PGB and
shall execute, acknowledge and deliver all such
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acknowledgments and other instruments, including the execution and delivery by
each of the relevant PepsiCo Subsidiaries, Merger Sub and PGB of an assignment
and assumption agreement in form and substance satisfactory to the parties
hereto (the "Assignment and Assumption Agreement") providing for the assignment
of the Merger Sub Acquired Businesses and the assets included as part of the PGB
Acquired Businesses and the assumption of the Merger Sub Assumed Liabilities and
the Liabilities included as part of the PGB Acquired Businesses, and take such
further actions as may be reasonably necessary or appropriate effectively to
vest in Merger Sub and PGB the full legal and equitable title to the Merger Sub
Acquired Businesses and the PGB Acquired Businesses, as applicable and (ii) use
its reasonable efforts to assist Merger Sub and PGB in the orderly transition of
the operations of the Merger Sub Acquired Businesses and the PGB Acquired
Businesses acquired by Merger Sub and PGB. Nothing in this Section 7.11(b) shall
be construed to require PepsiCo or the PepsiCo Subsidiaries to incur, without
reimbursement from Merger Sub and PGB, any costs or expenses in connection with
any such undertakings.
(c) On and after the Closing Date, each of Merger Sub, PGB and the relevant
Subsidiaries of Merger Sub shall give such further assurances to PepsiCo and the
relevant PepsiCo Subsidiaries and shall execute, acknowledge and deliver all
such acknowledgments and other instruments, including the Assignment and
Assumption Agreement, and take such further action as may be reasonably
necessary or appropriate to complete the assumption by each of Merger Sub, PGB
and the relevant Subsidiaries of Merger Sub of, and the release of PepsiCo and
the relevant PepsiCo Subsidiaries from, the Merger Sub Assumed Liabilities and
the Liabilities included as part of the PGB Acquired Businesses.
SECTION 7.12. Post-Closing Cooperation. (a) Each party shall cooperate
with one another in connection with the furnishing of information that is
reasonably necessary for financial reporting and accounting matters and in
respect of compliance with disclosure and reporting requirements under the
Securities Act and the Exchange Act.
(b) After the Closing, upon reasonable written notice, each of Merger Sub
and PepsiCo shall furnish or cause to be furnished to the other party, as
promptly as practicable, such information and assistance (to the extent within
the control of such party) relating to the Merger Sub Acquired Businesses, the
PGB Acquired Businesses and the PepsiCo Acquired Businesses (including
reasonable access to employees and books and records) as is reasonably necessary
for the preparation of the Merger Sub Statement and the PepsiCo Statement
pursuant to Section 12.01, the filing of all Tax Returns, and making of any
election related to Taxes, the preparation for any audit by any taxing
authority, and the prosecution or defense of any claim, suit or proceeding
related to any Tax Return. Merger Sub and PepsiCo shall cooperate with each
other party in the conduct of any audit or other proceeding relating to Taxes
involving the Merger Sub Acquired Businesses, the PGB Acquired Businesses or the
PepsiCo Acquired Businesses. Merger Sub and PGB shall retain the books and
records relating to the Merger Sub Acquired Businesses and the PGB Acquired
Businesses and PepsiCo shall retain the books and records relating to the
PepsiCo Acquired Businesses for a period of seven years after the Closing.
SECTION 7.13. Merger Sub Rights Agreement. Merger Sub shall adopt the
Rights Agreement set forth as Exhibit G hereto effective upon the Closing.
SECTION 7.14. Merger Sub Share Repurchase. During the period from the
Closing Date to the 12-month anniversary of the Closing Date, Merger Sub shall
repurchase the lesser of (i) 16,000,000 shares of Merger Sub Common Stock or
(ii) shares of Merger Sub Common Stock having an aggregate value of $400,000,000
(such aggregate value to be measured by the sum of the prices per share paid by
Merger Sub in respect of each such purchase) (the "Merger Sub Repurchase"), by
tender offer, open market purchase, privately negotiated transaction or
otherwise; provided, however, that in the case of any Merger Sub Repurchase
pursuant to a tender offer (i) the terms and conditions of such tender offer
shall be subject to the prior written consent of PepsiCo, which consent shall
not be unreasonably withheld and (ii) neither PepsiCo nor any of its affiliates
shall tender or otherwise sell any shares of Merger Sub Common Stock
beneficially owned by PepsiCo or any such affiliate in such tender offer;
provided, further, that Merger Sub shall be under no obligation to make any
Merger Sub Repurchase (and its obligation to make any such Repurchase shall be
suspended) during any period when (i) Merger Sub is under any legal restriction
from doing so or (ii) the
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Board of Directors of Merger Sub determines in good faith that it is impractical
or inadvisable to make such Repurchase.
SECTION 7.15. St. Petersburgco Indebtedness. PepsiCo and Whitman shall
use reasonable efforts to obtain the full and unconditional release of Whitman,
effective as of the consummation of the Whitman Transfers, from all Liabilities
with respect to indebtedness of St. Petersburgco under its existing bank
facility; provided, however, that (i) Whitman shall be under no obligation to
make any payment in connection with obtaining such release other than any
payment in accordance with the terms of such indebtedness and (ii) if PepsiCo
and Whitman shall be unable to obtain such release in the exercise of their
reasonable efforts prior to the consummation of the Whitman Transfers, PepsiCo
shall, following such consummation of the Whitman Transfers, promptly reimburse
Whitman or, following the Effective Time, Merger Sub, with respect to any
payment required to be made by Whitman or, following the Effective Time, Merger
Sub to any person in accordance with the terms of such indebtedness.
SECTION 7.16. Services Agreements. Prior to the consummation of the
Whitman Transfers, PepsiCo, Whitman, Merger Sub and one or more other bottlers
licensed by PepsiCo shall agree on the terms of definitive Services Agreements,
which shall provide, among other things, (i) for the provision of all support
services not located at the respective operating locations of the Bottling
Businesses to be transferred pursuant to this Agreement necessary to continue
the ongoing operations of such Bottling Businesses, (ii) that payment for all
services provided pursuant to such Services Agreements shall be made by the
party or parties receiving such services to the party or parties providing such
services in an amount equal to the cost (without profit) to the party or parties
providing such services and (iii) that no party providing services pursuant to
the Services Agreements shall be liable to any other party except to the extent
of such party's gross negligence or wilful misconduct in providing such
services; provided, however, that the amount recoverable from any party
providing services pursuant to the Services Agreements in respect of any such
liability shall be limited to the aggregate amount of proceeds received by, or
payable to, such party pursuant to the Services Agreements.
SECTION 7.17. Section 16b-3. Prior to the Closing Date, PepsiCo shall
cause the Board of Directors of Merger Sub to adopt a resolution approving the
acquisition in the Merger of securities of Merger Sub by officers and directors
of Whitman. Such resolution shall specify (i) the names of the executive
officers and the directors of Whitman, (ii) the number of securities of Merger
Sub to be acquired by such individual, (iii) that approval is being granted to
exempt the transaction under Rule 16b-3 promulgated under the Exchange Act and
(iv) for acquisitions of derivative securities, the material terms of the
derivative securities.
SECTION 7.18. Insured Claims. (a) PepsiCo and Whitman mutually agree to
the following covenants with respect to Liabilities arising from incidents which
occurred prior to the Closing and for which the party transferring a Bottling
Business or other asset hereunder purchased liability insurance, including but
not limited to Workers' Compensation, General Liability and Automobile Liability
insurance ("Insured Liabilities"):
(i) With respect to PepsiCo's Insured Liabilities, Whitman agrees to
manage and oversee the following third-party claims administrators:
(A) Kemper Insurance Company for General Liability, Automobile
Liability and Illinois, Indiana and Missouri Workers' Compensation
claims arising prior to January 1, 1997;
(B) Travelers Insurance Company for Ohio Workers' Compensation
claims arising prior to January 1, 1997; and
(C) CNA Insurance Company for General Liability, Automobile
Liability and Workers' Compensation claims arising after January 1, 1997
through the Closing Date.
(ii) PepsiCo agrees to provide Whitman with access to such third-party
claims administrators and PepsiCo will use its reasonable efforts to modify
its contracts with its third-party claims administrators to allow for such
access, if necessary.
(iii) With respect to the Ohio Workers' Compensation claims which
arose prior to January 1, 1997, and which are administered by Travelers
Insurance Company, PepsiCo agrees to transfer on the Closing
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Date the reserve balance of $3,048,500, less the aggregate amount paid in
respect of such claims between January 20, 1999 and the Closing Date, to
Whitman for the payment of all Liabilities associated with such claims.
(iv) With respect to Whitman's Insured Liabilities, PepsiCo agrees to
manage and oversee the following third-party claims administrators:
(A) Gallagher Bassett Services for General Liability, Automobile
Liability and Virginia Workers' Compensation claims; and
(B) Accordia for West Virginia Workers' Compensation claims.
(v) Whitman agrees to provide PepsiCo with access to such third-party
claims administrators, and Whitman will use its reasonable efforts to
modify its contracts with its third-party claims administrators to allow
for such access, if necessary.
(vi) Payments to third-party claims administrators shall be the
responsibility of the party to whom the Bottling Business or other asset
was transferred pursuant to this Agreement.
(vii) Payments for claims shall be the responsibility of the party to
whom the Bottling Business or other asset was transferred pursuant to this
Agreement.
(b) This covenant with respect to the matters contained herein supersedes
any reference to such matters elsewhere in this Agreement, in the Employee
Benefits Agreement and/or in the Whitman Transfers Employee Services Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.01. Conditions Precedent. The respective rights and obligations
of each party to effect the Merger and the other transactions contemplated by
the Transaction Documents to be effected at the Closing shall be subject to the
satisfaction or waiver on or prior to the Closing Date of each of the following
conditions precedent:
(a) Stockholder Approval. The Whitman Stockholder Approval shall have
been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the Merger and the other transactions contemplated by the Transaction
Documents under the HSR Act shall have been terminated or shall have
expired (the "HSR Approval").
(c) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect preventing the consummation of the Merger
or the other transactions contemplated by the Transaction Documents;
provided, however, that each of the parties shall have used its reasonable
efforts to prevent the entry of any such Restraints and to appeal as
promptly as practicable any such Restraints that may be entered.
(d) NYSE Listing. The shares of Merger Sub Common Stock issuable to
the PepsiCo Subsidiaries and to the stockholders of Whitman pursuant to
this Agreement shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(e) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
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SECTION 8.02. Conditions to Obligations of PepsiCo and Merger Sub. The
obligations of PepsiCo and Merger Sub to effect the Merger and the other
transactions contemplated by the Transaction Documents are further subject to
the following conditions:
(a) Representations and Warranties. The representations and
warranties of Whitman set forth herein shall be true and correct both when
made and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth
therein), individually or in the aggregate, does not have, and is not
reasonably likely to have, a Material Adverse Effect on Whitman, and
PepsiCo shall have received a certificate signed on behalf of Whitman by an
executive officer of Whitman to such effect.
(b) Performance of Obligations. Whitman shall have performed in all
material respects all obligations required to be performed by it under each
of the Whitman Relevant Agreements at or prior to the Closing Date, and
PepsiCo shall have received a certificate signed on behalf of Whitman by an
executive officer of Whitman to such effect.
(c) Tax Opinion. PepsiCo shall have received an opinion of its tax
counsel, Cravath, Swaine & Moore, in form and substance reasonably
satisfactory to PepsiCo, and dated as of the Closing Date, to the effect
that the Contribution, and the Contribution and Merger collectively, will
constitute an exchange described in Section 351 of the Code and the Merger
will constitute a reorganization under Section 368(a) of the Code. In
rendering such opinion, Cravath, Swaine & Moore may require delivery of and
rely upon the customary representations letters delivered by PepsiCo,
Whitman and their respective Subsidiaries in form and substance reasonably
satisfactory to Cravath, Swaine & Moore.
SECTION 8.03. Conditions to Obligations of Whitman. The obligations of
Whitman to effect the Merger and the other transactions contemplated by the
Transaction Documents are further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of PepsiCo set forth herein shall be true and correct both when
made and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth
therein), individually or in the aggregate, does not have, and is not
reasonably likely to have, a Material Adverse Effect on the PepsiCo
Subsidiaries, and Whitman shall have received a certificate signed on
behalf of PepsiCo by an executive officer of PepsiCo to such effect.
(b) Performance of Obligations. PepsiCo shall have performed in all
material respects all obligations required to be performed by it under each
of the PepsiCo Relevant Agreements at or prior to the Closing Date, and
Whitman shall have received a certificate signed on behalf of PepsiCo by an
executive officer of PepsiCo to such effect.
(c) Tax Opinion. Whitman shall have received an opinion of its tax
counsel, Wachtell, Lipton, Rosen & Katz, in form and substance reasonably
satisfactory to Whitman, and dated as of the Closing Date, to the effect
that the Merger will constitute a reorganization under Section 368(a) of
the Code and that neither Whitman nor its shareholders shall recognize gain
or loss for U.S. Federal income tax purposes as a result of the Merger. In
rendering such opinion, Wachtell, Lipton, Rosen & Katz may require delivery
of and rely upon the customary representations letters delivered by
Whitman, PepsiCo and their respective Subsidiaries in form and substance
reasonably satisfactory to Wachtell, Lipton, Rosen & Katz.
(d) Contribution. The Contribution shall have been consummated in
accordance with Article II hereof.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination. This Agreement may be terminated at any time
prior to the Closing, whether before or after the vote of the stockholders of
Whitman at the Whitman Stockholders Meeting:
(a) by mutual written consent of Whitman and PepsiCo; or
(b) by either Whitman or PepsiCo:
(i) if the Merger or the other transactions contemplated by the
Transaction Documents are not consummated on or before June 30, 1999
(the "Outside Date"), unless the failure to consummate the Merger or
such other transaction is the result of a wilful and material breach of
this Agreement by the party seeking to terminate this Agreement;
(ii) if any Governmental Entity issues an order, decree or ruling
or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger or the other transactions contemplated
by the Transaction Documents and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iii) if, upon a vote at a duly held Whitman Stockholders Meeting
to obtain the Whitman Stockholder Approval, the Whitman Stockholder
Approval is not obtained;
(c) by PepsiCo, if Whitman breaches or fails to perform in any
material respect any of its representations, warranties or covenants
contained in this Agreement, which breach or failure to perform (i) would
give rise to the failure of a condition of PepsiCo set forth in Article
VIII and (ii) cannot be or has not been cured within 30 days after the
giving of written notice to Whitman of such breach (provided that PepsiCo
is not then in wilful and material breach of any representation, warranty
or covenant contained in this Agreement);
(d) by Whitman, if PepsiCo breaches or fails to perform in any
material respect any of its representations, warranties or covenants
contained in this Agreement, which breach or failure to perform (i) would
give rise to the failure of a condition of Whitman set forth in Article
VIII, and (ii) cannot be or has not been cured within 30 days after the
giving of written notice to PepsiCo of such breach (provided that Whitman
is not then in wilful and material breach of any representation, warranty
or covenant in this Agreement);
(e) by Whitman in accordance with Section 6.01(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (e)
to be deemed effective, Whitman shall have complied with all provisions
contained in Section 6.01(a), (b) and (c) including the notice provisions
therein, and with applicable requirements, including the payment of the
Termination Fee, of Section 7.07(b); or
(f) by PepsiCo, if Whitman or any of its directors or officers shall
participate in discussions or negotiations in breach of Section 6.01(a).
SECTION 9.02. Effect of Termination. In the event of termination of this
Agreement by any party as provided in Section 9.01, this Agreement shall
forthwith become void and have no effect, without any Liability or obligation
hereunder on the part of any party, other than Section 4.01(b)(ii) (if the
Whitman Transfers have previously been consummated) (and the Sections and
Articles referenced therein), Section 5.01(r), Section 5.02(q), the last
sentence of Section 7.03, Section 7.07, this Section 9.02, Article XIII and the
Confidentiality Agreement which provisions and agreements survive such
termination and termination of this Agreement will not relieve a breaching party
from Liability for any wilful and material breach by such party of any of its
representations, warranties, covenants or agreements set forth in this Agreement
giving rise to such termination.
SECTION 9.03. Amendment. This Agreement may be amended by the parties at
any time before or after the Whitman Stockholder Approval; provided, however,
that after any such approval, there shall be made no amendment that by law
requires further approval by such stockholders without the further approval of
such
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stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 9.04. Extension; Waiver. At any time prior to the Closing, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
9.03, waive compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnification. (a) Indemnification by Merger Sub and
PGB. (i) From and after the Closing, Merger Sub and PGB shall indemnify PepsiCo
and its affiliates (other than Merger Sub, PGB and their respective
Subsidiaries) and each of their respective officers, directors, employees,
stockholders, agents and representatives against, and hold them harmless from,
any loss, Liability, claim, damage or expense (including reasonable legal fees
and expenses) ("Losses"), as incurred (payable promptly upon written request),
suffered or incurred by any such indemnified party to the extent arising from or
relating to (1) any Merger Sub Assumed Liability (except for any such Liability
relating to Taxes to the extent covered by Article XI) or (2) any Third Party
Claim arising from or relating to any of the information supplied by Whitman or
any of its Subsidiaries for inclusion or incorporation by reference in (A) the
Form S-4, at the time the Form S-4 is filed with the SEC, at any time it is
amended or supplemented or at the time it becomes effective under the Securities
Act, containing any untrue statement of a material fact or omitting to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading or (B) the Proxy Statement/Prospectus, at the date it is first mailed
to Whitman's stockholders or at the time of the Whitman Stockholders Meeting,
containing any untrue statement of a material fact or omitting to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(ii) From and after the Closing, Merger Sub and PGB shall indemnify PepsiCo
and its affiliates (other than Merger Sub, PGB and their respective
Subsidiaries) and each of their respective officers, directors, employees, stock
holders, agents and representatives against, and hold them harmless from any
Loss, as incurred (payable promptly upon written request), suffered or incurred
by any such indemnified party to the extent arising from or relating to any
breach of any representation or warranty of Whitman (without giving effect to
any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) contained in (x) Section 5.01(m) or Section 5.01(o) (but only, in the
case of this clause (x), to the extent such breach relates to any of the PepsiCo
Acquired Businesses) or (y) Section 5.01(v)(i); provided, however, that neither
Merger Sub nor PGB shall have any Liability under this subparagraph (ii) unless
the aggregate of all Losses relating thereto for which Merger Sub and PGB would,
but for this proviso, be liable exceeds on a cumulative basis $1,000,000, and
then only to the extent of any such excess; provided further, however, that
neither Merger Sub nor PGB shall have any Liability under this subparagraph (ii)
nor shall it count for purposes of the preceding proviso, for any individual
item or series of related items or for any series of the same or similar kinds
or types of items where the Loss relating thereto is, in the aggregate, less
than $250,000. Notwithstanding the foregoing, if the Whitman Transfers are
consummated prior to the Closing in accordance with Section 4.01, references in
this Section 10.01(a)(ii) to "Closing" shall be deemed to be references to the
date of consummation of such Whitman Transfers and references to "Merger Sub"
shall, prior to the Effective Time, be deemed to be references to Whitman.
(b) Indemnification by PepsiCo. From and after the Closing, PepsiCo shall
indemnify Merger Sub, PGB and their respective affiliates (other than PepsiCo or
the Contributing PepsiCo Subsidiaries) and each of
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their respective officers, directors, employees, stockholders, agents and
representatives against and hold them harmless from any Loss, as incurred
(payable promptly upon written request), suffered or incurred by any such
indemnified party to the extent arising from or relating to (1) any Excluded
Liability (except for any such Liability relating to Taxes to the extent covered
by Article XI), (2) any breach of any representation or warranty of PepsiCo
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) contained in (x) Section 5.02(b)(iii), (y)
Section 5.02(l) or Section 5.02(n) (but only, in the case of this clause (y), to
the extent such breach relates to any of the Merger Sub Acquired Businesses or
the PGB Acquired Businesses) or (z) Section 5.02(p)(i) or (3) any Third Party
Claim arising from or relating to any of the information supplied by PepsiCo or
any of the PepsiCo Subsidiaries for inclusion or incorporation by reference in
(A) the Form S-4, at the time the Form S-4 is filed with the SEC, at any time it
is amended or supplemented or at the time it becomes effective under the
Securities Act, containing any untrue statement of a material fact or omitting
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading or (B) the Proxy Statement/Prospectus, at the date it
is first mailed to Whitman's stockholders or at the time of the Whitman
Stockholders Meeting, containing any untrue statement of a material fact or
omitting to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading; provided, however, that PepsiCo shall not
have any Liability under clause (2)(y) and (z) above unless the aggregate of all
Losses relating thereto for which PepsiCo would, but for this proviso, be liable
exceeds on a cumulative basis $5,000,000, and then only to the extent of any
such excess; provided further, however, that PepsiCo shall not have any
Liability under clause (2)(y) and (z) above, nor shall it count for purposes of
the preceding proviso, for any individual item or series of related items or for
any series of the same or similar kinds or types of items where the Loss
relating thereto is, in the aggregate, less than $500,000.
(c) Losses Net of Insurance, Taxes, etc. In determining whether a Loss is
hereof eligible for indemnification under this Article X and in determining the
amount of any such Loss for which indemnification is provided under this Article
X, (i) the amount of such Loss shall be net of any amounts recovered or
recoverable by the indemnified party under insurance policies, (ii) increased to
take account of any net Tax cost incurred by the indemnified party arising from
the receipt of indemnity payments hereunder (grossed up for such increase) and
(iii) reduced to take account of any net Tax benefit realized by the indemnified
party arising from the incurrence or payment of any such Loss. In computing the
amount of any such Tax cost or Tax benefit, the indemnified party shall be
deemed to recognize all other items of income, gain, loss, deduction or credit
before recognizing any item arising from the receipt of any indemnity payment
hereunder or the incurrence or payment of any indemnified Loss. Any
indemnification payment hereunder shall initially be made without regard to this
paragraph and shall be increased or reduced to reflect any such net Tax cost
(including gross-up) or net Tax benefit only after the indemnified party has
actually realized such cost or benefit. For purposes of this Agreement, an
indemnified party shall be deemed to have "actually realized" a net Tax cost or
a net Tax benefit to the extent that, and at such time as, the amount of Taxes
payable by such indemnified party is increased above or reduced below, as the
case may be, the amount of Taxes that such indemnified party would be required
to pay but for the receipt of the indemnity payment or the incurrence or payment
of such Loss, as the case may be. The amount of any increase or reduction
hereunder shall be adjusted to reflect any final determination (which shall
include the execution of Form 870-AD or successor form) with respect to the
indemnified party's Liability for Taxes and payments between Merger Sub,
Whitman, PGB and PepsiCo to reflect such adjustment shall be made if necessary.
(d) Procedures Relating to Indemnification. Upon receipt of a claim or
demand made by any person who is not a party hereto against a party hereto (a
"Third Party Claim") as to which such party (the "indemnified party") may be
entitled to indemnification pursuant to this Article X or pursuant to Article
XI, indemnified party shall notify the other relevant party (the "indemnifying
party") in writing, and in reasonable detail, of the Third Party Claim promptly
after receipt by such indemnified party of written notice of the Third Party
Claim; provided, however, that failure to provide such notification shall not
affect the indemnification provided hereunder except to the extent the
indemnifying party shall have been actually prejudiced as a result of such
failure. Thereafter, the indemnified party shall promptly deliver to the
indemnifying party copies of all
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notices and documents (including court papers) received by the indemnified party
relating to the Third Party Claim.
If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with the counsel selected by the
indemnifying party. Should the indemnifying party so elect to assume the defense
of a Third Party Claim, the indemnifying party shall not be liable to the
indemnified party for legal expenses subsequently incurred by the indemnified
party in connection with the defense thereof. If the indemnifying party assumes
such defense, the indemnified party shall have the right to participate in the
defense thereof, including the opportunity to keep fully informed as to all
matters which might affect the amount of any claims for indemnification to be
made hereunder, and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party, it being understood that (i) the
indemnifying party shall control such defense and (ii) the indemnifying party
will bear the expenses of separate counsel for the indemnified party to the
extent a conflict of interest is likely to exist between the indemnifying party
and the indemnified party. The indemnifying party shall be liable for the fees
and expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has failed to assume the defense thereof (other
than during the period prior to the time the indemnified party shall have given
notice of the Third Party Claim as provided above).
If the indemnifying party so elects to assume the defense of any Third
Party Claim, the indemnified party shall cooperate with the indemnifying party
in the defense thereof. Such cooperation shall include the retention and (upon
the indemnifying party's request) the provision to the indemnifying party of
records and information that are reasonably relevant to such Third Party Claim,
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. The
indemnifying party shall reimburse the indemnified party for its reasonable
out-of-pocket costs of such cooperation. Whether or not the indemnifying party
shall have assumed the defense of a Third Party Claim, the indemnified party
shall not admit any Liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the indemnifying party's prior written
consent. If the indemnifying party shall have assumed the defense of a Third
Party Claim, the indemnified party shall agree to any settlement, compromise or
discharge of a Third Party Claim that the indemnifying party may recommend and
that by its terms obligates the indemnifying party to pay the full amount of the
Liability in connection with such Third Party Claim, which releases the
indemnified party completely in connection with such Third Party Claim and that
would not otherwise adversely affect the indemnified party. Notwithstanding the
foregoing, the indemnifying party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable for the reasonable fees and expenses
of counsel incurred by the indemnified party in defending such Third Party
Claim) if the Third Party Claim seeks an order, injunction or other equitable
relief or relief for other than money damages against the indemnified party that
the indemnified party reasonably determines, after conferring with its outside
counsel, cannot be separated from any related claim for money damages. If such
equitable relief or other relief portion of the Third Party Claim can be so
separated from that for money damages, the indemnifying party shall be entitled
to assume the defense of the portion relating to money damages.
(e) Termination of Indemnification. Subject to the provisions of Section
9.02, the obligations to indemnify and hold harmless any party (i)(A) pursuant
to Section 10.01(a)(ii) shall terminate on the 12-month anniversary of the date
of the Closing, or such earlier date as the Whitman Transfers are consummated in
accordance with Section 4.01 and (B) pursuant to Sections 10.01(b)(2)(y) and
10.01(b)(2)(z) shall terminate on the 12-month anniversary of the date of the
Closing, (ii) pursuant to Sections 10.01(a)(i)(2) and 10.01(b)(3) shall
terminate on the third anniversary of the Effective Time and (iii) pursuant to
Sections 10.01(a)(i)(1), 10.01(b)(1) and 10.01(b)(2)(x) shall not terminate.
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ARTICLE XI
TAX INDEMNIFICATION; CERTAIN OTHER TAX MATTERS
SECTION 11.01. Tax Indemnification. (a) Tax Indemnification by Merger Sub
and PGB. From and after the Closing, Merger Sub and PGB shall indemnify PepsiCo
and its affiliates (other than Merger Sub, PGB, the PGB Acquired Businesses or
any of their respective Subsidiaries) against, and hold them harmless from any
Loss, as incurred (payable promptly upon written request), suffered or incurred
by any such indemnified party with respect to:
(i) Any United States Federal, state and local or foreign income or
franchise taxes of PepsiCo Acquired Businesses for all Pre-Closing Tax
Periods (but not including any such Taxes attributable to actions taken by
the PepsiCo Acquired Businesses or PepsiCo or any of their respective
affiliates (other than Merger Sub, PGB, the PGB Acquired Businesses or any
of their respective Subsidiaries) outside of the ordinary course of
business after the Closing on the Closing Date);
(ii) any United States Federal, state and local or foreign income or
franchise taxes attributable to Whitman, PGB, its Subsidiaries or
affiliates (other than, solely for taxable periods beginning on or after
the Closing Date, or portions thereof, Taxes attributable to the operations
of the PepsiCo Acquired Businesses) for which PepsiCo, its Subsidiaries or
affiliates (other than Merger Sub, PGB, the PGB Acquired Businesses or any
of their respective Subsidiaries) may be held liable solely by virtue of
Treasury Regulation Section 1.1502-6 or any similar provision under state
or local law, as transferee or successor, by contract or otherwise;
(iii) Taxes that are Merger Sub Assumed Liabilities; and
(iv) Taxes of the PGB Acquired Businesses to the extent PepsiCo does
not have an indemnity obligation with respect thereto pursuant to Section
11.01(b).
(b) Tax Indemnification by PepsiCo. From and after the Closing, PepsiCo
shall indemnify Merger Sub, PGB and their respective affiliates (other than
PepsiCo and its Subsidiaries) against, and hold them harmless from any Loss, as
incurred (payable promptly upon written request), suffered or incurred by any
such indemnified party with respect to:
(i) any United States Federal, state and local or foreign income or
franchise taxes of the PGB Acquired Businesses for all Pre-Closing Tax
Periods (but not including any such Taxes attributable to actions taken by
the PGB Acquired Businesses or PGB outside of the ordinary course of
business after the Closing on the Closing Date);
(ii) any United States Federal, state and local or foreign income or
franchise taxes attributable to PepsiCo, its Subsidiaries or affiliates
(other than, solely for taxable periods beginning on or after the Closing
Date, or portions thereof, Taxes attributable to the operations of the
Merger Sub Acquired Businesses or the PGB Acquired Businesses) for which
PGB, Merger Sub, their Subsidiaries or affiliates (other than PepsiCo and
its Subsidiaries) may be held liable solely by virtue of Treasury
Regulation Section 1.1502-6 or any similar provision under state or local
law, as transferee or successor, by contract or otherwise;
(iii) Taxes that are Excluded Liabilities; and
(iv) Taxes of the PepsiCo Acquired Businesses to the extent Merger Sub
and PGB does not have an indemnity obligation with respect thereto pursuant
to Section 11.01(a).
(c) Tax Returns and Cooperations. (i) Each of Merger Sub, PGB, PepsiCo and
their respective Subsidiaries (including the PepsiCo Acquired Businesses, the
Merger Sub Acquired Businesses and the PGB Acquired Businesses) shall provide to
the other any information reasonably requested in order to enable the requestor
to prepare and file Tax Returns for Pre-Closing Tax Periods, to respond to
audits or other inquiries by any Taxing Authority, or to engage in Tax planning.
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(ii) None of Merger Sub, PGB, PepsiCo, or any of their respective
Subsidiaries of either, shall amend any Tax Return if amending such Tax
Return could increase or create any indemnification obligation under
Section 11.01(a) or (b) for another party unless (except in cases where
amendments to state income or franchise Tax Returns are required to be
filed to reflect Federal income tax audit adjustments) written permission
is first obtained from such other party.
(iii) The provisions of this Section 11.01 shall survive until 90 days
after the expiration of the statutes of limitations for the relevant Tax.
(d) Coordination with Article X. Any amount that could be described either
in Article X or in Section 11.01 shall be treated as described solely in this
Section 11.01. Notwithstanding the preceding sentence, any amount otherwise
owing by virtue of this Section 11.01 shall not be paid to an indemnified party
to the extent it would duplicate any amount previously paid to that indemnified
party by virtue of Article X.
SECTION 11.02. Certain Other Tax Matters. (a) Termination of Tax Sharing
Agreements. Any Tax sharing agreement between PepsiCo, on the one hand, and any
of Merger Sub, the PGB Acquired Businesses or Merger Sub Acquired Businesses on
the other, shall be terminated as of the Closing Date and shall thereafter have
no further effect for any taxable year (whether the current year, a future year,
or past year). Any Tax sharing agreement between Whitman or PGB, on the one
hand, and any PepsiCo Acquired Business, on the other, shall be terminated as of
the Closing Date and shall thereafter have no further effect for any taxable
year (whether the current year, a future year, or a past year). Any payments
required by any such Tax sharing agreement shall be made at or prior to the
termination thereof.
(b) FIRPTA Affidavit. PepsiCo shall deliver (or cause to be delivered) to
Whitman an affidavit (a "FIRPTA affidavit") in form and substance reasonably
satisfactory to the recipient, duly executed and acknowledged, certifying facts
that would exempt from any withholding requirement under Section 1445 of the
Code any payments for any United States real property interests being
transferred pursuant to this Agreement.
(c) FIRPTA Affidavit. Whitman and PGB shall deliver (or cause to be
delivered) to Pepsi an affidavit (a "FIRPTA affidavit") in form and substance
reasonably satisfactory to the recipient, duly executed and acknowledged,
certifying facts that would exempt from any withholding requirement under
Section 1445 of the Code any payments for any United States real property
interests being transferred pursuant to this Agreement.
ARTICLE XII
WORKING CAPITAL ADJUSTMENTS
SECTION 12.01. Working Capital Ajustments. (a) Each of the parties hereto
acknowledges and agrees that, as of the close of business on the Closing Date,
each of the Merger Sub Acquired Businesses, the PGB Acquired Businesses and the
PepsiCo Acquired Businesses should have a Working Capital Amount equal to the
Projected Working Capital Amount for such business (and each of the parties will
make adjustments as set forth herein to cause such business to have such Working
Capital Amount), and in furtherance thereof, within 60 days after the Closing
Date, (i) Merger Sub shall prepare and deliver to PepsiCo a statement (the
"Merger Sub Statement") setting forth (A) the Working Capital Amount as of the
close of business on the Closing Date (the "Closing Working Capital Amount") of
the Merger Sub Acquired Businesses, taken as a whole, and each of the PGB
Acquired Businesses and (B) the Projected Working Capital Amount of the Merger
Sub Acquired Businesses, taken as a whole, and each of the PGB Acquired
Businesses as of the close of business on the Closing Date, together with a
certificate of Merger Sub and Merger Sub's independent auditors that the Merger
Sub Statement has been prepared in compliance with the requirements of this
Section 12.01(a) and (ii) PepsiCo shall prepare and deliver a statement (the
"PepsiCo Statement") setting forth (A) the Closing Working Capital Amount of the
PepsiCo Acquired Businesses (with Princetonco and Marionco taken as a whole, and
Neva Holdings LLC and St. Petersburgco taken as a whole), and (B) the Projected
Working Capital Amount of the PepsiCo Acquired Businesses (with Princetonco and
Marionco taken as a whole, and Neva Holdings LLC and St. Petersburgco taken as a
whole)
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as of the close of business on the Closing Date, together with a certificate of
PepsiCo and PepsiCo's independent auditors that the PepsiCo Statement has been
prepared in compliance with the requirements of this Section 12.01(a). Each of
Merger Sub, Whitman and PepsiCo agrees that, notwithstanding anything to the
contrary contained in this Agreement, (i) there shall be excluded from any
calculation of the Closing Working Capital Amount of any of the PepsiCo Acquired
Businesses the portion of any current assets which did not arise in the ordinary
course of business consistent with past practice of any of the PepsiCo Acquired
Businesses and (ii) if the Whitman Transfers are consummated prior to the
Closing in accordance with Section 4.01, references in this Section 12.01 to
"Closing Date" shall be deemed to be references to the date of consummation of
such Whitman Transfers, references in this Section 12.01 to "Merger Sub" shall
be deemed to be references to Whitman and the procedures set forth in this
Article XII shall commence as of such date with respect to the PepsiCo Acquired
Businesses.
During the 30-day period following the receipt by Merger Sub of the PepsiCo
Statement and the receipt by PepsiCo of the Merger Sub Statement, each of Merger
Sub and PepsiCo and their respective independent auditors shall be permitted to
review the working papers relating to the preparation of the other party's
Statement. Each of the Merger Sub Statement and the PepsiCo Statement shall
become final and binding upon PepsiCo and Merger Sub, respectively, on the 30th
day following delivery thereof, unless PepsiCo or Merger Sub, respectively,
gives written notice of its disagreement with the other party's Statement (a
"Notice of Disagreement") to the other party prior to such date, in which case
the Statement or Statements subject to a Notice of Disagreement shall not then
become final and binding. Any Notice of Disagreement shall (A) specify in
reasonable detail the nature of any disagreement so asserted, (B) only include
disagreements based on mathematical errors or based on the Closing Working
Capital Amounts or the Projected Working Capital Amounts not being calculated in
accordance with this Section 12.01(a), (C) be accompanied by a certificate of
the party delivering the Notice of Disagreement that it has complied with the
covenants set forth in Section 7.12(b) and (D) be accompanied by a certificate
of such party's independent auditors that they concur with each of the positions
taken by such party in the Notice of Disagreement. If a Notice of Disagreement
is received by Merger Sub or PepsiCo, as applicable, in a timely manner, then
the Merger Sub Statement and/or the PepsiCo Statement which is subject to a
Notice of Disagreement, as applicable (as revised in accordance with clause (I)
or (II) below), shall become final and binding upon PepsiCo or Merger Sub,
respectively, on the earlier of (I) the date Merger Sub and PepsiCo resolve in
writing any differences they have with respect to the matters specified in such
Notice of Disagreement or (II) the date the Accounting Firm issues a decision as
described below.
During the 30-day period following the delivery of any Notice of
Disagreement, Merger Sub and PepsiCo shall seek in good faith to resolve in
writing any differences which they may have with respect to the matters
specified in such Notice of Disagreement. During such period each of Merger Sub
and PepsiCo and their respective independent auditors shall have access to the
working papers of the other party's auditors prepared in connection with their
certification of such Notice of Disagreement. If Merger Sub and PepsiCo have not
resolved such differences by the end of such 30-day period, Merger Sub and
PepsiCo shall submit to an independent accounting firm (the "Accounting Firm")
their respective calculations of the applicable Closing Working Capital Amounts
and Projected Working Capital Amounts for the Merger Sub Acquired Businesses,
the PGB Acquired Business and the PepsiCo Acquired Businesses which is subject
to a Notice of Disagreement, and the Accounting Firm shall choose in each such
case which of the two party's calculations it believes to be more correct as
reflected on the applicable Statement or Notice of Disagreement and that
calculation shall then become the Closing Working Capital Amount and/or the
Projected Working Capital Amount for the applicable business for all purposes.
The Accounting Firm shall be KPMG Peat Marwick LLP or, if such firm is unable or
unwilling to act, such other nationally recognized independent public accounting
firm as shall be agreed upon following the Closing by Merger Sub and PepsiCo in
writing. Merger Sub and PepsiCo shall use reasonable efforts to cause the
Accounting Firm to render a decision resolving the matters submitted to it
within 30 days following the submission of the matters. Merger Sub and PepsiCo
agree that judgment may be entered upon the determination of the Accounting Firm
in any court having jurisdiction over the party against which such determination
is to be enforced. The cost of any arbitration (including the fees and expenses
of the Accounting Firm and reasonable attorney fees and expenses of the parties)
pursuant to this Section 12.01(a) shall be borne equally by Merger Sub and
PepsiCo. The fees and disbursements of
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each of Merger Sub's and PepsiCo's own independent auditors incurred in
connection with their review of the Merger Sub Statement and the PepsiCo
Statement and review of any Notice of Disagreement shall be borne by itself.
(b) In lieu of the accounts receivable and trade payables of each of the
Merger Sub Acquired Businesses, PepsiCo shall cause a good faith estimate of the
amount of the accounts receivable less the amount of trade payables (the "Net
Receivables Amount") of each of the Merger Sub Acquired Businesses as of the
Closing Date, less the amount equal to the interest for a thirty-day period on
the Net Receivables Amount (calculated at the interest rate applicable to the
Contributed Intercompany Indebtedness) (as so reduced, the "Discounted Net
Receivables Amount"), to be included in cash or cash equivalents in each such
Merger Sub Acquired Business upon the Closing Date. In the case of any Closing
Working Capital Amount which is less than the Projected Working Capital Amount
of any of the Merger Sub Acquired Businesses, the PGB Acquired Businesses or the
PepsiCo Acquired Businesses, the transferor of such business shall, and if the
Closing Working Capital Amount is more than the Projected Working Capital
Amount, the acquiror of such business shall, within 10 business days after the
applicable Statement becomes final and binding on Merger Sub and PepsiCo or the
Accounting Firm renders its final decision, make payment(s) by wire transfer in
immediately available funds of the amount of each such difference, together with
interest thereon at a rate equal to the rate of interest from time to time
announced publicly by Citibank, N.A. as its prime rate, calculated on the basis
of the actual number of days elapsed over 365, from the Closing Date to the date
of each such payment.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.01. Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing (it being understood that,
notwithstanding the foregoing, certain of such representations and warranties
shall be subject to Article X). This Section 13.01 shall not limit (a) any
covenant or agreement of the parties which by its terms contemplates performance
after the Closing or (b) the survival of Section 5.01(r), Section 5.02(p),
Section 7.07, Section 7.10, Section 7.14, Section 7.18, Section 9.02, Article X,
Article XI, Article XII, this Article XIII and the Confidentiality Agreement.
SECTION 13.02. Notices. Any notice or other communication that is
required or that may be given in connection with this Agreement shall be in
writing and shall be delivered personally, telecopied or sent by certified,
registered or express mail or by Federal Express or similar courier service,
postage prepaid, and shall be deemed given when so received if delivered
personally or by telecopy or, if mailed, seven (7) calendar days after the date
of mailing (three (3) calendar days in the case of express mail, Federal Express
or similar courier service), as follows:
If to Whitman (or to Merger Sub following the Effective Time):
Whitman Corporation
3501 Algonquin Road
Rolling Meadows, IL 60008
Attention of General Counsel
Facsimile: (847) 818-5047
With a separate copy delivered to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention of Martin Lipton, Esq.
Facsimile: (212) 403-2000
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If to PepsiCo (or to Merger Sub prior to the Effective Time):
PepsiCo, Inc.
700 Anderson Hill Road
Purchase, NY 10577
Attention of General Counsel
Facsimile: (914) 253-3667
With a separate copy delivered to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention of Robert A. Kindler, Esq.
Facsimile: (212) 474-3700
SECTION 13.03. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 13.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule or law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 13.05. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the other Transaction Documents (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the Contribution, the Merger and the
other transactions contemplated by the Transaction Documents and (b) are not
intended to confer upon any person other than the parties any rights or
remedies.
SECTION 13.06. Interpretation. When a reference is made in this Agreement
to an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
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SECTION 13.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
regard to the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
SECTION 13.08. Enforcement. The parties agree that irreparable damage
would occur and that the parties would not have any adequate remedy at law in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting in the State of
Delaware or a Delaware state court.
SECTION 13.09. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
SECTION 13.10. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
IN WITNESS WHEREOF, each party has caused this Agreement to be duly
executed as of the day first written above.
WHITMAN CORPORATION,
by /s/ BRUCE S. CHELBERG
------------------------------------
Name: Bruce S. Chelberg
Title: Chairman and Chief Executive
Officer
PEPSICO, INC.,
by /s/ WILLIAM T. HEAVISIDE
------------------------------------
Name: William T. Heaviside
Title: Vice President
HEARTLAND TERRITORIES HOLDINGS, INC.
by /s/ WILLIAM T. HEAVISIDE
------------------------------------
Name: William T. Heaviside
Title: Vice President
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ANNEX I
TO THE CONTRIBUTION AND MERGER AGREEMENT
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (unless otherwise specified, section references refer to sections of
this Agreement):
"Accounting Firm" is defined in Section 12.01(a).
"Acquired Assets" means, with respect to any Merger Sub Acquired Business
(each, a "Transferred Business"):
(i) all Premises of the transferor primarily used in the operation of
the Transferred Business, in each case together with such transferor's
right, title and interest in all buildings, improvements and fixtures
thereon and all other appurtenances thereto;
(ii) all Inventory of the transferor that on the Closing Date is
located on the Premises of the transferor, and all raw materials,
work-in-process, finished goods, supplies, parts, spare parts and other
inventories of each of the transferor (including in transit, on consignment
or in the possession of any third party) on the Closing Date that is used
or held for use primarily in the operation or conduct of the Transferred
Business by such transferor;
(iii) all Personal Property of the transferor that is used or held for
use primarily in the operation or conduct of the Transferred Business by
such transferor;
(iv) all Permits of the transferor that are used or held for use
primarily in the operation or conduct of the Transferred Business by such
transferor (the "Assigned Permits");
(v) all Contracts to which the transferor is a party or by which such
transferor, or the Acquired Assets relating to such Transferred Business,
are bound or controlled that are used or held for use primarily in, or that
arise primarily out of, the operation or conduct of the Transferred
Business by such transferor (the "Assigned Contracts");
(vi) all rights in and to products sold or leased (including products
returned after the Closing and rights of rescission, replevin and
reclamation) primarily in the operation or conduct of the Transferred
Business;
(vii) originals of all books of account, ledgers, general, financial,
accounting and personnel records, files, invoices, customers' and
suppliers' lists, other distribution lists, billing records, sales and
promotional literature, manuals, customer and supplier correspondence (in
all cases, in any form or medium) (the "Records") of the transferor that
are used or held for use exclusively in, or that arise exclusively out of,
the conduct or operation of the Transferred Business and copies of all
Excluded Records; and
(viii) all goodwill generated by or associated with the Transferred
Business.
"Acquisition Proposal" means any proposal for an acquisition of all or any
part of the Merger Sub Acquired Businesses and/or the PGB Acquired Businesses by
any other person.
"affiliate" of any person means another person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person, where "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of voting
securities, by contract, as trustee or executor, or otherwise.
"Agreement" means the Contribution and Merger Agreement dated as of January
25, 1999, among Whitman, PepsiCo and Merger Sub to which this Annex I is
attached.
"Applicable Period" is defined in Section 6.01(a).
"Assigned Contracts" is defined in clause (v) of the definition of Acquired
Assets.
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"Assigned Permits" is defined in clause (iv) of the definition of Acquired
Assets.
"Assignment and Assumption Agreement" is defined in Section 7.11(b).
"beneficial ownership" has the meaning set forth in Rule 13d-3 under the
Exchange Act.
"Bottling Business" means the manufacture, distribution and sale of
beverage products.
"Bottling Contract" means any contract or agreement (i) granting a license
from any person to engage in a Bottling Business, (ii) providing for marketing
or other support or assistance from such person relating to such Bottling
Business or (iii) providing for the purchase of concentrate from such person
relating to such Bottling Business.
"Break-up Payment" is defined in Section 7.07(c).
"Certificate of Merger" is defined in Section 3.02.
"Closing" is defined in Section 1.01(a).
"Closing Date" is defined in Section 1.01(a).
"Closing Working Capital Amount" is defined in Section 12.01(a).
"Code" is defined in the preamble to this Agreement.
"Confidentiality Agreement" is defined in Section 7.03.
"Contracts" means contracts, leases, licenses, indentures, agreements,
commitments and all other legally binding arrangements, whether oral or written.
"Contributed Intercompany Indebtedness" is defined in Section 2.02(v).
"Contributing PepsiCo Subsidiary" means each of Ohio Sub, St. Louis Sub,
Opco Sub and Metro Sub.
"Contribution" is defined in the preamble to this Agreement.
"Czechco" means Pepsi-Cola CR SPOL s.r.o., a partnership organized under
the laws of the Czech Republic.
"Czechco Shares" means all of the issued and outstanding partnership
interests of Czechco.
"DGCL" is defined in Section 3.01.
"Discounted Net Receivables Amount" is defined in Section 12.01(b).
"Effective Time" is defined in Section 3.02.
"Employee Benefits Agreement" is defined in the preamble to this Agreement.
"Environmental Law" means all applicable statutes, laws, ordinances, rules,
orders and regulations which are administered, interpreted or enforced by the
U.S. Environmental Protection Agency and state and local agencies with
jurisdiction over pollution or protection of the environment.
"ERISA" is defined in Section 5.01(j).
"Exchange Act" is defined in Section 5.01(d).
"Excluded Assets" means:
(i) all cash and cash equivalents, including checks or payments in
transit or collection, of any Contributing PepsiCo Subsidiary (other than
(A) the amount of cash and/or cash equivalents equal to the Discounted Net
Receivables Amount applicable to each of the Merger Sub Acquired Businesses
in accordance with Section 12.01(b) and (B)(1) cash in vending machines,
(2) cash with drivers and (3) petty cash);
(ii) all accounts receivable of any Contributing PepsiCo Subsidiary;
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(iii) all assets listed on Schedule A to this Agreement;
(iv) all rights, claims and credits of any Contributing PepsiCo
Subsidiary to the extent relating to any Excluded Asset or any Excluded
Liability, including any such items arising under insurance policies and
all guarantees, warranties, indemnities and similar rights in favor of any
Contributing PepsiCo Subsidiary in respect of any Excluded Asset or any
Excluded Liability;
(v) all rights of PepsiCo or any Contributing PepsiCo Subsidiary under
this Agreement and the other Transaction Documents; and
(vi) originals of all Records of PepsiCo, any Contributing PepsiCo
Subsidiary that are not exclusively used or held for use in, or that do not
arise exclusively out of, the conduct or operation of the Merger Sub
Acquired Businesses (the "Excluded Records").
"Excluded Liabilities" means:
(i) any Liabilities to the extent and only to the extent relating to
the Excluded Assets;
(ii) any Liabilities in respect of trade payables of any Contributing
PepsiCo Subsidiary;
(iii) any Liabilities relating to the Transferred Individuals to the
extent specifically and expressly retained by PepsiCo or any of its
Subsidiaries as set forth in the Employee Benefits Agreement; and
(iv) any Liabilities referred to in Schedule B to this Agreement;
(v) any Liabilities for income or franchise Taxes of any of PepsiCo or
any of its Subsidiaries (or any of their predecessors);
(vi) any Liabilities for Taxes attributable to the ownership,
operation or disposition by any of PepsiCo or any of its Subsidiaries (or
any of their predecessors) of assets other than a Merger Sub Acquired
Business; and
(vii) any Liabilities for Taxes allocated to PepsiCo pursuant to
Section 7.07(a)(3).
"Excluded Records" is defined in clause (vi) of the definition of Excluded
Assets.
"FIRPTA affidavit" is defined in Section 11.02(b).
"Form S-4" is defined in Section 5.01(d).
"Form S-8" is defined in Section 5.02(c).
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" is defined in Section 5.01(d).
"Hazardous Material" means any waste or other substance regulated under any
Environmental Law including any hazardous substance within the meaning of the
Comprehensive Environmental Response, Compensation, and Liability Act, or any
similar Federal, state or local law.
"HSR Act" is defined in Section 5.01(d).
"HSR Approval" is defined in Section 8.01(b).
"Hungarianco" means FOVAUROSI ASVANYVIZ ES UDIT OIT ARI RESZVENYI ARSASAG,
a corporation organized under the laws of Hungary.
"Hungarianco Shares" means all of the issued and outstanding shares of
capital stock of Hungarianco owned, directly or indirectly, by PepsiCo, which
shares represent 99% of the issued and outstanding shares of capital stock of
Hungarianco.
"indemnified party" is defined in Section 10.01(d).
"indemnifying party" is defined in Section 10.01(d).
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"Insured Liabilities" is defined in Section 7.18(a).
"International Master Bottling Agreement" is defined in the preamble to
this Agreement.
"Intercompany Trade Accounts" is defined in the definition of Working
Capital Amount.
"Inventory" means raw materials, work-in-process, finished goods, supplies,
parts, spare parts and other inventories.
"knowledge" of any person which is not an individual means the knowledge of
such person's executive officers after reasonable inquiry.
"Liabilities" is defined in Section 2.02.
"Liens" means all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever.
"Losses" is defined in Section 10.01(a)(i).
"Marionco" means Pepsi-Cola General Bottlers of Virginia, Inc., a Virginia
corporation.
"Marionco Shares" means all of the issued and outstanding capital stock of
Marionco.
"Master Bottling Agreement" is defined in the preamble to this Agreement.
"Master Fountain Syrup Agreement" is defined in the preamble to this
Agreement.
"Material Adverse Change" or "Material Adverse Effect" means (i) with
respect to Whitman, any change, effect, event, occurrence or state of facts that
(x) is, or is reasonably likely to be, materially adverse to the business,
financial condition or results of operations of Whitman and its Subsidiaries
taken as a whole, (y) materially impairs the ability of Whitman to perform its
obligations under this Agreement and the other Transaction Documents or (z)
prevents the consummation of any of the transactions contemplated by this
Agreement and the other Transaction Documents and (ii) with respect to the
PepsiCo Subsidiaries, any change, effect, event, occurrence or state of facts
that (x) is, or is reasonably likely to be, materially adverse to the business,
financial condition or results of operations of the PepsiCo Subsidiaries and
their Subsidiaries taken as a whole, (y) materially impairs the ability of the
PepsiCo Subsidiaries to perform their obligations under this Agreement and the
other Transaction Documents or (z) prevents the consummation of any of the
transactions contemplated by this Agreement and the other Transaction Documents
other than, in the case of clauses (i) and (ii), any change, effect, event,
occurrence or state of facts (I) that occurs as a result of any act or omission
of Whitman or PepsiCo (and/or the PepsiCo Subsidiaries) that has been previously
consented to in writing by the other party hereto or (II) relating to (A) the
United States economy or securities markets in general, (B) applicable
international and regional economies in general, (C) this Agreement, the other
Transaction Documents or the transactions contemplated hereby or thereby or the
announcement thereof, and (D) to the beverage bottling industry in general, and
not specifically relating to Whitman or the PepsiCo Subsidiaries or their
respective Subsidiaries.
"Merger" is defined in the preamble to this Agreement.
"Merger Consideration" is defined in Section 3.06(c).
"Merger Sub" is defined in the preamble to this Agreement.
"Merger Sub Acquired Businesses" means, collectively, the Ohio Sub Bottling
Business, the St. Louis Sub Bottling Business and the Opco Sub Bottling Business
to be acquired by Merger Sub from certain of the PepsiCo Subsidiaries pursuant
to the Contribution.
"Merger Sub Assumed Liabilities" is defined in Section 2.02.
"Merger Sub Benefit Plans" is defined in Section 5.02(h).
"Merger Sub Common Stock" is defined in the preamble to this Agreement.
"Merger Sub Repurchase" is defined in Section 7.14.
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"Merger Sub Statement" is defined in Section 12.01(a).
"Merger Sub/PGB Acquired Businesses Financial Statements" is defined in
Section 5.02(d).
"Metro Sub" is defined in the preamble to this Agreement.
"Net Receivables Amount" is defined in Section 12.01(b).
"Neva Holdings LLC" means Neva Holdings LLC, a Delaware limited liability
company.
"Neva Holdings LLC Units" means all of the issued and outstanding limited
liability interests of Neva Holdings LLC.
"New Allied Brand Appointments" is defined in the preamble to this
Agreement.
"New Pepsi-Cola Bottling Appointments" is defined in the preamble to this
Agreement.
"Notice of Disagreement" is defined in Section 12.01(a).
"NYSE" is defined in Section 5.02(c).
"Ohio Sub" is defined in the preamble to this Agreement.
"Ohio Sub Bottling Business" means the manufacture, distribution and sale
at and from the plants (and other sites) listed in Schedule C hereto by Ohio Sub
of beverage products, including primarily PepsiCo brand soft drinks and soft
drink concentrates under licensed appointments from PepsiCo, within the
territory set forth in Schedule C hereto, including the Acquired Assets used or
held for use primarily in the conduct of such business (other than the Excluded
Assets).
"Old Bottling Agreements" means any Bottling Contract in effect prior to
the Closing between PepsiCo or any of its Subsidiaries or affiliates (other than
Whitman or PGB), on the one hand, and Whitman, PGB or any of their Subsidiaries
or affiliates (other than PepsiCo), on the other hand.
"Opco Sub" is defined in the preamble to this Agreement.
"Opco Sub Bottling Business" means the manufacture, distribution and sale
at and from the plants (and other sites) listed in Schedule D hereto by Opco Sub
of beverage products, including primarily PepsiCo brand soft drinks and soft
drink concentrates under licensed appointments from PepsiCo, within the
territory set forth in Schedule D hereto, including the Acquired Assets used or
held for use primarily in the conduct of such business (other than the Excluded
Assets).
"Outside Date" is defined in Section 9.01(b).
"PepsiCo" is defined in the preamble to this Agreement.
"PepsiCo Acquired Businesses" means, collectively, the businesses of
Princetonco, Marionco and Neva Holdings LLC (including, in the case of
Princetonco and Marionco, the vehicles and fleet assets, leasehold interests and
intangible assets to be acquired by PepsiCo (or its designee) from certain of
the Subsidiaries of Whitman pursuant to the Whitman Transfers) to be acquired by
PepsiCo (or its designee) from certain of the Subsidiaries of Whitman pursuant
to the Whitman Transfers.
"PepsiCo Acquired Businesses Financial Statements" is defined in Section
5.01(e).
"PepsiCo Acquired Shares" means, collectively, the Princetonco Shares, the
Marionco Shares and the Neva Holdings LLC Shares.
"PepsiCo Benefit Plans" is defined in Section 5.02(h).
"PepsiCo Disclosure Schedule" is defined in Section 5.02.
"PepsiCo Filed SEC Documents" is defined in Section 5.02(f).
"PepsiCo Intercompany Agreements" means any Contract between or among
PepsiCo or its Subsidiaries or its affiliates to the extent relating to or
affecting any of the PepsiCo Subsidiaries, other than the Contributed
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Intercompany Indebtedness and the Intercompany Trade Accounts between or among
PepsiCo or its Subsidiaries or its affiliates and any of the PepsiCo
Subsidiaries.
"PepsiCo Multiemployer Pension Plans" is defined in Section 5.02(i).
"PepsiCo Pension Plans" is defined in Section 5.02(i).
"PepsiCo Relevant Agreements" is defined in Section 5.02(c).
"PepsiCo Statement" is defined in Section 12.01(a).
"PepsiCo Subsidiaries" means, collectively, (i) Merger Sub, Czechco,
Slovackco, Hungarianco, Polandco and Poland Distributionco and (ii) each of the
Contributing PepsiCo Subsidiaries (in each case with respect to only the Merger
Sub Acquired Businesses).
"PepsiCo Transfers" is defined in the preamble to this Agreement.
"Permits" is defined in Section 5.01(m).
"Permitted Liens" means (i) mechanics', carriers', workmen's, repairmen's
and other like Liens arising or incurred in the ordinary course of business,
(ii) Liens for Taxes, assessments and other governmental charges that are not
yet due and payable or that may thereafter be paid without penalty or that are
being contested in good faith by appropriate proceedings and (iii) imperfections
of title and other Liens that, individually or in the aggregate, do not
materially impair the continued operation of, in the case of Whitman, the
business of Whitman and its Subsidiaries as currently conducted, and in the case
of the PepsiCo Subsidiaries, the Merger Sub Acquired Businesses and the PGB
Acquired Businesses as currently conducted.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, trust, business association or other entity.
"Personal Property" means tangible personal property (other than Inventory)
and all interests therein, including all machinery, equipment, furniture and
vehicles.
"PGB" is defined in the preamble to this Agreement.
"PGB Acquired Businesses" means, collectively, (i) the businesses of each
of Slovackco, Czechco, Hungarianco, Polandco and Poland Distributionco, in each
case to be acquired by PGB from certain of the PepsiCo Subsidiaries pursuant to
the PepsiCo Transfers, (ii) the vending machine assets to be acquired by PGB (or
its designee) from Gray Hawk Leasing Company pursuant to the PepsiCo Transfers
and (iii) the vehicle and other fleet assets to be acquired by Globe Transport,
Inc. from New Bern Transport Company pursuant to the PepsiCo Transfers.
"PGB Shares" means 32 shares of common stock, without par value, of PGB
owned by Metro Sub, which shares represent 20% of the issued and outstanding
shares of common stock of PGB.
"Poland Approvals" is defined in Section 5.01(d).
"Poland Distributionco" means PepsiCo Trading Sp. zo.o., a limited
liability company organized under the laws of Poland.
"Poland Distributionco Shares" means all of the issued and outstanding
limited liability interests of Poland Distributionco.
"Polandco" means Zrodlo Pniewy Sp. zo.o, a limited liability company
organized under the laws of Poland.
"Polandco Shares" means all of the 783,343 issued and outstanding limited
liability interests of Polandco owned, directly or indirectly, by PepsiCo, which
interests represent 46.696% of the issued and outstanding limited liability
interests of Polandco.
"Pre-Closing Tax Period" means any taxable period (or portion thereof) that
ends on or before the Closing Date.
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"Premises" means real property, leaseholds and other interests in real
property.
"Princetonco" means Pepsi-Cola General Bottlers of Princeton, Inc., a West
Virginia corporation.
"Princetonco Shares" means all of the issued and outstanding capital stock
of Princetonco.
"Projected Working Capital Amount" means (i) with respect to any U.S.
Bottling Business, a Working Capital Amount equal to the product of (x) $.40 and
(y) the aggregate number of raw bottle and can cases sold by such Bottling
Business during the twelve-month period immediately preceding the Closing Date,
minus, in the case of the Merger Sub Acquired Businesses, the Receivables
Discount applicable to each such Merger Sub Acquired Business, and (ii) with
respect to (A) Slovackco and Czechco (taken as a whole), a Working Capital
Amount equal to the product of (x) $.14 and (y) the aggregate number of raw
bottle and can cases sold by Slovackco and Czechco during the twelve-month
period immediately preceding the Closing Date, (B) Hungarianco, a Working
Capital Amount equal to the product of (x) $(-).06 and (y) the aggregate number
of raw bottle and can cases sold by Hungarianco during the twelve-month period
immediately preceding the Closing Date, (C) Poland Distributionco, a Working
Capital Amount equal to the product of (x) $.40 and (y) the aggregate number of
raw bottle and can cases sold by Poland Distributionco during the twelve-month
period immediately preceding the Closing Date, (D) Polandco, a Working Capital
Amount equal to $(-)6,650,000 (provided that PepsiCo shall only be obligated
for, or entitled to, its pro rata portion (based on PepsiCo's pro rata ownership
interest of Polandco on the Closing Date) of any Working Capital Amount less
than, or greater than, the Projected Working Capital Amount for Polandco in
accordance with Article XII) and (E) St. Petersburgco, a Working Capital Amount
equal to the product of (x) the quotient of (1) the sum of the Working Capital
Amounts of St. Petersburgco at the end of each calendar month in 1998 divided by
12 and (2) the aggregate number of raw bottle and can cases sold by St.
Petersburgco during 1998 and (y) the aggregate number of raw bottle and can
cases sold by St. Petersburgco during the twelve-month period immediately
preceding the Closing Date.
"Proxy Statement/Prospectus" is defined in Section 5.01(d).
"Records" is defined in clause (vii) of the definition of Acquired Assets.
"Receivables Discount" means, with respect to each of the Merger Sub
Acquired Businesses, an amount equal to the Net Receivables Amount less the
Discounted Net Receivables Amount applicable to such Merger Sub Acquired
Business.
"Registration Rights Agreement" is defined in the preamble to this
Agreement.
"Restraints" is defined in Section 8.01(c).
"SARs" is defined in Section 5.01(c).
"SEC" means the Securities and Exchange Commission.
"SEC Filings Side Letter" means the letter agreement dated as of the date
hereof between PepsiCo and Whitman relating to the Form S-4 and the Proxy
Statement/Prospectus.
"Securities Act" is defined in Section 5.01(e).
"Services Agreements" is defined in the preamble to this Agreement.
"Shareholder Agreement" is defined in the preamble to this agreement.
"Significant Subsidiary" means a Significant Subsidiary as defined in Rule
1-02 of Regulation S-X of the SEC.
"Slovackco" means Pepsi-Cola SR, a corporation organized under the laws of
the Slovak Republic.
"Slovackco Shares" means all of the issued and outstanding shares of
capital stock of Slovackco.
"St. Louis Sub" is defined in the preamble to this Agreement.
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"St. Louis Sub Bottling Business" means the manufacture, distribution and
sale at and from the plants (and other sites) listed in Schedule E hereto by St.
Louis Sub of beverage products, including primarily PepsiCo brand soft drinks
and soft drink concentrates under licensed appointments from PepsiCo, within the
territory set forth in Schedule E hereto, including the Acquired Assets used or
held for use primarily in the conduct of such business (other than the Excluded
Assets).
"St. Petersburgco" means O.O.O. Pepsi-Cola General Bottlers, a corporation
organized under the laws of the Russian Federation.
"St. Petersburgco Shares" means all of the issued and outstanding shares of
capital stock of St. Petersburgco.
"Subsidiary" or "Subsidiaries" when used with respect to any person shall
mean any other person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body (or, if there
are no such voting interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first person.
"Superior Proposal" means any proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of Whitman
Common Stock then outstanding or all or substantially all the assets of Whitman
and its subsidiaries taken together and otherwise on terms which the Board of
Directors of Whitman determines in its good faith judgment (based on the advice
of a financial advisor of nationally recognized reputation and such other
matters as the Board of Directors of Whitman deems relevant) to be more
favorable to Whitman's stockholders than the Merger and for which financing, to
the extent required, is then committed or which, in the good faith judgment of
the Board of Directors of Whitman, is reasonably capable of being obtained by
such third party.
"Surviving Corporation" is defined in Section 3.01.
"Takeover Proposal" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of a business that
constitutes 15% or more of the net revenues, net income or the assets of Whitman
and its Subsidiaries, taken as a whole, or 15% or more of any class of equity
securities of Whitman or any of its Subsidiaries, any tender offer or exchange
offer that if consummated would result in any person beneficially owning 15% or
more of any class of equity securities of Whitman or any of its Subsidiaries, or
any merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Whitman or any of its Subsidiaries,
other than the transactions contemplated by this Agreement.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement related to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
"Taxes" means any Federal, state, local or foreign tax, fee or other like
assessment or charge of any kind whatsoever (including Federal income tax and
any net income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, value-added, transfer, franchise, profits, license,
withholding on amounts paid to or by the taxpayer, payroll, employment, excise,
severance, stamp, capital stock, occupation, property, environmental or windfall
tax, premium, custom, duty or other tax), together with any interest, penalty
addition to tax or additional amount due.
"Termination Fee" is defined in Section 7.07(b).
"Third Party Claim" is defined in Section 10.01(d).
"Transaction Documents" means this Agreement, the New Pepsi-Cola Bottling
Appointments, the New Allied Brand Appointments, the Shareholder Agreement, the
Services Agreements, the Registration Rights Agreement, the Employee Benefits
Agreement, the Whitman Transfers Employee Benefits Agreement, the Assignment and
Assumption Agreement and the SEC Filings Side Letter.
"Transferred Business" is defined in the definition of Acquired Assets.
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"Transferred Individuals" has the meaning given to such term in the
Employee Benefits Agreement.
"Whitman Acquired Foreign Shares" means, collectively, the Slovackco
Shares, the Czechco Shares, the Hungarianco Shares, the Polandco Shares and the
Poland Distributionco Shares.
"Whitman Acquisition Agreement" is defined in Section 6.01(b).
"Whitman" is defined in the preamble to this Agreement.
"Whitman Benefit Plans" is defined in Section 5.01(i).
"Whitman Common Stock" is defined in the preamble to this Agreement.
"Whitman Disclosure Schedule" is defined in Section 5.01.
"Whitman Executives" is defined in Section 5.01(l).
"Whitman Filed SEC Documents" is defined in Section 5.01(g).
"Whitman Form 10-K" is defined in Section 5.01(b).
"Whitman Intercompany Agreements" means any Contract between or among
Whitman or its Subsidiaries or its affiliates to the extent relating to or
affecting any of the PepsiCo Acquired Businesses, other than the Intercompany
Trade Accounts between or among Whitman or its Subsidiaries or its affiliates
and any of the PepsiCo Acquired Businesses.
"Whitman Multiemployer Pension Plans" is defined in Section 5.01(j).
"Whitman Notice" is defined in Section 6.01(a).
"Whitman Pension Plans" is defined in Section 5.01(j).
"Whitman Pro Forma Financial Statements" is defined in Section 5.01(e).
"Whitman Relevant Agreements" is defined in Section 5.01(d).
"Whitman Rights" is defined in Section 5.01(c).
"Whitman Rights Agreement" is defined in Section 5.01(c).
"Whitman Rights Plan Amendment" is defined in Section 5.01(t).
"Whitman SEC Documents" is defined in Section 5.01(e).
"Whitman Stock Options" is defined in Section 5.01(c).
"Whitman Stock Plans" is defined in Section 5.01(c).
"Whitman Stockholder Approval" is defined in Section 5.01(d).
"Whitman Stockholders Meeting" is defined in Section 5.01(f).
"Whitman Transfers" is defined in the preamble to this Agreement.
"Whitman Transfers Employee Benefits Agreement" is defined in the preamble
to this Agreement.
"Working Capital Amount" means, with respect to any Bottling Business on
any date, current assets minus current liabilities of such Bottling Business on
such date, determined in accordance with GAAP applied on a basis consistent with
the policies used by such Bottling Business in the preparation of its financial
statements for fiscal 1997; provided, however, that (i)(A) the amount of any
short-term indebtedness for borrowed money or short-term capitalized lease
obligations shall be excluded from the calculation of current liabilities of any
Bottling Business to the extent (and only to the extent) the amount of such
short-term indebtedness for borrowed money or short-term capitalized lease
obligations reduced the purchase price attributable to such Bottling Business in
accordance with Section 4.03, (B) U.S. Tax benefits attributable to losses of
Polandco and Poland Distributionco and not available as a Tax benefit to
Polandco or Poland Distributionco shall be excluded from the calculation of
current assets of each of Polandco and Poland
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Distributionco, (C) short-term intercompany trade accounts receivable and
payable which arose in the ordinary course of operations for the purchase or
sale of goods and services (which are normally eliminated in consolidation)
("Intercompany Trade Accounts") shall be counted as current assets and current
liabilities of each such Bottling Business, (D) payables in respect of lease
payments relating to vehicle and other fleet assets for pre-closing periods
shall be counted as current liabilities and (E) the Contributed Intercompany
Indebtedness shall be excluded from the calculation of current liabilities of
each of the Merger Sub Acquired Businesses, (ii) for any inventory to be counted
as part of the current assets of any such Bottling Business, such inventory must
be usable and saleable in the ordinary course of business of such Bottling
Business within applicable guideline dates for shelf life for the particular
product or package, must be valued at acquisition cost or production floor cost,
and must have a net realizable value at least equal to the values at which such
inventory is carried on the balance sheets relating to such Bottling Business
and (iii) for any receivables to be counted as part of the current assets of any
such Bottling Business, such receivables must have arisen only from bona fide
transactions in the ordinary course of business of such Bottling Business, must
not be in dispute, must not be subject to any setoffs, discounts, rebates,
credits, reductions or counterclaims whatsoever, and, with reasonable collection
efforts consistent with good business practices, must be able to be fully paid
within ninety (90) days after the date each such receivable arose, without
resort to collection agencies or legal action.
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APPENDIX B
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
HEARTLAND TERRITORIES HOLDINGS, INC.
1. The name of the corporation (the "Corporation") is "Heartland
Territories Holdings, Inc."
2. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on May 20, 1963 under the name Pepsi-Cola
(Pakistan), Inc.
3. This Restated Certificate of Incorporation has been duly proposed by
resolutions adopted and declared advisable by the Board of Directors of the
Corporation, duly adopted by written consent of the sole stockholder of the
Corporation in lieu of a meeting and vote and duly executed and acknowledged by
the officers of the Corporation in accordance with the provisions of Sections
103, 228, 242 and 245 of the General Corporation Law of the State of Delaware
and, upon filing with the Secretary of State in accordance with Section 103,
shall supersede the original Certificate of Incorporation and shall, as it may
thereafter be amended in accordance with its terms and applicable law, be the
Certificate of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation of the Corporation is
hereby restated to read in its entirety as follows:
FIRST: The name of the corporation (the "Corporation") is
WHITMAN CORPORATION
SECOND: The registered office of the Corporation within the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, State of Delaware. The registered agent
of the Corporation within the State of Delaware is The Corporation Trust
Company, the business office of which is identical with the registered
office of the Corporation.
THIRD: The purpose of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized and
incorporated under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 362,500,000, of which
350,000,000 shares, par value $0.01 per share, shall be "Common Stock" and
12,500,000 shares, par value $0.01 per share, shall be "Preferred Stock".
A. PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to fix by resolution or
resolutions adopted in accordance with the by-laws of the Corporation the voting
rights, if any, designations, powers, preferences and the relative,
participation, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, of any unissued series of Preferred Stock;
and to fix by such resolution or resolutions the number of shares constituting
such series, and to increase or decrease the number of shares of any such series
(but not below the number of shares thereof then outstanding).
B. COMMON STOCK
(1) Except as otherwise provided by law or by the resolution or resolutions
adopted by the Board in accordance with the by-laws of the Corporation
designating the rights, powers and preferences of any series of Preferred Stock
and subject to the provisions of the by-laws of the Corporation as from time to
time amended, with respect to the fixing of a record date for the determination
of stockholders entitled to vote, the holders of
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outstanding shares of Common Stock shall exclusively possess voting power for
the election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in his name on the books of the Corporation.
(2) Subject to any rights or preferences of holders of Preferred Stock, the
holders of Common Stock shall be entitled to receive such dividends as from time
to time may be declared on the Common Stock by the Board of Directors.
(3) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, subject to any rights or
preferences of holders of Preferred Stock, the holders of Common Stock shall be
entitled to share, ratably according to the number of shares of Common Stock
held by them, in all assets of the Corporation available for distribution to its
stockholders.
C. PROVISIONS RELATING TO ALL CLASSES OF STOCK
(1) No holder of shares of Common Stock or Preferred Stock of the
Corporation shall be entitled as of right to pre-emptive or prior right to
subscribe for, purchase, or receive any part of any new or additional issue of
stock of any class, whether now or hereafter authorized, or of any bonds,
debentures, or other securities, convertible or exchangeable into stock of any
class, and all such new or additional shares of stock, bonds, debentures or
other securities, convertible or exchangeable into stock, or stock that has been
purchased by the Corporation or its nominee or nominees, may be issued and
disposed of by the Board of Directors to such persons, firms or corporations and
on such terms and for such consideration permitted by law as the Board of
Directors, in their absolute discretion, may deem advisable.
(2) Neither the merger or consolidation of the Corporation into or with
another corporation nor the merger or consolidation of any other corporation
into or with the Corporation, nor the sale, transfer or lease of all or
substantially all the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation.
(3) All stockholder action shall be taken at an annual or special meeting,
and no stockholder action may be taken without a meeting.
FIFTH: The minimum amount of capital with which the Corporation will
commence business is One Thousand Dollars ($1,000.00).
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatever.
EIGHTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
By resolution passed by the Board of Directors in accordance with
the by-laws of the Corporation, to designate one or more committees,
each committee to consist of two or more of the directors of the
Corporation, which, to the extent provided in the resolution or in the
by-laws of the Corporation, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of
the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it. Such committee or committees
shall have such name or
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names as may be stated in the by-laws of the Corporation or as may be
determined from time to time by resolution adopted by the Board of
Directors.
When and as authorized by the affirmative vote of the holders of
a majority of the stock issued and outstanding having voting power
given at a stockholders' meeting duly called for that purpose, or when
authorized by the written consent of the holders of a majority of the
voting stock issued and outstanding, to sell, lease or exchange all of
the property and assets of the Corporation, including its good will
and its corporate franchise, upon such terms and conditions and for
such consideration, which may be in whole or in part shares of stock
in, and/or other securities of, any other corporation or corporations,
as its Board of Directors shall deem expedient and for the best
interests of the Corporation.
NINTH: No director shall be personally liable to the Corporation or
any stockholder for monetary damages for breach of fiduciary duty by such
director as a director, except for any matter in respect of which such
director shall be liable under Section 174 of the Delaware General
Corporation Law or shall be liable by reason that, in addition to any and
all other requirements for such liability, he (i) shall have breached his
duty of loyalty to the Corporation or its stockholders, (ii) in acting or
in failing to act, shall not have acted in good faith or shall have acted
in a manner involving intentional misconduct or a knowing violation of law
or (iii) shall have derived an improper personal benefit from the
transaction in respect of which such breach of fiduciary duty occurred.
Neither the amendment nor repeal of this Article NINTH shall eliminate or
reduce the effect of this Article NINTH in respect of any matter occurring,
or any cause of action, suit or claim that, but for this Article NINTH
would accrue or arise, prior to such amendment or repeal. If the Delaware
General Corporation Law is amended after approval by the stockholders of
this Article NINTH to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended
from time to time.
TENTH: (1) In anticipation that PepsiCo, Inc. is currently, and will
remain, a substantial stockholder of the Corporation, and in anticipation
that the Corporation and PepsiCo, Inc. may engage in the same or similar
activities or lines of business and have an interest in the same areas of
business opportunities, and in recognition of the benefits to be derived by
the Corporation through its continued contractual, corporate and business
relations with PepsiCo, Inc. (including service of employees, officers and
directors of PepsiCo, Inc. as officers and directors of the Corporation),
the provisions of this Article TENTH are set forth to regulate and define
the conduct of certain affairs of the Corporation as they may involve
PepsiCo, Inc. and its employees, officers and directors, and the powers,
rights, duties and liabilities of the Corporation and its officers,
directors and stockholders in connection therewith.
(2) PepsiCo, Inc. shall have the right to engage (and shall have no
duty to refrain from engaging) in the same or similar activities or lines
of business as the Corporation, and the Corporation shall not be deemed to
have an interest or expectancy in any business opportunity, transaction, or
other matter (each a "Business Opportunity") in which PepsiCo, Inc. engages
or seeks to engage merely because the Corporation engages in the same or
similar activities or lines of business as that involved in or implicated
by such Business Opportunity. Neither PepsiCo, Inc. nor any employee,
officer or director thereof (except as provided in paragraph 3 below) shall
be liable to the Corporation or its stockholders for breach of any
fiduciary duty by reason of any such activities of PepsiCo, Inc. or of such
person's participation therein. In the event that PepsiCo, Inc. acquires
knowledge of a potential Business Opportunity which may be deemed to
constitute a corporate opportunity for both PepsiCo, Inc. and the
Corporation, PepsiCo, Inc. shall have no duty to communicate or offer such
Business Opportunity to the Corporation and shall not be liable to the
Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation by reason of the fact that PepsiCo, Inc.
pursues or acquires such Business Opportunity for itself, directs such
Business Opportunity to another person, or does not communicate information
regarding such Business Opportunity to the Corporation.
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(3) In the event that a director or officer of the Corporation who is
also a director, officer or employee of PepsiCo, Inc. acquires knowledge of
a potential Business Opportunity which may be deemed to be a corporate
opportunity for both the Corporation and PepsiCo, Inc., such director or
officer of the Corporation shall have fully satisfied and fulfilled the
fiduciary duty of such director or officer to the Corporation and its
stockholders with respect to such Business Opportunity and, to the extent
permitted by applicable law, shall not be liable to the Corporation or its
stockholders for breach of any fiduciary duty by reason of the fact that
PepsiCo, Inc. pursues or acquires such Business Opportunity for itself or
directs such Business Opportunity to another person or does not communicate
information regarding such Business Opportunity to the Corporation, if such
director or officer acts in a manner consistent with the following policy:
A Business Opportunity offered to any person who is an officer of
the Corporation, and who is also a director or an officer or an employee
of PepsiCo, Inc., shall belong to the Corporation; and (b) a Business
Opportunity offered to any person who is a director but not an officer
of the Corporation, and who is also a director or officer of PepsiCo,
Inc., shall belong to the Corporation if such Business Opportunity is
expressly offered to such person solely in his or her capacity as a
director of Corporation, and otherwise shall belong to PepsiCo, Inc.
(4) Any person purchasing or otherwise acquiring any interest in share
of the capital stock of the Corporation shall be deemed to have consented
to the provisions of this Article TENTH.
(5) For purposes of this Article TENTH:
(a) A director of the Corporation who is Chairman of the Board of
Directors of the Corporation or of a committee thereof shall not be
deemed to be an officer of the Corporation by reason of holding such
position (without regard to whether such position is deemed an office of
the Corporation under the by-laws of the Corporation), unless such
person is a full-time employee of the Corporation; and
(b) PepsiCo, Inc. shall include all subsidiary corporations and
other entities in which PepsiCo, Inc. owns (directly or indirectly) more
that 50% of the outstanding voting capital stock or voting power.
(6) Any proposed amendment to this Article TENTH shall require the
approval of two-thirds of the whole Board of Directors.
ELEVENTH: Meetings of stockholders may be held outside the State of
Delaware, if the by-laws of the Corporation so provide. The books of the
Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the by-laws of
the Corporation. Elections of directors need not be by ballot unless the
by-laws of the Corporation shall so provide.
TWELFTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
THIRTEENTH: The Corporation hereby expressly elects not to be
governed by Section 203(a) of the Delaware General Corporation Law relating
to business combinations with interested shareholders.
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IN WITNESS WHEREOF, Heartland Territories Holdings, Inc. has caused this
Certificate of Incorporation to be signed by its President and attested by its
Secretary and has caused its corporate seal to be hereunto affixed, this
day of , 1999.
HEARTLAND TERRITORIES HOLDINGS, INC.
By: /s/
------------------------------------
President
Attest: /s/
----------------------------------------------------------
Secretary
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APPENDIX C
FORM OF
WHITMAN CORPORATION
(FORMERLY NAMED HEARTLAND TERRITORIES HOLDINGS, INC.)
AMENDED AND RESTATED
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. Beginning with the 2000 annual meeting, annual meetings of
stockholders for the election of directors and for the transaction of such other
business as may come before the meeting shall be held on the first Thursday of
May at 10:30 A.M., at Chicago, Illinois, or on such other date or at such other
time or place, whether within or without the State of Delaware, as shall be
designated by the Board of Directors.
SECTION 2. At any annual or special meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who complies with the notice procedures set forth in this Section 2.
For business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, in the case of an annual meeting, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to the stockholders, notice by the stockholder to be timely
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. In the case of a special meeting requested by a
stockholder, such stockholder must provide notice in accordance with the
following sentence at the time of such request. A stockholder's notice to the
Secretary shall be set forth as to each matter the stockholder proposes to bring
before the annual or special meeting, as the case may be, (a) a brief
description of the business desired to be brought before such meeting and the
reasons for conducting such business at such meeting, (b) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at an annual or special meeting except
in accordance with the procedures set forth in this Section 2. The chairman of
any annual or special meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 2, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
SECTION 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by law or by the Certificate of
Incorporation, may be called by the Chairman and Chief Executive Officer and
shall be called by him or by the Secretary at the request of (i) a majority of
the Board of Directors or (ii) any stockholder which, individually or together
with any other entity in which such stockholder has a 20% or greater equity or
other ownership interest, owns 20% or more of the issued and outstanding
securities of the Corporation entitled to vote generally in the election of
directors of the Corporation, provided that such request shall state the purpose
or purposes of the proposed meeting and in the case of a request by a
stockholder, shall also comply with the provisions of Section 2 of this Article
I. Special meetings may be held at such time and place and for such purposes as
shall be stated in the notice issued by the Chairman and Chief Executive Officer
or the Secretary calling the meeting, provided that in the case of a special
meeting requested by a stockholder, such special meeting shall take place not
later than 70 days from the date of receipt of proper notice from such
stockholder requesting the meeting. In the case of a special meeting requested
by a
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stockholder, the Board of Directors shall fix a record date for stockholders
entitled to vote at the special meeting, which record date shall be not later
than 10 days from receipt of proper notice from such stockholder requesting the
meeting, subject to compliance with the applicable regulations of any exchange
on which the Corporation's securities are listed.
SECTION 4. Nominations of persons for election to the Board of Directors
of the Corporation may be made at a meeting of stockholders (a) by or at the
direction of the Board of Directors or (b) by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 4. Nominations by stockholders
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for the
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (b) as to the stockholder giving
the notice (i) the name and address, as they appear on the Corporation's books,
of such stockholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
these By-Laws. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed in this Section 4, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
SECTION 5. Unless waived, written notice of the date, place, and time of
the holding of each annual and special meeting of the stockholders and, in the
case of a special meeting, the purpose or purposes thereof, shall be given
personally or by mail in a postage prepaid envelope to each stockholder entitled
to vote at such meeting, not less than ten nor more than sixty days before the
date of such meeting, and, if mailed, it shall be directed to such stockholder
at his address as it appears on the records of the Corporation.
SECTION 6. The officer who has charge of the stock ledger of the
Corporation shall prepare and make before every meeting of stockholders a
complete list of the stockholders as of the record date entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 7. The Board may, in advance of any meeting of stockholders,
appoint one or more inspectors to act at such meeting, or any adjournment
thereof. If the inspectors shall not be so appointed or if any of them shall
fail to appear or act, the chairman of the meeting may, and on the request of
any stockholder entitled to vote thereat shall, appoint inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or
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consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
SECTION 8. At each meeting of the stockholders the Chairman and Chief
Executive Officer or, in his absence or inability to act, the President shall
act as chairman of the meeting. The Secretary or, in his absence or inability to
act, the Assistant Secretary or any person appointed by the chairman of the
meeting shall act as secretary of the meeting and keep the minutes thereof. The
order of business at all meetings of the stockholders shall be as determined by
the chairman of the meeting.
SECTION 9. Except as otherwise provided by law or the Certificate of
Incorporation, at all meetings of the stockholders fifty-one per cent of the
votes of the shares of stock of the Corporation issued and outstanding and
entitled to vote shall be present in person or by proxy to constitute a quorum
for the transaction of any business, provided that (except as aforesaid) when
stockholders are required to vote by class or series, fifty-one per cent of the
votes represented by the issued and outstanding shares of the appropriate class
or series shall be present in person or by proxy. In the absence of a quorum,
the holders of a majority of the votes of the shares of stock present in person
or by proxy and entitled to vote may adjourn the meeting from time to time.
Unless the Board shall fix after the adjournment a new record date for an
adjourned meeting, notice of such adjourned meeting need not be given, except as
hereinafter provided, if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken. If
the adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At the adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting.
SECTION 10. Except as otherwise provided by law, the Certificate of
Incorporation, or any certificate filed by the Corporation in the State of
Delaware pursuant to Section 151 (or any successor provisions) of the General
Corporation Law of the State of Delaware, each holder of record of shares of
stock of the Corporation having voting power shall be entitled at each meeting
of the stockholders to one vote for every share of such stock standing in his
name on the record of stockholders of the Corporation on the date fixed by the
Board as the record date for the determination of the stockholders who shall be
entitled to notice of and to vote at such meeting. Each stockholder entitled to
vote at any meeting of stockholders may authorize another person or persons to
act for him by proxy signed by such stockholder or his attorney-in-fact. Any
such proxy shall be delivered to the secretary of such meeting at or prior to
the time designated in the order of business for so delivering in such proxies.
No proxy shall be valid after the expiration of three years from the date
thereof, unless otherwise provided in the proxy. A proxy shall be revocable at
the pleasure of the stockholder executing it, except in those cases where an
irrevocable proxy is permitted by law. Except as otherwise provided by law, the
Certificate of Incorporation, or these By-Laws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total votes
cast, or when stockholders are required to vote by class or series by a majority
of the votes cast of the appropriate class or series. Unless required by law or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by written ballot. On a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, and shall state the
number of shares voted.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. The business and affairs of the Corporation shall be managed by
the Board of Directors. The Board may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by law or the
Certificate of Incorporation directed or required to be exercised or done by the
stockholders.
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SECTION 2. The number of directors of the Corporation shall be such number
of persons, not less than three (3), as shall from time to time be fixed by
resolution of two-thirds of the whole Board. Directors need not be stockholders.
Except as otherwise provided by law, the Certificate of Incorporation, or these
By-Laws, the directors shall be elected at the annual meeting of the
stockholders, and the persons receiving a plurality of the votes cast at such
election shall be elected. Directors shall hold office until their respective
successors shall have been duly elected and qualified, or until death,
resignation, or removal, as hereinafter provided in these By-Laws, or as
otherwise provided by law of the Certificate of Incorporation. The Board shall
elect one of its members as Chairman and Chief Executive Officer.
SECTION 3. The Chairman and Chief Executive Officer, if present, shall
preside at all meetings of the Board. He shall serve as Chairman of the
Executive Committee of the Board and be a member of such other committees of the
Board as shall be determined by the Board at the time of the creation or the
election of the members of any such committees.
SECTION 4. Meetings of the Board may be held at such place, either within
or without the State of Delaware, as the Board may from time to time determine
or as shall be specified in the notice or waiver of notice of such meeting.
SECTION 5. Regular meetings of the Board may be held without notice at
such time and place as the Board may from time to time determine.
SECTION 6. Special meetings of the Board may be called by two or more
directors of the Corporation or by the Chairman and Chief Executive Officer or
the Secretary.
SECTION 7. Notice of each special meeting of the Board shall be given by
the Secretary as hereinafter provided in this Section, in which notice shall be
stated the time and place of the meeting. Notice of each such meeting shall be
delivered to each director either personally or by telephone, telegraph, cable,
or similar means, at least twenty-four hours before the time at which such
meeting is to be held or mailed by first-class mail, postage prepaid, addressed
to the director at his residence or usual place of business, at least three days
before the day on which such meeting is to be held. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to such
director. Except as otherwise specifically required by these By-Laws, a notice
or waiver of notice of any regular or special meeting need not state the purpose
of such meeting.
SECTION 8. Subject to Section 14 of this Article, one-third of the entire
Board shall be present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at such meeting, and, except
as otherwise expressly required by law, the Certificate of Incorporation or
these By-Laws, the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board. In the absence of a
quorum at any meeting of the Board, a majority of the directors present thereat
may adjourn such meeting to another time and place, or such meeting need not be
held. At any adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally called.
Except as otherwise provided in this Article II, the directors shall act only as
a Board and the individual directors shall have no power as such.
SECTION 9. Any director of the Corporation may resign at any time by
giving a written notice of resignation to the Board, the Chairman and Chief
Executive Officer, or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 10. Vacancies or newly created directorships resulting from an
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until their successors are duly elected and shall
qualify. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or holder or holders
of at least ten percent of the votes of the shares
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at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office. Except as otherwise provided in these By-Laws, when one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, to vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this Section 10 in the filling of other
vacancies.
SECTION 11. Except as otherwise provided in the Certificate of
Incorporation or these By-Laws, any director may be removed, either with or
without cause, at any time, by the affirmative vote of a majority of the votes
of the issued and outstanding stock entitled to vote for the election of
directors of the Corporation given at a special meeting of the stockholders
called and held for such purpose; and the vacancy in the Board caused by any
such removal may be filled by such stockholders at such meeting, or, if the
stockholders shall fail to fill such vacancy, as in these By-Laws provided.
SECTION 12. The Board shall have authority to fix the compensation,
including fees and reimbursement of expenses, of directors for services to the
Corporation in any capacity, provided that no such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 13. Any action required or permitted to be taken at any meeting of
the Board or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee. Members of the Board or of any committee designated
by the Board may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting pursuant to this procedure shall constitute presence in person at such
meeting.
SECTION 14. The issuance of preferred stock by the Corporation shall
require the approval of two-thirds of the whole Board.
ARTICLE III
COMMITTEES OF THE BOARD
SECTION 1. The Board of Directors may, by resolution adopted by two-thirds
of the whole Board, designate an Executive Committee to exercise, subject to
applicable provisions of law, all the powers of the Board in the management of
the business and affairs of the Corporation when the Board is not in session,
including without limitation the power to declare dividends and to authorize the
issuance of the Corporation's capital stock, and may, by resolution similarly
adopted, designate one or more other committees. The Executive Committee and
each such other committee shall consist of two or more directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, other than the Executive Committee
whose powers are expressly provided for herein, may to the extent permitted by
law exercise such powers and shall have such responsibilities as shall be
specified in the designating resolution. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member. Each
committee shall keep written minutes of its proceedings and shall report such
proceedings to the Board when required.
SECTION 2. (a) The Board of Directors shall designate an Affiliated
Transaction Committee. The Affiliated Transaction Committee shall review,
consider and pass upon any Affiliated Transaction, and no such transaction shall
be effected without the concurrence of the Affiliated Transaction Committee. The
Affiliated Transaction Committee shall have the powers to (i) negotiate with the
representatives of any party to an Affiliated Transaction; (ii) require approval
of an Affiliated Transaction by a vote of the stockholders of the
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Corporation which may be greater than or in addition to any vote required by
law; and (iii) engage Independent Advisers at the reasonable expense of the
Corporation, and without prior approval of the Corporation, to assist in its
review and decision regarding any Affiliated Transaction.
(b) The Affiliated Transaction Committee shall consist of at least
three Independent Directors, with each other Independent Director being an
alternate member if any committee member is unable or unwilling to serve.
(c) The Affiliated Transaction Committee shall cease to exist on the later
of (i) January , 2009 or (ii) the date on which any Affiliated Transaction
being reviewed, considered and passed upon by the Affiliated Transaction
Committee prior to January , 2009 shall have been either consummated or
abandoned.
(d) For the purposes of the foregoing Article III, Section 2, the following
definitions shall apply:
(i) "Corporation" means the Corporation or any company in which the
Corporation has more than 50% of the voting power in the election of
directors or in which it has the power to elect a majority of the Board of
Directors.
(ii) "PepsiCo, Inc." means PepsiCo, Inc. or any company in which
PepsiCo, Inc. has more than 50% of the voting power in the election of
directors or in which it has the power to elect a majority of the Board of
Directors.
(iii) "Affiliate" means any entity (other than the Corporation) in
which PepsiCo, Inc. has a 20% or greater equity or other ownership
interest, or any entity controlled directly or indirectly by such
Affiliate. Notwithstanding the above, no entity shall be an Affiliate
solely by virtue of the rights granted to PepsiCo, Inc. pursuant to a
bottling contract.
(iv) "Affiliated Transaction" means any proposed merger or
consolidation with, purchase of an equity interest in, or purchase of
assets other than in the ordinary course of business from an Affiliate, and
which transaction has an aggregate value exceeding $10 million; provided,
however, that any such merger, consolidation, or purchase which constitutes
a "Permitted Acquisition" under the Shareholder Agreement between the
Corporation and PepsiCo, Inc., dated as of [ ], 1999 (as it
may be amended from time to time, the "Shareholders Agreement"), shall not
constitute an Affiliated Transaction for purposes of this Article III,
Section 2.
(v) "Independent Directors" means any member of the Corporation's
Board of Directors who (i) is not, and for the past two years has not been,
an officer, director or employee of PepsiCo, Inc. or (other than serving as
a director of the Corporation) an Affiliate; (ii) does not own in excess of
1% of the shares of PepsiCo, Inc.; and (iii) own any equity or other
ownership interest in an entity (except as permitted by the preceding (ii)
and other than in the Corporation) which is a party to the Affiliated
Transaction.
(vi) "Independent Adviser" means any legal or financial adviser or
other expert (i) that has not represented or provided services to PepsiCo,
Inc. during the past calendar year, or (ii) notwithstanding (i) above, that
the Affiliated Transaction Committee (as defined below) determines, after
due inquiry, is able to represent it in an independent manner not adverse
to the interests of the Corporation and its stockholders.
SECTION 3. A majority of any committee may determine its action and fix
the time and place of its meetings, unless the Board shall otherwise provide.
Notice of such meetings shall be given to each member of the committee in the
manner provided for in Article II, Section 7. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
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ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall consist of the Chairman
and Chief Executive Officer, the President, one or more Vice Presidents, the
Treasurer, the Controller and the Secretary. Any two or more offices may be held
by the same person. Each such officer shall be elected from time to time by the
Board of Directors to hold office until his successor shall have been duly
elected and shall have qualified, or until his death, or until he shall have
resigned, or have been removed, as hereinafter provided in these By-Laws. The
Board may from time to time elect, or the Chairman and Chief Executive Officer
may appoint, such other officers (including one or more Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant
Controllers) and such agents, as may be necessary or desirable for the conduct
of the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as shall be provided in
these By-Laws or as may be prescribed by the Board or by the Chairman and Chief
Executive Officer.
SECTION 2. Any officer or agent of the Corporation may resign at any time
by giving written notice of his resignation to the Board, the Chairman and Chief
Executive Officer, or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3. Any officer or agent of the Corporation may be removed, either
with or without cause, at any time, by the vote of a majority of the whole Board
at any meeting of the Board, or, except in the case of an officer or agent
elected by the Board, by the Chairman and Chief Executive Officer. Such removal
shall be without prejudice to the contractual rights, if any, of the person so
removed.
SECTION 4. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant in the manner prescribed in
these By-Laws for the regular election or appointment of such office.
SECTION 5. The Chairman and Chief Executive Officer shall have the primary
responsibility for and the general control and management of all of the business
and affairs of the Corporation, under the direction of the Board. He shall have
power to select and appoint all necessary officers and employees of the
Corporation except such officers as under these By-Laws are to be elected by the
Board, to remove all appointed officers or employees whenever he shall deem it
necessary, and to make new appointments to fill the vacancies. He shall have the
power of suspension from office for cause of any elected officer, which shall be
forthwith declared in writing to the Board. Whenever in his opinion it may be
necessary, he shall define the duties of any officer or employee of the
Corporation which are not prescribed in the By-Laws or by resolution of the
Board. He shall have such other authority and shall perform such other duties as
may be assigned to him by the Board.
SECTION 6. The President shall be the chief operating officer of the
Corporation and shall have such authority and perform such duties relative to
the business and affairs of the Corporation as may be delegated to him by the
Board or the Chairman and Chief Executive Officer. In the absence of the
Chairman and Chief Executive Officer, the President shall preside at meetings of
the stockholders and of the directors.
SECTION 7. Each Vice President and each Assistant Vice President shall
have such powers and perform all such duties as from time to time may be
assigned to him by the Board, the Chairman and Chief Executive Officer, the
President or the senior officer to whom he reports.
SECTION 8. The Treasurer shall exercise general supervision over the
receipt, custody and disbursement of corporate funds. He shall have such further
powers and duties and shall be subject to such directions as may be granted or
imposed upon him from time to time by the Board or the Chairman and Chief
Executive Officer.
SECTION 9. The Controller shall be the chief accounting officer of the
Corporation and shall maintain adequate records of all assets, liabilities and
transactions of the Corporation; he shall establish and maintain internal
accounting controls and, in cooperation with the independent public accountants
selected by the
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Board, shall supervise internal auditing. He shall have such further powers and
duties as may be conferred upon him from time to time by the Board or the
Chairman and Chief Executive Officer.
SECTION 10. The Secretary shall keep or cause to be kept in one or more
books provided for that purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders; he shall see that all notices are
duly given in accordance with the provisions of these By-Laws and as required by
law; he shall be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal; he shall see that the
books, reports, statements, certificates and other documents and records
required by law to be kept and filed are properly kept and filed; and in
general, he shall perform all the duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him by the Board or
the Chairman and Chief Executive Officer.
SECTION 11. Any Assistant Secretary, Assistant Treasurer, or Assistant
Controller elected or appointed as heretofore provided, shall perform the duties
and exercise the powers of the Secretary, Treasurer and Controller,
respectively, in their absence or inability to act, and shall perform such other
duties and have such other powers as the Board, the Chairman and Chief Executive
Officer, the Secretary, Treasurer, or Controller (as the case may be), may from
time to time prescribe.
SECTION 12. If required by the Board, any officer of the Corporation shall
give a bond or other security for the faithful performance of his duties in such
amount and with such surety or sureties as the Board may specify.
SECTION 13. The compensation of the officers of the Corporation for their
services as such officers shall be fixed from time to time by the Board;
provided, however, that the Board may by resolution delegate to the Chairman and
Chief Executive Officer the power to fix compensation of non-elected officers
and agents appointed by him. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation, but any such officer who shall also be a director
shall not have any vote in the determination of the amount of compensation paid
to him.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans maintained
or sponsored by the Corporation, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said Law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes pursuant to the Employee Retirement Income
Security Act of 1974 or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 2 of this Article, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right
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and shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
SECTION 2. If a claim under Section 1 of this Article is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct which makes it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
SECTION 3. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise. No repeal or modification of this Article shall in any
way diminish or adversely effect the rights of any director, officer, employee
or agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
SECTION 4. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
ARTICLE VI
CONTRACTS, PROXIES, ETC.
SECTION 1. Except as otherwise required by law, the Certificate of
Incorporation or these By-laws, any contracts or other instruments may be
executed and delivered in the name and on behalf of the Corporation by such
officer or officers (including any assistant officer) of the Corporation as the
Board of Directors may from time to time direct. Such authority may be general
or confined to specific instances as the Board may determine. The Chairman and
Chief Executive Officer, the President or any Vice President may execute bonds,
contracts, deeds, leases and other instruments to be made or executed for or on
behalf of the Corporation. Subject to any restrictions imposed by the Board or
the Chairman and Chief Executive Officer, the President or any Vice President of
the Corporation may delegate contractual power to others under his
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jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise of
such delegated power.
SECTION 2. Unless otherwise provided by resolution adopted by the Board,
the Chairman and Chief Executive Officer, the President or any Vice President
may from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he may deem necessary or proper
in the premises.
ARTICLE VII
SHARES, BOOKS, ETC.
SECTION 1. Every holder of stock in the Corporation shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
and Chief Executive Officer, the President or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
certifying the number of shares owned by such holder in the Corporation. Any of
or all the signatures on the certificate may be facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent, or registrar at the date of issue.
SECTION 2. The books and records of the Corporation may be kept at such
places within or without the State of Delaware, as the Board of Directors may
from time to time determine.
SECTION 3. Transfers of shares of stock of the Corporation shall be made
on the stock records of the Corporation only upon authorization by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent,
and or surrender of the certificate or certificates for such shares properly
endorsed or accompanied by a duly executed stock transfer power and the payment
of all taxes thereon. Except as otherwise provided by law, the Corporation shall
be entitled to recognize the exclusive right of a person in whose name any share
or shares stand on the record of stockholders as the owner of such share or
shares for all purposes, including, without limitation, the right to receive
dividends or other distributions, and to vote as such owner, and the Corporation
may hold any such stockholder of record liable for calls and assessments and
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person whether or not it shall
have express or other notice thereof.
SECTION 4. The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation. It may appoint or authorize any officer or officers to appoint, one
or more transfer agents or one or more registrars and may require all
certificates for shares of stock to bear the signature or signatures of any of
them.
SECTION 5. Upon notice to the Corporation by the holder of any certificate
representing shares of stock of the Corporation of any loss, theft, destruction
or mutilation of such certificate, the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
holder thereof shall allege to have been lost, stolen, or destroyed or which
shall have been mutilated, and the Board may, in its discretion, require such
holder or his legal representatives to give to the Corporation a bond in such
sum, limited or unlimited, and in such form and with such surety or sureties as
the Board in its absolute discretion shall determine, and to indemnify the
Corporation against any claim which may be made against it on account of the
alleged loss, theft, or destruction of any such certificate, or of the issuance
of a new certificate. Anything
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herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Delaware.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board of
Directors.
ARTICLE IX
SEAL
The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it, or a facsimile thereof, to be
impressed or affixed or reproduced or otherwise.
ARTICLE X
AMENDMENTS
These By-Laws may be amended or repealed, or new By-Laws may be adopted, by
two-thirds of the whole Board of Directors at any meeting thereof; provided that
By-Laws adopted by the Board may be amended or repealed by the stockholders.
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APPENDIX D
SHAREHOLDER AGREEMENT
BY AND BETWEEN
WHITMAN CORPORATION,
A DELAWARE CORPORATION,
AND
PEPSICO, INC.,
A NORTH CAROLINA CORPORATION
DATED AS OF , 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1. Certain Definitions......................................... 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Company............... 6
SECTION 2.2. Representations and Warranties of the Shareholder........... 6
ARTICLE III
SHAREHOLDER AND COMPANY CONDUCT
SECTION 3.1. Acquisition of Voting Securities............................ 7
SECTION 3.2. Required Reduction of Ownership Percentage.................. 8
SECTION 3.3. Top-Up Rights............................................... 8
SECTION 3.4. Transfer.................................................... 9
SECTION 3.5. Charter and By-Laws......................................... 9
SECTION 3.6. Rights Agreement............................................ 9
SECTION 3.7. Special Meetings Requested by the Stockholder............... 10
ARTICLE IV
BOARD COMPOSITION
SECTION 4.1. Board Composition........................................... 10
ARTICLE V
EFFECTIVENESS AND TERMINATION
SECTION 5.1. Effectiveness............................................... 11
SECTION 5.2. Termination................................................. 11
SECTION 5.3. Agreements Following Certain Acquisitions................... 11
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Injunctive Relief........................................... 12
SECTION 6.2. Successors and Assigns...................................... 12
SECTION 6.3. Amendments; Waiver.......................................... 12
SECTION 6.4. Notices..................................................... 13
SECTION 6.5. Applicable Law.............................................. 14
SECTION 6.6. Headings.................................................... 14
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 6.7. Integration................................................. 14
SECTION 6.8. Severability................................................ 14
SECTION 6.9. Consent to Jurisdiction..................................... 14
SECTION 6.10. Counterparts................................................ 14
</TABLE>
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SHAREHOLDER AGREEMENT, dated as of [ ], 1999 (this
"Agreement"), by and between Whitman Corporation, a Delaware corporation
(formerly named Heartland Territories Holdings, Inc.) (the "Company"), and
PepsiCo, Inc., a North Carolina corporation (the "Shareholder").
W I T N E S S E T H:
WHEREAS, the Shareholder, the Company and the former Whitman Corporation, a
Delaware corporation ("Whitman"), have entered into a Contribution and Merger
Agreement, dated as of January 25, 1999, (the "Merger Agreement"), pursuant to
which, among other things, certain affiliates of the Shareholder are
transferring certain assets and liabilities to the Company in exchange for
shares of Common Stock, par value $0.01 per share, (the "Common Stock"), of the
Company and Whitman is being merged with and into the Company, with the Company
as the surviving corporation, and in connection therewith, the outstanding
shares of common stock of Whitman are being converted into an equal number of
shares of Common Stock of the Company (the "Merger");
WHEREAS, the execution of this Agreement upon the consummation of the
Merger (the "Closing") is a covenant of the Company and of the Shareholder in
the Merger Agreement;
WHEREAS, the Company and the Shareholder desire to establish in this
Agreement certain terms and conditions concerning the acquisition and
disposition of Voting Securities of the Company by the Shareholder, and related
provisions concerning the Shareholder's relationship with and investment in the
Company immediately following the Closing; and
WHEREAS, concurrently with the Closing, the Company and the Shareholder are
entering into a Registration Rights Agreement (the "Registration Rights
Agreement"), in the form attached to the Merger Agreement as Exhibit E.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1. Certain Definitions. In addition to other terms defined
elsewhere in this Agreement, as used in this Agreement, the following terms
shall have the meanings ascribed to them below:
"Affiliate" shall mean, with respect to any person, any other person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such person. For the purposes of
this definition, "control," when used with respect to any particular person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" shall have the meaning assigned to such term in the
introduction hereto.
"Beneficial Owner" (and, with correlative meanings, "Beneficially Own" and
"Beneficial Ownership") of any interest means a Person who, together with his or
its Affiliates, is or may be deemed a beneficial owner of such interest for
purposes of Rule 13d-3 or 13d-5 under the Exchange Act, or who, together with
his or its Affiliates, has the right to become such a beneficial owner of such
interest (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or
upon the exercise, conversion or exchange of any warrant, right or other
instrument, or otherwise; provided that a Person shall not be deemed the
Beneficial Owner of Voting Securities solely as a result of having been granted
a revocable proxy relating to such Voting Securities in connection with any one
special or annual meeting of shareholders of the Company (including any
postponements or adjournments thereof).
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"Board" shall mean the Board of Directors of the Company in office at the
applicable time, as elected in accordance with the By-Laws.
"Buy-Back Offer" shall have the meaning set forth in Section 3.2 of this
Agreement.
"By-Laws" shall mean the by-laws of the Company, in the form specified in
the Merger Agreement and attached thereto as Annex III, as they may be amended
from time to time.
"Charter" shall mean the Certificate of Incorporation of the Company, in
the form specified in the Merger Agreement and attached thereto as Annex II, as
it may be amended from time to time.
"Closing" shall have the meaning assigned in the second recital of this
Agreement.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall have the meaning assigned in the first recital of this
Agreement.
"Company" shall have the meaning assigned in the introduction of this
Agreement.
"Director" shall mean any member of the Board of Directors of the Company
in office at the applicable time, as elected in accordance with the provisions
of the By-Laws.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Independent Director" shall mean any person who is both (i) independent of
and otherwise unaffiliated with any member of the Shareholder Group, and who is
not a director, officer, employee, consultant or advisor (financial, legal or
other) of any member of the Shareholder Group and has not served in any such
capacity in the previous two (2) years and (ii) not an officer or employee,
consultant or advisor (financial, legal or other) of Whitman or the Company and
has not served in any such capacity in the previous two (2) years.
"Maximum Ownership Percentage" shall mean, calculated at a particular point
in time, a Total Ownership Percentage of 49.0%; provided that in the event of a
Permitted Acquisition which results in the Shareholder Group's Total Ownership
Percentage exceeding 49.0%, the Maximum Ownership Percentage shall become the
Shareholder Group's Total Ownership Percentage giving effect to such Permitted
Acquisition.
"Merger" shall have the meaning set forth in the first recital of this
Agreement.
"Merger Agreement" shall have the meaning set forth in the first recital of
this Agreement.
"Minimum Price" shall mean the highest average of per share closing prices
on the NYSE Composite Tape of the Voting Securities (or, if the Voting
Securities are not quoted on the NYSE Composite Tape, on the principal United
States securities exchange registered under the Exchange Act on which such
Voting Securities are listed, or, if such Voting Securities are not listed on
any such exchange, the closing sale price or bid quotation with respect to such
Voting Securities on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use; provided, however, if no
such quotations are available with respect to such Voting Securities, the price
of such Voting Securities shall be the public market trading value as determined
by an investment banker of nationally recognized reputation selected by the
Independent Directors) over any 20 consecutive trading day period during the 18
month period preceding the date of the first public announcement of a
Shareholder Offer.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Permitted Acquisition" shall mean the acquisition of Voting Securities
pursuant to (1) a transaction or series of transactions that would not result,
individually or in the aggregate, in any member of the Shareholder Group, singly
or as part of a partnership, limited partnership, syndicate or other 13D Group,
directly or indirectly, acquiring, proposing to acquire, or publicly announcing
or otherwise disclosing an intention to propose to acquire, or offering or
agreeing to acquire, by purchase or otherwise, Beneficial Ownership of any
Security so as to cause the Shareholder Group's Total Ownership Percentage to
exceed the Maximum Ownership Percentage, (2) a Shareholder Offer at a price
which is not less than the Minimum Price, (3) a merger or other business
combination approved by a majority of the Voting Power attributable to Voting
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Securities not Beneficially Owned by the Shareholder Group, (4) a transaction
approved by a majority of the Independent Directors. For purposes of this
definition, the value of any securities offered in exchange for Voting
Securities pursuant to a Shareholder Offer shall be the average of closing
prices on the NYSE Composite Tape of such securities (or, if such securities are
not quoted on the NYSE Composite Tape, on the principal United States securities
exchange registered under the Exchange Act on which such securities are listed,
or, if such securities are not listed on any such exchange, the closing sale
price or bid quotation with respect to such security on the National Association
of Securities Dealers, Inc. Automated Quotations System or any system then in
use; provided, however, if no such quotations are available with respect to such
securities, the price of such securities shall be the public market trading
value as determined by an investment banker of nationally recognized reputation
selected by the Independent Directors) over the five consecutive trading day
period preceding the date of the first public announcement of such Shareholder
Offer.
"Permitted Significant Transferee" shall have the meaning set forth in
Section 3.4 of this Agreement.
"Person" shall mean any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or department or
agency of a government.
"Registration Rights Agreement" shall have the meaning assigned in the
third recital of this Agreement.
"Repurchase" shall have the meaning set forth in Section 3.2 of this
Agreement.
"Rights Agreement" shall mean the Shareholder Rights Agreement, dated as of
the date of the Closing, attached to the Merger Agreement as Annex V.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholder" shall have the meaning assigned in the introduction to this
Agreement.
"Shareholder Affiliate" shall mean any Affiliate of the Shareholder (other
than the Company or its subsidiaries).
"Shareholder Group" shall mean the Shareholder, any Shareholder Affiliate,
any Permitted Significant Transferee and any Person with whom the Shareholder,
any Shareholder Affiliate or any Permitted Significant Transferee is part of a
13D Group.
"Shareholder Offer" shall mean (i) a tender offer or exchange offer by any
member of the Shareholder Group for all Voting Securities not Beneficially Owned
by the Shareholder Group or (ii) a merger or other business combination pursuant
to which all Voting Securities not Beneficially Owned by the Shareholder Group
are proposed to be exchanged or converted.
"Significant Transferee" shall mean a transferee which would have a Total
Ownership Percentage of greater than 20% after giving effect to any proposed
Transfer.
"13D Group" shall mean any group of Persons acquiring, holding, voting or
disposing of any Voting Security which would be required under Section 13(d) of
the Exchange Act and the rules and regulations thereunder to file a statement on
Schedule 13D with the Commission as a "person" within the meaning of Section
13(d)(3) of the Exchange Act; provided that a Person shall not be deemed to be
part of a 13D Group with another Person solely as a result of having been
granted a revocable proxy relating to such Person's Voting Securities in
connection with any one special or annual meeting of shareholders of the Company
(including any postponements or adjournments thereof).
"Total Ownership Percentage" shall mean, calculated at a particular point
in time, the Voting Power represented by the Voting Securities Beneficially
Owned by the Person whose Total Ownership Percentage is being determined.
"Total Voting Power" shall mean, calculated at a particular point in time,
the aggregate Votes represented by all then outstanding Voting Securities.
"Trading Day", with respect to a Voting Security, shall mean a day on which
the principal national securities exchange on which such Voting Security is
listed or admitted to trading is open for the transaction of
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business or, if such security is not listed or admitted to trading on any
national securities exchange, any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York are authorized or obligated
to close.
"Transfer" shall mean any sale, transfer, pledge, encumbrance or other
disposition to any Person, and to "Transfer" shall mean to sell, transfer,
pledge, encumber or otherwise dispose of to any Person.
"Votes" shall mean votes entitled to be cast generally in the election of
Directors, assuming the conversion of any securities then convertible into
Common Stock or shares of any other class of capital stock of the Company then
entitled to vote generally in the election of Directors.
"Voting Power" shall mean, calculated at a particular point in time, the
ratio, expressed as a percentage, of (a) the Votes represented by the Voting
Securities with respect to which the Voting Power is being determined to (b)
Total Voting Power.
"Voting Securities" shall mean the Common Stock and shares of any other
class of capital stock of the Company then entitled to vote generally in the
election of Directors and any securities then convertible into Common Stock or
shares of any other class of capital stock of the Company then entitled to vote
generally in the election of Directors.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Company. The Company
represents and warrants to the Shareholder as of the date hereof as follows:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware and
has all necessary corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder.
(b) This Agreement has been duly and validly authorized by the Company
and all necessary and appropriate action has been taken by the Company to
execute and deliver this Agreement and to perform its obligations
hereunder.
(c) This Agreement has been duly executed and delivered by the Company
and assuming due authorization and valid execution and delivery the
Shareholder, this Agreement is a valid and binding obligation of the
Company, enforceable against it in accordance with its terms.
SECTION 2.2. Representations and Warranties of the Shareholder. The
Shareholder represents and warrants to the Company as of the date hereof as
follows:
(a) The Shareholder has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of North
Carolina and has all necessary corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder.
(b) This Agreement has been duly and validly authorized by the
Shareholder and all necessary and appropriate action has been taken by the
Shareholder to execute and deliver this Agreement and to perform its
obligations hereunder.
(c) This Agreement has been duly executed and delivered by the
Shareholder and assuming due authorization and valid execution and delivery
the Company, this Agreement is a valid and binding obligation of the
Shareholder, enforceable against it in accordance with its terms.
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ARTICLE III
SHAREHOLDER AND COMPANY CONDUCT
SECTION 3.1. Acquisition of Voting Securities. Subject to the provisions
of this Agreement, during the term of this Agreement, the Shareholder agrees
with the Company that, without the prior approval of a majority of the
Independent Directors, the Shareholder will not, and will cause each member of
the Shareholder Group not to, take any of the following actions:
(a) singly or as part of a partnership, limited partnership, syndicate
or other 13D Group, directly or indirectly, acquire, propose to acquire, or
publicly announce or otherwise disclose an intention to propose to acquire,
or offer or agree to acquire, by purchase or otherwise, Beneficial
Ownership of any Voting Security so as to cause the Shareholder Group's
Total Ownership Percentage to exceed the Maximum Ownership Percentage,
other than pursuant to a Permitted Acquisition;
(b) form, join or in any way participate in a 13D Group with respect
to any Voting Securities of the Company or any securities of its
subsidiaries if such 13D Group's Total Ownership Percentage would exceed
the Maximum Ownership Percentage;
(c) initiate (including by means of proposing or publicly announcing
or otherwise disclosing an intention to propose, solicit, offer, seek to
effect or negotiate) a merger, acquisition or other business combination
transaction relating to the Company (other than a merger, acquisition or
business combination of a third party (not a member of the Shareholder
Group) with the Company) which would not be, if consummated, a Permitted
Acquisition.
The Shareholder Group shall not be prohibited by the terms of this
Agreement from taking any action or exercising any right which is not
inconsistent with the terms of this Agreement, including soliciting or obtaining
the revocable proxy of any other shareholder of the Company with respect to the
election of directors or any other matter, seeking the election of new
directors, calling special meetings of shareholders of the Company, making
shareholder proposals, engaging in discussions with the Board or the management
of the Company or otherwise voting its Voting Securities in any manner in which
any member of the Shareholder Group shall determine in its sole discretion. In
addition, this section shall not be deemed to restrict Directors affiliated with
the Shareholder from participating as Board members in the direction of the
Company.
SECTION 3.2. Required Reduction of Ownership Percentage. (a) If at any
time the Shareholder becomes aware that the Shareholder Group's Total Ownership
Percentage exceeds the Maximum Ownership Percentage, other than as permitted
pursuant to the terms of this Agreement, then the Shareholder shall, or shall
cause the Shareholder Group to, consistent with the provisions of Section 3.4 of
this Agreement, promptly (in any event, prior to the earliest to occur of (i)
the record date for the next annual or special meeting of shareholders of the
Company, (ii) the record date for the taking of any action of shareholders of
the Company by written consent or (iii) the purchase of any additional Voting
Securities by any member of the Shareholder Group) take all action necessary to
reduce the amount of Voting Securities Beneficially Owned by the Shareholder
Group such that the Shareholder Group's Total Ownership Percentage is not
greater than the Maximum Ownership Percentage.
(b) During the term of this Agreement, if the Company purchases shares of
Common Stock from the public, whether by tender offer, open market purchase or
otherwise (a "Repurchase"), the Company shall contemporaneously with the
Repurchase offer to purchase from the Shareholder Group, on the same terms and
conditions, including price, as in the Repurchase, a percentage of those shares
of Common Stock Beneficially Owned by the Shareholder Group equal to the
percentage of shares of Common Stock to be Repurchased from the Beneficial
Owners of shares of Common Stock other than the Shareholder Group (the "Buy-Back
Offer"). The Company shall provide notice to the Shareholder of its intention to
engage in a Repurchase and of the mechanism by which the Repurchase shall occur
not less than thirty (30) days in advance of the date on which the Repurchase is
to be consummated, and the Shareholder shall provide notice to the Company
within ten (10) days of receipt of such notice of whether the Stockholder Group
intends to accept the Buy-Back Offer.
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SECTION 3.3. Top-Up Rights. During the term of this Agreement, if the
Shareholder Group's Total Ownership Percentage is below the Maximum Ownership
Percentage, the Shareholder Group may at its option purchase Voting Securities
from time to time in the open market or otherwise in an amount not in excess of
the amount that would cause the Shareholder Group's Total Ownership Percentage
to exceed the Maximum Ownership Percentage.
SECTION 3.4. Transfer. Except for any requirements of the Securities Act
applicable to such Transfer, each of the members of the Shareholder Group may
Transfer any of the Voting Securities Beneficially Owned by such member of the
Shareholder Group to any transferee which is not a Significant Transferee
without restriction, and may effect such a Transfer to a Significant Transferee
with the prior written consent of a majority of the Independent Directors;
provided, however, that each of such members of the Shareholder Group may
Transfer any of such Voting Securities to any Significant Transferee without
restriction (other than as contemplated in the last sentence of this Section
3.4) or obtaining such consent if, at the time of such Transfer, the Shareholder
Group Beneficially Owns at least 20% of the outstanding voting securities of
such Significant Transferee and no other Person Beneficially Owns a greater
percentage of the outstanding voting securities of such Significant Transferee
than the percentage owned by the Shareholder Group (a "Permitted Significant
Transferee"). The Shareholder Group shall obtain the prior written consent of a
majority of the Independent Directors to any Transfer by the Shareholder Group
of any voting securities of a Permitted Significant Transferee if, at the time
of such Transfer, such Permitted Significant Transferee has a Total Ownership
Percentage of greater than 20% and such Transfer would result in (x) the
Shareholder Group Beneficially Owning less than 20% of the outstanding voting
securities of such Permitted Significant Transferee or (y) any other Person
Beneficially Owning a greater percentage of the outstanding voting securities of
such Permitted Significant Transferee than the percentage Beneficially Owned by
the Shareholder Group after giving effect to such Transfer. Notwithstanding the
foregoing provisions of this Section 3.4, none of the restrictions of this
Section 3.4 shall apply to (i) a Transfer by any member of the Shareholder Group
of any of the Voting Securities in a public offering pursuant to which
reasonable efforts are made to achieve a wide distribution of such Voting
Securities or (ii) a Transfer of Voting Securities among members of the
Shareholder Group, provided that any such transferee shall agree with the
Company in writing prior to each such Transfer to be bound by the terms of this
Agreement with respect to its Beneficial Ownership of Voting Securities.
SECTION 3.5. Charter and By-Laws. During the term of this Agreement the
Company shall not, and the Shareholder Group shall not and shall not facilitate
any effort to, amend, alter or repeal, or propose the amendment, alteration or
repeal of, any provision of the Charter or the By-Laws in any manner which is
inconsistent with the terms of this Agreement. If at any time during the term of
this Agreement the provisions of this Agreement shall conflict with the
provisions of the Charter or the By-Laws, the parties shall use all reasonable
efforts, consistent with their fiduciary responsibilities, to cause the
provisions of the Charter and the By-Laws to be brought into conformity with the
provisions of this Agreement.
SECTION 3.6. Rights Agreement. During the term of this Agreement, the
Company hereby agrees not to (i) amend any provision of the Rights Agreement in
any manner which is inconsistent with the terms of this Agreement or the Merger
Agreement and which adversely affects the rights of the Shareholder Group under
the terms of this Agreement or (ii) adopt any new rights agreement which is
inconsistent with the terms of this Agreement or the Merger Agreement and which
adversely affects the rights of the Shareholder Group under the terms of this
Agreement.
SECTION 3.7. Special Meetings Requested by the Stockholder;
Nominations. In the event that during the term of this Agreement the
Shareholder Group requests a special meeting of the stockholders of the Company
in accordance with the By-Laws or the Shareholder Group nominates an alternative
slate of directors to the slate proposed by the Board at any annual meeting of
stockholders of the Company in accordance with the By-Laws, the Company hereby
agrees that the Company shall not, without the Shareholder's consent, from the
date of receipt of such request for a special meeting or the date of receipt of
such nomination, as the case may be, until the adjournment of the requested
special meeting or the annual meeting, as the case may be, (i) take any action
effecting a material change in its capital structure, (ii) declare or pay a
dividend (other than any regular quarterly dividend), (iii) materially increase
the
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compensation of any executive officer or (iv) take any material action not in
the ordinary course of business; provided that this provision shall not restrict
the ability of the Company to comply with commitments entered into prior to the
date of such request.
ARTICLE IV
BOARD COMPOSITION
SECTION 4.1. Board Composition. (a) As of the Effective Time (as defined
in the Merger Agreement) of the Merger, the Board shall consist of the current
directors of Whitman (not to exceed nine (9) in number) and Robert F. Sharpe,
Jr. and Karl M. von der Heyden.
(b) Upon the first retirement, resignation or other removal from the Board
of one of the nine (9) directors of Whitman as of the date of the Merger
Agreement, whether prior to, upon or following the Effective Time (as defined in
the Merger Agreement), the Company and the Shareholder hereby agree that they
shall take appropriate action to cause the Board to consist of 10 Directors.
ARTICLE V
EFFECTIVENESS AND TERMINATION
SECTION 5.1. Effectiveness. This Agreement shall take effect immediately
upon the Closing and shall remain in effect until it is terminated pursuant to
Section 5.2 hereof.
SECTION 5.2. Termination. This Agreement shall terminate upon the
earliest to occur of the following:
(a) The Shareholder Group's Total Ownership Percentage falling below
15% at any time.
(b) Subject to the provisions of Section 5.3, the consummation of a
Permitted Acquisition pursuant to which the Shareholder Group becomes the
Beneficial Owner of not less than 75% of the Voting Power attributable to
all Voting Securities of the Company.
(c) Two (2) years from the first date on which the following two
conditions are met: (i) the Shareholder Group has become the Beneficial
Owner of more than 55% (but less than 75%) of the Voting Power attributable
to all Voting Securities of the Company and (ii) the Shareholder Group has
consummated a Shareholder Offer at a price which is not less than the
Minimum Price pursuant to which at least 10% of the Voting Power
attributable to Voting Securities not Beneficially Owned by the Shareholder
Group prior to such Shareholder Offer were acquired by the Shareholder
Group.
(d) Mutual written agreement of the Company and the Shareholder at any
time to terminate this Agreement, which termination shall occur at a time
to be fixed in such mutual agreement.
SECTION 5.3. Agreements Following Certain Acquisitions. Following the
consummation of a Permitted Acquisition pursuant to which the Shareholder Group
becomes the Beneficial Owner of not less than 75% of the Common Stock, the
Company agrees that for a period of 90 days after such Permitted Acquisition it
shall not, without the Shareholder's consent, take any action or enter into any
agreement which (i) restricts the acquisition by the Shareholder Group of any
Voting Securities, notwithstanding that such acquisition is not a Permitted
Acquisition, (ii) restricts in any manner the transfer of any such Voting
Securities by the Shareholder Group, (iii) restricts any right of the
Shareholder Group under Section 3.1(c), (iv) otherwise restricts in any manner
the ability of any member of the Shareholder Group to take any action with
respect to Voting Securities, including, in the case of clauses (i) through
(iv), amending the Rights Agreement to provide for any such restriction, (v)
effects a material change in the capital structure, (vi) declares or pays a
dividend (other than any regular quarterly dividend), (vii) materially increases
the compensation of any executive officer or (viii) is a material action not in
the ordinary course of business; provided that this provision shall not restrict
the ability of the Company to comply with commitments entered into prior to the
date of such Permitted Acquisition.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Injunctive Relief. Each party hereto acknowledges that it
would be impossible to determine the amount of damages that would result from
any breach of any of the provisions of this Agreement and that the remedy at law
for any breach, or threatened breach, of any of such provisions would likely be
inadequate and, accordingly, agrees that each other party shall, in addition to
any other rights or remedies which it may have, be entitled to seek such
equitable and injunctive relief as may be available from any court of competent
jurisdiction to compel specific performance of, or restrain any party from
violating, any of such provisions. In connection with any action or proceeding
for injunctive relief, each party hereto hereby waives the claim or defense that
a remedy at law alone is adequate and agrees, to the maximum extent permitted by
law, to have each provision of this Agreement specifically enforced against him
or it, without the necessity of posting bond or other security against him or
it, and consents to the entry of injunctive relief against him or it enjoining
or restraining any breach or threatened breach of such provisions of this
Agreement.
SECTION 6.2. Successors and Assigns. This Agreement shall be binding
upon, shall inure to the benefit of and shall be enforceable by the Company and
by the Shareholder and their respective successors and permitted assigns, and no
such term or provision is for the benefit of, or intended to create any
obligations to, any other Person.
SECTION 6.3. Amendments; Waiver. (a) This Agreement may be amended only
by an agreement in writing executed by the parties hereto. Any approval of an
amendment of this Agreement upon the part of the Company shall require the
approval of a majority of the Independent Directors at a duly convened meeting
thereof.
(b) Either party may waive in whole or in part any benefit or right
provided to it under this Agreement, such waiver being effective only if
contained in a writing executed by the waiving party. No failure by any party to
insist upon the strict performance of any covenant, duty, agreement or condition
of this Agreement or to exercise any right or remedy consequent upon breach
thereof shall constitute a waiver of any such breach or of any other covenant,
duty, agreement or condition, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter. Any waiver of any benefit or right provided to the
Company under this Agreement shall require the approval of a majority of the
Board and a majority of the Independent Directors at a duly convened meeting
thereof.
SECTION 6.4. Notices. Except as otherwise provided in this Agreement, all
notices, requests, claims, demands, waivers and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
by hand, when delivered personally or by courier, three days after being
deposited in the mail (registered or certified mail, postage prepaid, return
receipt requested), or when received by facsimile transmission if promptly
confirmed by one of the foregoing means, as follows:
If to the Shareholder:
PepsiCo, Inc.
700 Anderson Hill Road
Purchase, NY 10577
Attention: General Counsel
Fax: (914) 253-3667
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Robert A. Kindler
Fax: (212) 765-1047
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<PAGE> 191
If to the Company:
Whitman Corporation
3501 Algonquin Road
Rolling Meadows, Illinois 60008
Attention: General Counsel
Fax: (847) 818-5047
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Seth A. Kaplan
Fax: (212) 403-2223
or to such other address or facsimile number as either party may, from time to
time, designate in a written notice given in a like manner.
SECTION 6.5. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to principles of conflicts of law.
SECTION 6.6. Headings. The descriptive headings of the several sections
in this Agreement are for convenience only and do not constitute a part of this
Agreement and shall not be deemed to limit or affect in any way the meaning or
interpretation of this Agreement.
SECTION 6.7. Integration. This Agreement and the other writings referred
to herein or delivered pursuant hereto which form a part hereof contain the
entire understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to its subject matter. There are no restrictions, agreements,
promises, representations, warranties, covenants or undertakings with respect to
its subject matter other than those expressly set forth or referred to herein.
SECTION 6.8. Severability. If any term or provision of this Agreement or
any application thereof shall be declared or held invalid, illegal or
unenforceable, in whole or in part, whether generally or in any particular
jurisdiction, such provision shall be deemed amended to the extent, but only to
the extent, necessary to cure such invalidity, illegality or unenforceability,
and the validity, legality and enforceability of the remaining provisions, both
generally and in every other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 6.9. Consent to Jurisdiction. In connection with any suit, claim,
action or proceeding arising out of this Agreement, the Shareholder and the
Company each hereby consent to the in personam jurisdiction of the United States
federal courts and state courts located in the State of Delaware; the
Shareholder and the Company each agree that service in the manner set forth in
Section 6.4 hereof shall be valid and sufficient for all purposes; and the
Shareholder and the Company each agree to, and irrevocably waive any objection
based on forum non conveniens or venue not to, appear in any United States
federal court or state court located in the State of Delaware.
SECTION 6.10. Counterparts. This Agreement may be executed by the parties
hereto in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company and the Shareholder have caused this
Agreement to be duly executed by their respective authorized officers as of the
date set forth at the head of this Agreement.
WHITMAN CORPORATION
By:
--------------------------------------
Name:
Title:
PEPSICO, INC. (of behalf of itself
and all of its affiliates who are
being issued shares of Whitman
Corporation in connection with the
Merger)
By:
--------------------------------------
Name:
Title:
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[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
APPENDIX E
January 25, 1999
Board of Directors
Whitman Corporation
3501 Algonquin Road
Rolling Meadows, IL 60008-3149
Members of the Board:
You have asked us to advise you with respect to the fairness from a
financial point of view to the stockholders of Whitman Corporation, a Delaware
corporation (the "Company"), of the consideration to be received by such
stockholders pursuant to the terms of the Contribution and Merger Agreement (the
"Merger Agreement") among the Company, PepsiCo, Inc., a North Carolina
corporation ("PepsiCo"), and Heartland Territories Holdings, Inc., a Delaware
corporation and a wholly owned subsidiary of PepsiCo ("Merger Sub"). The Merger
Agreement provides, among other things, that:
(1) the Company will merge with and into Merger Sub (the "Merger"),
and each outstanding share of common stock, without par value, of the
Company (the "Company Common Stock"), will be converted into one share of
common stock, without par value, of Merger Sub (the "Merger Sub Common
Stock") (the "Merger Consideration");
(2) prior to the consummation of the Merger (the "Closing"), PepsiCo
will cause (a) Pepsi-Cola Operating Company of St. Louis, Inc., Pepsi-Cola
Bottling Company of Ohio, Inc., and Pepsi-Cola Operating Company of
Chesapeake and Indianapolis, Inc. (collectively, the "Heartland
Subsidiaries") to transfer certain assets identified in the Merger
Agreement (the "Contribution") and (b) Pepsi-Cola Metropolitan Bottling
Company, Inc. to transfer the 20% equity interest in Pepsi-Cola General
Bottlers, Inc. ("PGB") not currently owned by the Company, to Merger Sub in
exchange for approximately 54 million shares of Merger Sub Common Stock and
the assumption by Merger Sub of all of the liabilities arising out of or
relating to the business of the Heartland Subsidiaries other than the
Excluded Liabilities (as defined in the Merger Agreement);
(3) at or prior to the Closing, the Company will cause its relevant
subsidiaries to sell (a) all of the outstanding shares of capital stock of
Pepsi-Cola General Bottlers of Princeton, Inc. and Pepsi-Cola General
Bottlers of Virginia, Inc. and (b) all of the outstanding limited liability
interests of Neva Holdings LLC (collectively, the "Company Subsidiaries"),
together, in each case, with certain related assets identified in the
Merger Agreement, to PepsiCo (or its designee) in exchange for an aggregate
purchase price of $137,800,000 in cash (reduced by the aggregate amount of
debt and capitalized lease obligations of the Company Subsidiaries) and the
assumption by PepsiCo of certain liabilities identified in the Merger
Agreement (collectively, the "Company Transfers"); and
(4) immediately following the Closing, PepsiCo (a) will sell (i) all
of the outstanding partnership interests in Pepsi-Cola CR SPOL s.r.o., (ii)
all of the outstanding shares of capital stock of Pepsi-Cola SR and
FOVAUROSI ASVANYVIZ ES UDIT OIT ARI RESZVENYI ARSASAG owned by PepsiCo and
(iii) all of the outstanding limited liability interests of Zrodlo Pniewy
Sp. zo.o and PepsiCo Trading Sp. zo.o owned by PepsiCo (collectively, the
"PGB Acquired Businesses" and, together with the Heartland Subsidiaries,
the "PepsiCo Subsidiaries") to PGB and (b) will cause its relevant
subsidiaries identified in the Merger Agreement to transfer certain assets
identified in the Merger Agreement to PGB (or its designee) and Globe
Transport, Inc. in exchange for an aggregate purchase price of $176 million
in cash (reduced by the aggregate amount of any debt and capitalized lease
obligations of the PGB Acquired Businesses) and the assumption by PGB of
certain liabilities identified in the Merger
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[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
Agreement (collectively, the "PepsiCo Transfers" and, together with the
Merger, the Contribution and the Company Transfers, the "Transaction").
The Merger Agreement also provides that, during the 12-month period
following the Closing, Merger Sub will repurchase, subject to certain
conditions, the lesser of (1) 16 million shares of Merger Sub Common Stock or
(2) shares of Merger Sub Common Stock having an aggregate value of $400 million.
At the Closing, (1) the Company, PepsiCo and Merger Sub will enter into a
Shareholder Agreement, substantially in the form of Annex IV to the Merger
Agreement, (2) PepsiCo and Merger Sub will enter into a Master Bottling
Agreement, a Master Fountain Syrup Agreement and an International Master
Bottling Agreement, each in substantially the form of Exhibits A, B and C,
respectively, to the Merger Agreement, and New Allied Brand Agreements in
accordance with Schedule I of the Merger Agreement, (3) PepsiCo, the Company,
Merger Sub and one or more other bottlers licensed by PepsiCo will enter into a
Services Agreement, and (4) PepsiCo and Merger Sub will enter into a
Registration Rights Agreement, an Employee Benefits Agreement and a Whitman
Transfers Employee Benefits Agreement, each in substantially the form of
Exhibits D, E-1 and E-2, respectively, to the Merger Agreement.
We have reviewed certain publicly available business and financial
information relating to the Company, the Company Subsidiaries, PGB and the
PepsiCo Subsidiaries, as well as the Shareholder Agreement, a draft dated
January 25, 1999 of the Employee Benefits Agreement, a draft dated January 22,
1999 of the Merger Agreement, drafts dated January 19, 1999 of the Master
Bottling Agreement, the International Master Bottling Agreement and the
Registration Rights Agreement and a draft dated January 12, 1999 of the Master
Fountain Syrup Agreement. We have also reviewed certain information, including
financial forecasts, relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company, the Company Subsidiaries, PGB and the
PepsiCo Subsidiaries, as well as the amount and timing of the cost savings and
related expenses and synergies that could potentially result from the
Transaction (the "Synergies") furnished to us, in each case, by management of
the Company and PepsiCo and have met with management of the Company, PGB,
PepsiCo and certain PepsiCo Subsidiaries to discuss the business and prospects
of the Company, the Company Subsidiaries, PGB and the PepsiCo Subsidiaries and,
as appropriate, the Synergies.
We have also considered certain financial and stock market data of the
Company and PepsiCo, and we have compared that data with similar data for other
publicly held companies in businesses similar to those of the Company, the
Company Subsidiaries, PGB and the PepsiCo Subsidiaries and we have considered
the financial terms of certain other business combinations and other
transactions which have recently been effected. In addition, we have considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of
management of the Company and PepsiCo as to the future financial performance of
the Company, the Company Subsidiaries, PGB and the PepsiCo Subsidiaries. We have
not made an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, any of the Company Subsidiaries, PGB
or any of the PepsiCo Subsidiaries nor have we been furnished with any such
evaluations or appraisals. In addition, we were not requested to, and did not,
solicit third party indications of interest in a possible acquisition of all or
part of the Company. We are not expressing any opinion as to what the value of
the Merger Sub Common Stock actually will be or the prices at which the Merger
Sub Common Stock will trade subsequent to the Transaction. In addition, we have
not been requested to consider, and our opinion does not in any manner address,
the Company's underlying business decision to effect the Transaction. Our
opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof.
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[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
We have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for our services, a significant portion of
which is contingent upon the consummation of the Transaction. In the past, we
have performed certain investment banking, commercial banking and financial
advisory services for the Company and PepsiCo and have received customary fees
for such services. Further, we anticipate providing certain investment and
commercial banking services to the Company and PepsiCo and/or its affiliates,
including The Pepsi Bottling Group, Inc., in the future and would expect to
receive customary fees for such services.
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of both the Company and PepsiCo for their
own accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the
Transaction, does not constitute a recommendation to any stockholder as to how
such stockholder should vote on the Transaction and is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus or
proxy statement, or in any other document used in connection with the offering
or sale of securities, nor shall this letter be used for any other purposes,
without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof and after giving effect to the other components of the Transaction,
the Merger Consideration is fair from a financial point of view to the
stockholders of the Company.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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